* Permanent Subcommittee on Investigations looking at CIO activities

* Committee is interviewing current and former JPM employees

By Emily Flitter

NEW YORK, Sept 6 (Reuters) - A U.S. Senate committee has launched a probe into JPMorgan Chase's "London Whale" trading losses, according to a source familiar with the investigation.

The Permanent Subcommittee on Investigations, chaired by Senator Carl Levin, is interviewing current and former employees of JPMorgan's Chief Investment Office in connection with the bank's $5.8 billion loss on trades in an obscure corner of the credit market, according to the source.

A spokeswoman for the committee declined to comment.

JPMorgan's losses stemmed from bets by London-based CIO trader Bruno Iksil on an index for credit default swaps. His outsized positions earned him the nickname "London Whale" from the hedge fund traders taking the other sides of his positions.

An internal investigation by the bank revealed the possibility that the trades may have been deliberately mismarked in JPMorgan's books to make the losses look smaller.

On Thursday, JPMorgan named Craig Delany as the new head of the chief investment office, filling a role that had been vacant for over three months after his predecessor, Ina Drew, and other executives and traders from the CIO resigned.

Federal investigators and the Securities and Exchange Commission are looking into whether anyone involved in the incident committed a crime.

So far, seven current and former JPMorgan employees have hired lawyers to help them navigate the investigations. The bank's internal probe is ongoing.

"At a time when questions are regularly being asked as to why more prosecutions are not being brought against financial institutions, the Senate Committee obviously thinks it has an important role to play in exploring these matters," said Daniel Richman, a professor at Columbia Law School.

Levin's committee has examined other big banks' behavior in the past and issued reports that have become part of the foundation for new financial regulation.

"This subcommittee has no legislative jurisdiction, but it has formidable clout," said Karen Shaw-Petrou, co-founder of Federal Financial Analytics in Washington.

"It can't move legislation, but it can change public opinion in ways that force the hand of both other Senators and, even if Congress is stymied, regulators. A clear case in point is the subcommittee's recent hearing on HSBC, which is having far-reaching impact on enforcement actions related to Iran sanctions," she added.

Paul Miller, managing director at FBR in Washington, said he thought the investigation would in the end have little impact, and that the events that prompted it did not warrant so much attention.

"This never put JPMorgan in a failure mode, it was contained," he said of the losses on the CIO desk.

"This is overkill. The stock has been punished; (JPMorgan CEO) Jamie Dimon's reputation has been tarnished."

The probe by Levin's committee was first reported by Bloomberg news.

Also on HuffPost:

See below for Jamie Dimon hates on regulation: A history
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  • Trading Loss 'Puts Egg On Our Face'

    Dimon said JPMorgan Chase's unexpected $2 billion loss on credit trades in May "<a href="http://www.huffingtonpost.com/2012/05/10/jpmorgan-chase-london-whale_n_1507662.html?ref=business" target="_hplink">puts egg on our face, and we deserve any criticism we get</a>."

  • Regulation 'The Nail In Our Coffin'

    In March 2011, Dimon expressed his fear over new regulations, warning that higher capital requirements would be "pretty much the nail in our coffin for big American banks," according to the <a href="http://www.ft.com/intl/cms/s/0/3157bcbe-5b05-11e0-a290-00144feab49a.html?ftcamp=rss#axzz1IB5kVGLG" target="_hplink">Financial Times</a>.

  • Losing Liquidity

    Warning that limiting proprietary trading would also affect market making, <a href="http://www.cnbc.com/id/45986077/Jamie_Dimon_Regulators_Undermining_Economic_Objectives" target="_hplink">Dimon was quoted by CNBC</a>, "The United States has...the most liquid [capital markets in the world]. If you lose liquidity because you lose market making, you cost investors money."

  • 'Little To Do With Financial Crisis'

    "Proprietary trading had very little to do with the financial crisis," <a href="http://www.gurufocus.com/news/159099/interview--jpmorgan-ceo-jamie-dimon-on-regulation-volcker-rule-some-of-the-global-regulations-are-unamerican)" target="_hplink">Dimon told FOX Business Network Senior Correspondent Charlie Gasparino</a> in January, adding that "you can't even make markets for your clients" with the Volcker Rule.

  • Volcker 'Doesn't Understand'

    "Paul Volcker by his own admission has said he doesn't understand capital markets," <a href="http://dealbook.nytimes.com/2012/04/06/what-volcker-rule-could-mean-for-jpmorgans-big-trades" target="_hplink">Dimon told FOX Business.</a> "He has proven that to me."

  • Volcker Rule Too Narrow

    in February, Dimon asserted the Volcker Rule had been written too narrowly. "If you want to be trading, you have to have a lawyer and a psychiatrist sitting next to you determining what was your intent every time you did something," he was quoted as saying in <a href="http://news.businessweek.com/article.asp?documentKey=1377-aIjS6U8zr2Z8-1PEFKF7I5P2SI88Q43D587IV8L" target="_hplink">Businessweek</a>.