JPMorgan Chase has ramped up pressure on financial data and news group Bloomberg over snooping and privacy claims. These surfaced on Friday with a report that Goldman Sachs had complained about a feature of the Bloomberg data terminal that allowed reporters to see who was using its 315,000 terminals around the world (and what they were accessing). It soon emerged Bloomberg reporters were required to add to a huge database of personal and other information every time they contacted someone, especially key decision-makers.

Bloomberg management confirmed reporters could access terminal user information, but claimed it had been ended a month earlier after a complaint. JPMorgan soon let it be known it had concerns about how Bloomberg reporters had gained information during the “London Whale” trading losses story. Other clients, including central banks, led by the Feds, the US Treasury and others confirmed they had raised the subject.

This morning Reuters reported that JPMorgan, “one of the biggest customers of Bloomberg LP”, said on Wednesday it has sent a formal legal request asking the company to provide details of what bank information Bloomberg News reporters had been able to see.

JPMorgan’s move will force Bloomberg to conduct a deeper probe of the practice. It could lead to legal action if JPMorgan is unhappy with the scope or results of the investigation. Any refusal by Bloomberg could also see action escalated. And today, the Financial Times reported:

“Lawyers for JPMorgan Chase have demanded that Bloomberg hand over five years of employee logs, as the bank considers either to take legal action against the news and data group. JPMorgan wants to know which Bloomberg employees accessed data on how the bank’s staff used its financial terminals (from Bloomberg).”

Earlier, a Bank of England spokesman said:

“The protection of confidential information is vital here at the Bank. What seems to have happened at Bloomberg is reprehensible.”

In Australia, the Reserve Bank has declined to comment on whether it has approached Bloomberg over its use of any information gained from monitoring how RBA staffers use Bloomberg terminals.

Bloomberg has been running a low-key operation since the late 1990’s which competes with many of its financial services clients in some areas, especially the likes of Goldman Sachs and JPMorgan. This raises the possibility that both firms have been supplying data to Bloomberg to be used against them in trading activities.

If true, that is a horrendous conflict of interest, as well as taking revenues (however small) from those same customers who pay Bloomberg up to $US20,000 for each terminal. Deal Book reported:

“In recent years, Bloomberg has offered new ways to trade stocks, bonds and more complicated financial products, potentially taking revenue from subscribers to the ubiquitous Bloomberg desktop terminals, which contain a vast store of market data. The expansion is even leading Bloomberg to offer traditional Wall Street services like wealth management and research.”

The Post said Bloomberg has a product called Tradebook, describing it as “a profitable broker-dealer created in the late 1990s to help create additional revenues for the company”. The FT’s Alphaville blog called Tradebook a “one-stop shop for live electronic, and alternative, trade execution.” Tradebook puts Bloomberg squarely in competition with many of its bank, brooking and funds management clients who use the 315,000 terminals.

Up to last Friday, no one really had any idea Bloomberg reporters could access information about how those 315,000 terminals were being used — or that every time they talked to a Bloomberg journalist, the details of that conversation (as well as personal information) were being filed away in a central database. Bloomberg doesn’t report on itself; there are only a couple of statements from the CEO and the editor in chief on the company’s corporate website.

For many in the markets, the snooping scandal — and the lack of an adequate assurance that the information hasn’t been used in an untoward fashion — is a big worry.

Bloomberg management doesn’t seem to understand this is a real test of the company’s credibility. It could be a good thing founder Michael Bloomberg is retiring as Mayor of New York later this year. His company desperately needs him to help restore its battered reputation.