Hunted: Who will pay the price for the London Whales £6bn loss?

Threat of criminal action against  ex-employees over botched trades puts new pressure on humbled JP Morgan

The botched derivatives trades that saddled JP Morgan with losses in excess of $6bn (£4bn) last year have already triggered the departure of a clutch of top employees, sparked questions from shareholders, regulators and Congress, and led the bank’s board to slash Jamie Dimon’s pay for 2012, cutting the powerful chief executive’s compensation by half.

Now prosecutors investigating the “London Whale” trades, named as such after the market moniker for Bruno Iksil, the London-based trader at the centre of the affair, are considering criminal charges against two of the bank’s former employees.

The possibility of criminal action against Javier Martin-Artajo, Mr Iksil’s supervisor when he placed the ill-fated bets, and Julien Grout, a former junior trader at the bank’s London office, comes against the backdrop of settlement talks between the giant American bank and the US Securities and Exchange Commission as the regulator wraps up a separate investigation into the trades.

The SEC is said to be pressing for an admission of wrongdoing by the bank, an unusually assertive stance for a regulator that has come under fire for being too lax on Wall Street’s biggest players. Nonetheless, the bank is widely expected to reach an agreement, possibly one that includes a fine, with the watchdog later this year.

But any arrests in the criminal case will ensure that it will have a tough time moving on from the affair, as such action would keep the “London Whale” in the headlines for months to come. It could also renew questions about management practices and oversight at the bank, which just last week revealed that, in a separate and unrelated case, government lawyers were looking into the way it sold certain mortgage-backed securities in the run-up to the financial crisis.

In the Whale case, although none of the bank’s current executives or Mr Iksil are believed to be in prosecutors’ crosshairs, arrests would lead to a fresh examination of the circumstances surrounding the losses, as the authorities try to establish the culpability of Mr Martin-Artajo and Mr Grout.

The two former employees are likely to be accused of trying to mask the size of the losses stemming from the botched trades. While the specific charges remain unclear, prosecutors are said to be focusing on whether the ex-traders falsified records to understate the losses to senior bank executives in the US. Mr Iksil is reported to be co-operating with prosecutors as they prepare their case. A decision on whether or not to press charges against Mr Martin-Artajo and Mr Grout could be taken as early as this week.

Earlier this year a 300-page US Senate report into the trades found that the bank had hidden “massive losses” in its synthetic credit portfolio for “several months” last year by allowing its chief investment office, the division where Mr Iksil, Mr Martin-Artajo and Mr Grout worked, to “overstate the value of its credit derivatives”. 

At the time Democrat Senator Carl Levin said: “The Whale Trades demonstrate how derivative valuation practices can be manipulated to hide losses, and how derivative risk controls can be bypassed or manipulated to conceal risk.”

The Republican lawmaker John McCain also spoke of efforts to mask the losses, saying: “JP Morgan gambled away billions of dollars through risky and exotic trades, then intentionally hid its losses from investors and the public, showing complete disregard for risk management procedures and regulatory oversight.”

To succeed in a case against the former employees, prosecutors will have to show that Mr Martin-Artajo and Mr Grout knowingly lowballed the losses, something that will be hard to prove given the lack of transparent pricing in the kinds of derivatives contracts at the centre of the case.  They are likely to draw on internal communication records of instant messages and email conversations between the two men and Mr Iksil. The head of the division where the losses occurred, Ina Drew, who was based in New York as JP Morgan’s chief investment officer and considered one of the most powerful women on Wall Street, resigned from the company soon after the botched trades came to light.

As a first step, however, Mr Martin-Artajo and Mr Grout would have to be extradited to the US. Although both were based in London at the time of the losses, Mr Grout has since moved to his native France, where extradition is likely to prove a challenge for US prosecutors. His lawyer, Edward Little, said that, contrary to suggestions that his client might have moved to France to avoid prosecution, Mr Grout stopped working for JP Morgan in December and left the UK after failing to find another job in London.

“London’s an expensive place,” Mr Little told The Independent, adding that Mr Grout was not anticipating any charges when he decided to move and was vacationing in the US as recently as last month.

“He had already moved all his belongings to France two months ago,” Mr Little, a specialist in white-collar case defences at the New York law firm Hughes Hubbard & Reed, added.

A lawyer for Mr Martin-Artajo, who is Spanish, could not be reached yesterday, but Bloomberg cited his neighbour in Chipping Norton, Oxfordshire, as saying that he is currently away with his family.

A spokesman for JP Morgan declined to comment on both the settlement talks with the SEC and the possibility of arrests in the criminal investigation.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Life and Style
life
Arts and Entertainment
Cold case: Aaron McCusker and Christopher Eccleston in ‘Fortitude’
tvReview: Sky Atlantic's ambitious new series Fortitude has begun with a feature-length special
Voices
Three people wearing masks depicting Ed Miliband, David Cameron and Nick Clegg
voicesPolitics is in the gutter – but there is an alternative, says Nigel Farage
Voices
The veterans Mark Hayward, Hugh Thompson and Sean Staines (back) with Grayson Perry (front left) and Evgeny Lebedev
charity appealMaverick artist Grayson Perry backs our campaign
News
i100
News
people
ebooks
ebooksA special investigation by Andy McSmith
Sport
Chelsea manager Jose Mourinho
footballThe more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Life and Style
Vote green: Benoit Berenger at The Duke of Cambridge in London's Islington
food + drinkBanishes thoughts of soggy school dinners and turn over a new leaf
News
Joel Grey (left) poses next to a poster featuring his character in the film
peopleActor Joel Grey comes out at 82
News
i100
News
business
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee