JPMORGAN CHASE & CO. EX-EMPLOYEES MAY BE CHARGED THAT THEY CONCEALED LOSSES LAST YEAR IN "LONDON WHALE"

JPMORGAN CHASE

The US may announce charges as early as this week against former London-based JPMorgan Chase & Co. employees related to allegations they tried to conceal losses last year, a person familiar with the matter said.
The situation remains fluid and it isn’t clear who may be arrested and charged, said the person, who asked not to be named because the information wasn’t public. The New York Times reported August 9 that those facing US charges include Javier Martin-Artajo, a former executive at the bank’s Chief Investment Office who oversaw the trading strategy, and Julien Grout, a trader who worked for him.

The investigation has centered on whether employees attempted to inflate the value of trades on the bank’s books by mismarking them, a person with knowledge of the matter said previously. Federal officials are considering charges related to mismarking books and falsifying documents, the person said. Grout, a French citizen, is in France, which may make it difficult to arrest him if he’s charged because the country has tougher extradition laws than the UK, another person familiar with the matter said. Martin-Artajo, a Spaniard, lives in London, according to another person familiar with the matter who also asked not to be named. 

‘Egregious mistakes’ 

JPMorgan first disclosed losses in its Chief Investment Office’s London unit in May 2012 after what Chief Executive Officer Jamie Dimon called “egregious mistakes” in managing credit-derivative positions. The trades by Bruno Iksil, nicknamed the London Whale because of the size of his holdings, eventually lost more than US$6.2 billion (RM20.1 billion) for the bank. Martin-Artajo was Iksil’s supervisor and Grout assisted in valuing his trading book. JPMorgan ousted all three last year and sought to recoup some of their pay.

The unit’s loss, the largest trading blunder for the New York-based bank, led to the departure and reassignment of several senior executives and to a 50 per cent reduction in Dimon’s pay. The US Justice Department and the Federal Bureau of Investigation in New York have been probing the trading loss since May 2012. Prosecutors have secured the cooperation of Iksil, a person familiar with the matter said.

Reuters reported August 8 that Iksil won’t face charges. Attorneys for Grout and Iksil declined to comment on the probe, as did a spokesman for JPMorgan in New York. An attorney for Martin-Artajo didn’t respond to calls and e-mails seeking comment.

Jerika Richardson, a spokeswoman for US Attorney Preet Bharara in Manhattan, declined to comment on the probe. Peter Donald, a spokesman for the FBI’s New York office, also declined to comment on it.

SEC negotiations

JPMorgan is negotiating the final terms of a deal with the US Securities and Exchange Commission to end its yearlong probe of the trading loss, two people briefed on the talks said last week. While the SEC may target some people involved in the trades, top executives probably won’t face claims that they lied to or misled the public, the people said. An SEC spokesman declined to comment on the matter.

The SEC may accuse the firm of failing to enact proper controls, supervise workers, escalate concerns and share information internally, one person said. The UK’s Financial Conduct Authority is continuing its own investigation into whether JPMorgan provided the regulator with enough information about the risk the bank was taking, a person briefed on the matter said last week.

A decision probably won’t come until the end of the year, the person said.

Internal report

JPMorgan released its own internal report on the trading loss in January, which found an “error prone” risk management system, traders overwhelmed by the complexity of their bets, and managers including Dimon who weren’t aggressive enough in halting the losses.

The bank still made a record US$21.3 billion in profit last year. In March, a Senate subcommittee accused JPMorgan in a 301-page report and at a hearing of hiding losses, deceiving regulators and misinforming investors. Ina Drew, who ran the CIO, and her head of international CIO, Achilles Macris, among other top executives, left the company and the bank clawed back more than US$100 million in pay from Drew and other managers.

The subcommittee, led by Michigan Democrat Carl Levin, referred its findings to the SEC and Justice Department in April. “There is reasonable cause to believe a violation of the law may have occurred,” Levin said at the time.

Scrutinizing statements

The FBI and the SEC have been scrutinising public statements, calls with investors and an April 2012 earnings presentation by Dimon and then-Chief Financial Officer Douglas Braunstein, Bloomberg News reported in June, citing five people with knowledge of the probes.

The criminal investigation has looked at, among other issues, whether London traders painted the tape, a form of market manipulation that allows them to inflate the value of their positions, three of the people said at the time. Prosecutors in Bharara’s office filed charges involving bank books and records last year against Kareem Serageldin, a former Credit Suisse Group AG investment banker.

In April, Serageldin, the ex-global head of Credit Suisse’s structured credit trading business, pleaded guilty to conspiracy, admitting to a scheme to falsify the bank’s books and records concerning the value of mortgage-backed bonds in late 2007. Serageldin, first charged in February 2012, faces as long as five years in prison. His sentencing date hasn’t been set. — Bloomberg