BackLondon Whale seen reaching deal with US to avoid prosecution
Iksil, who became known as the London Whale, won’t face charges as long as he cooperates, according to sources
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Manhattan/New York: The US may announce charges as early as Thursday related to JPMorgan Chase and Co.’s trading losses last year, a person familiar with the matter said.
Former bank employees in London have been under investigation by the US Justice Department for more than a year regarding whether they tried to conceal the losses at the largest US bank, a person familiar with the matter previously said.
JPMorgan, the largest US bank, lost more than $6.2 billion last year on a derivatives bet. The loss, first disclosed in May 2012, led to an earnings restatement, a Senate subcommittee hearing and probes by the US Securities and Exchange Commission (SEC) and UK Financial Conduct Authority.
The episode prompted JPMorgan’s board to cut chief executive officer Jamie Dimon’s pay in half.
The penalties in the US are significantly higher than in the UK, said Jeremy Summers, a lawyer at Slater and Gordon in London. People faced with the possibility of being charged here or the US have sought to be dealt with here because they are less draconian, Summers said.
Bruno Iksil, the former JPMorgan trader who became known as the London Whale because of the size of his trading book and losses, has been cooperating with the Federal Bureau of Investigation (FBI) and the Manhattan US Attorney’s Office for months in their probe of the New York-based bank’s biggest trading debacle ever, said three people with direct knowledge with the matter.
Iksil cooperating
Iksil won’t face charges as long as he cooperates and testifies, said the people, who asked not to be named because the matter wasn’t public. It still isn’t clear who may be charged, one of the people said.
Jerika Richardson, a spokeswoman for US Attorney Preet Bharara in Manhattan, declined to comment on the investigation. Jim Margolin, a spokesman for the FBI in New York, didn’t immediately respond to a phone message seeking comment on it.
Javier Martin-Artajo, a former executive who supervised Iksil’s trading strategy, and Julien Grout, a trader who helped mark Iksil’s book, are likely to be charged, the New York Times reported on 9 August. Prosecutors also are weighing penalties for the bank, including a fine and reprimand, the newspaper said in a subsequent report.
Martin-Artajo confident
Martin-Artajo has cooperated with every investigation required in the UK and is confident he will be cleared of wrongdoing when a fair reconstruction of these complex events is completed, his attorneys at Norton Rose Fulbright Llp in London said on Wednesday in a statement.
Police showed up at Grout’s home in London last week and his landlord gave them a forwarding address in the south of France, said a person with direct knowledge of the matter. A spokesman for London’s Metropolitan Police declined to comment on whether officers visited Grout’s home. A French citizen, Grout may be difficult to arrest if he’s charged because France has tougher extradition laws than the UK, the person said.
“He is not a fugitive," said Edward Little, a partner at Hughes Hubbard and Reed Llp in New York who represents Grout. “He visited the US last month with confidence he was not being indicted and moved to France to save money and look for a job. We did not expect a decision on the investigation one way or another until the fall."
Martin-Artajo is away on vacation and received no communication from any governmental regulators, including the Financial Conduct Authority in the UK with whom he has fully cooperated, which would indicate that he should not be on vacation at this time, according to the statement from his lawyers.
Attorneys for Iksil declined to comment, as did a spokesman for the bank. JPMorgan ousted all three men last year and sought to recoup some of their back pay.
Falsifying documents
The US is investigating whether the traders at JPMorgan’s chief investment office in London intentionally inflated the value of their portfolio to conceal losses, a person with knowledge of the matter has said. Federal officials are considering charges related to mismarking books and falsifying documents, the person said.
Under pressure from Martin-Artajo, Iksil and Grout in January 2012 changed how they valued their portfolio in a way that made losses look smaller, according to a report and more than 600 pages of exhibits released in March by the US Senate Permanent Subcommittee on Investigations. Grout maintained a separate spreadsheet that showed losses would have been as much as $498.7 million higher by mid-March 2012 if they used less favourable calculations, according to the panel’s report.
‘Deceptive conduct’
The Senate panel, led by Michigan Democrat Carl Levin, accused JPMorgan of hiding losses, deceiving regulators and misinforming investors. Ina Drew, who ran the chief investment office, and her head of international CIO, Achilles Macris, among other top executives, both left the bank. JPMorgan clawed back more than $100 million in pay from Drew and other managers.
The Senate panel referred its findings to the SEC and justice department in April.
Drew, 56, told lawmakers at the March hearing that she wasn’t aware of what she described as the deceptive conduct of her subordinates until after she left the bank.
Macris, 51, a former co-head of capital markets at Dresdner Kleinwort Wasserstein, recruited Martin-Artajo, whom he had known at Dresdner, to oversee CIO trading in Europe as well as global equity and credit trading.
Iksil, who joined the CIO in 2005, became the chief trader for the credit-derivatives book in January 2007. He used his portfolio to hedge against corporate-bond defaults as the US economy weakened, and it produced a profit of about $2.5 billion during the five years ended in 2011.
‘Remain calm’
Martin-Artajo and Iksil were among the highest-paid traders and managers at the bank, receiving $12.8 million and $7.3 million, respectively, for 2010. Macris was paid $17.3 million—more than Drew, who received $15 million. Dimon, 57, was paid $23 million for that year.
As daily losses ballooned in March 2012, the pressure from Martin-Artajo to report higher values mounted, according to the Senate report.
“I can’t keep this going; we do a one-off at the end of the month to remain calm," Iksil told Grout, the junior trader, in discussing a month-end price adjustment requested by Martin- Artajo, according to a transcript of a 16 March 2012 call. “I don’t know where he wants to stop, but it’s getting idiotic."
Price difference
That same day, Iksil told Grout and fellow trader Luis Buraya that the difference between the prices at which he was marking the book and market prices was $300 million and could be $1 billion by the end of the month at the pace they were going, according to the Senate report and the traders’ instant messages.
Iksil reported a year-to-date loss of $161.1 million on 16 March 2012, while the actual figure was closer to $600 million, according to Grout’s separate spreadsheet.
“I am going to be hauled over the coals," Iksil told Grout in a 23 March 2012, instant message. “You don’t lose $500M without consequences."
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