Two Men Face Criminal Charges for ‘London Whale’ $6B Trading Loss

Aug 14, 2013 4:35pm
GTY london whale jp morgan tk 130814 16x9 608 Two Men Face Criminal Charges for London Whale $6B Trading Loss

(Credit: Bloomberg via Getty Images)

Two investment bankers face criminal charges of wire fraud and conspiracy following the $6 billion trading loss at JPMorgan Chase in 2012, U.S. authorities announced today.

The loss stemmed from bad bets by one of the bank’s units in London, but federal prosecutors in New York accused two former JPMorgan employees of making false filings and hiding losses.

The episode resulted in a Congressional hearing and a pay cut for CEO Jamie Dimon in half to $11.5 million.

Javier Martin-Artajo, who supervised so-called London Whale Bruno Iksil, who made the bad trades, and Julien Grout, who allegedly helped cook Iksil’s books, were charged.  Neither is in custody.  Iksil is cooperating with the FBI and will not face charges assuming he continues to do so.

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The loss, though staggering, did not put JPMorgan or taxpayer money at risk, but a source familiar with the case says the bank played a “risky game” and flaunted the rules of compliance.  Prosecutors discussed the charges during a news conference, issuing a warning to those who manipulate the financial markets.

“The complaints tell a story of a group of traders who got in over their heads, and to get out, doubled down on a series of risky positions,” FBI Assistant Director George Venizelos said in a statement. ”In the first quarter of 2012, boom turned to bust, as the defendants, concerned about losing control to other traders at the bank, fudged the numbers on their daily book, and in some cases completely made them up. It brought a whole new meaning to cooking the books.”

Attorney General Eric Holder and the U.S. Attorney for the Southern District of New York say the defendants hid more than half a billion dollars in losses resulting from derivatives trading in JPMorgan’s chief investment office.

Former chief investment officer Ina Drew resigned last year.

“Our financial system has been hurt in recent years not just by risky bets gone bad, but also, in some cases, by criminal wrongdoing,” Holder said. “We will not stop pursuing those who violate the public trust and compromise the integrity of our markets.”

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