Two bankers
accused of 'creatively cooking books', with further charges over $6bn scandal
not ruled out
The Guardian, Dominic Rushe in New York and Jill Treanor, Wednesday 14 August 2013
Two former London-based traders of JP Morgan have been charged by US prosecutors in relation to the "London Whale" trading incident that cost the US bank more than $6bn (£3.9bn) last year.
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| JP Morgan Chase World HQ on Park Avenue, New York. Photograph: TIMOTHY A. CLARY/AFP/Getty Images |
Two former London-based traders of JP Morgan have been charged by US prosecutors in relation to the "London Whale" trading incident that cost the US bank more than $6bn (£3.9bn) last year.
Setting out
the state's case at a press conference in New York, the city's attorney
general, Preet Bharara – referring to JP Morgan boss Jamie Dimon's initial dismissal
of the potential losses – said: "This was not a 'tempest in a teapot', but
rather a perfect storm of individual misconduct and inadequate internal
controls."
Bharara
refused to comment on whether other JP Morgan bankers would face charges.
"The investigation remains open," he said.
Javier
Martin-Artajo and Julien Grout were charged in the southern district court of
New York with four counts of falsification of books, wire fraud and making
false statements to the US regulator the Securities and Exchange Commission.
Bruno
Iksil, the French-born trader dubbed the London Whale for his large trading
position, is not being charged, according to documents issued by the US
department of justice on Wednesday and sent to Iksil's lawyer on 20 June.
Iksil, also
nicknamed "Voldemort" by other traders because of the impact his huge
bets were having on the market, is co-operating with the US authorities as they
build their case.
His
agreement with the justice department does not exempt him from other potential
actions but officials said they would "bring the co-operation of
Iksil" to the attention of any prosecutor who might pursue him.
Bharara
alleged that as the London losses mounted the defendants began to
"creatively cook the books". By March 30, 2012, January losses of
$130m had risen to $767m. "I don't know where he [Martin-Artajo] wants to
stop, but it's idiotic," Iksil told colleagues as JP Morgan's losses began
to spiral out of control.
Lawyers for
Martin-Artajo did not update a statement issued on Tuesday night in which they
said he was "currently on a long-planned vacation and will be returning to
the UK as scheduled".
"Martin-Artajo
has co-operated with every internal and external inquiry which was required of
him in the UK. He received no communication from any governmental regulators,
including the Financial Conduct Authority in the UK with whom he has fully
co-operated, which would indicate that he should not be on vacation at this
time," said his lawyers at Norton Rose Fulbright.
"Martin-Artajo
is confident that when a complete and fair reconstruction of these complex
events is completed, he will be cleared of any wrongdoing."
Grout's
lawyers are also reported to have said he has not committed any wrongdoing.
The
prosecutors said JP Morgan had issued its results for the quarter ended 31
March 2012 on the basis of false and fraudulent information about the value of
complex credit derivatives conducted by the bank's chief investment office
(CIO).
Those
results were later restated by $660m as a result of mis-valued trading
positions, the prosecution alleges.
The
prosecutors said the CIO operation employed 100 people and that Martin-Artajo
was head of credit and equity trading, working out of London but visiting New
York. Iksil worked for him, as did Grout.
In the
allegations about Grout, the prosecutors said there was a "growing
disparity" between valuations in their trading books and what the traders
believed were the actual values.
"This
gap reached hundreds of millions of dollars by the end of March 2012,"
according to the allegations which cite email exchanges between employees.
The
prosecutors said JP Morgan later discovered that 107 of 132 trading positions were
marked in the books at more favourable prices than they should have been.
The losses
have proved embarrassing for Dimon. Once the extent of the losses emerged the
chief executive apologised. His bonus was cut in half as a result and the bank
conducted internal reviews. Its top bankers have also appeared before the US
Senate.
Dimon later
admitted that "some of these mistakes obviously scared us".
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