Arrests likely in JPMorgan trading loss case

Federal authorities plan to arrest two former JPMorgan Chase & Co employees on suspicion that they tried to conceal the size of the investment bank’s $6bn trading loss last year, according to a published report.

The New York Times, citing persons briefed on the matter, reported on Friday that Javier Martin-Artajo and Julien Grout were expected to be arrested in London in coming days.

Martin-Artajo oversaw JPMorgan’s trading strategy in London, while Grout recorded the value of the soured investments, the newspaper reported.

A federal grand jury voted to indict both on criminal fraud charges, according to the report.

Federal investigators have concluded that Martin-Artajo directed Grout to falsify records and conceal more than $400m in losses from their superiors at the bank, the newspaper reported.

The charges against Martin-Artajo and Grout hinge on the cooperation of Bruno Iksil, a trader at JPMorgan in London who placed the large bets that led to the loss, according to the report.

Iksil, dubbed the London Whale, is not a target of the Justice Department or the Securities and Exchange Commission, according to a separate report in The Wall Street Journal.

The US attorney’s office in New York declined to comment late on Friday.

A call left by the Associated Press new agency with the FBI office in New York was not immediately returned.

Risk-taking concerns

The trading loss disclosed in 2012 was an embarrassment for the biggest US bank and raised concerns about risk-taking at Wall Street banks four years after the financial crisis.

Reuters news agency reported on Thursday that Iksil was cooperating with the government and would not face any charges.

His cooperation is essential to any arrest, the same sources said.

Lawyers for Martin-Artajo, Iksil and Grout did not immediately respond to Reuters requests for comment on Friday.

All three employees have since left the bank.

JPMorgan had to scramble to unwind Iksil’s derivatives positions after they came to light in April 2012, leading to the loss.

The loss highlighted the scale of the bank’s risk-taking activities and led to public outrage.

Critics said JPMorgan should not have been able to engage in such risky behaviour while it engaged in commercial banking.

Iksil and his team were employees of the bank’s chief investment office, a group of traders and strategists whose mandate to earn money through bets on exotic products increased after the 2008 financial crisis.

Mortgage-backed securities

Martin-Artajo’s boss, Achilles Macris, the chief investment officer for Europe and Asia, earned billions for the investment office, buying cut-price mortgage-backed securities in the immediate aftermath of the
crisis.

The trading losses also prompted civil and criminal investigations, and led to multiple Congressional hearings.

Around a dozen of the bank’s employees changed jobs and several, including Chief Investment Officer Ina Drew, left the firm.

JPMorgan’s board cut Dimon’s 2012 bonus and a shareholder movement to strip Dimon of his dual role as chairman of the board drew some support, though it ultimately failed.

Two JPMorgan directors left earlier this year.

The criminal investigation is focusing on whether anyone responsible for the trades tried to deliberately hide the losses them by inflating the value at which they were recorded on JPMorgan’s books at the height of the scandal, during the first half of 2012.

A source familiar with the structure of the group said Grout recorded the prices of positions on the trading book for the team.

A series of communications between Iksil, Martin-Artajo and others in the bank also show that throughout the early spring, as losses mounted in the portfolio, Iksil argued for the group to cut their losses and sell their positions, but he was ordered to keep increasing them.