The U.S. may announce charges as early as this week against former London-based JPMorgan Chase & Co. (JPM) 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 charged, said the person, who requested anonymity because the information wasn’t public. Those facing U.S. charges include Javier Martin-Artajo, a former executive who oversaw the trading strategy, and Julien Grout, a trader who worked for him, the New York Times (NYT) reported Aug. 9. Prosecutors also are weighing penalties for the bank, including a fine and a reprimand, the newspaper said in a subsequent report.
The investigation has centered on whether employees at JPMorgan’s chief investment office 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.
Police showed up at Grout’s home in London last week and his landlord gave them his forwarding address in the south of France, according to a person with direct knowledge of the matter. A spokesman for London’s Metropolitan Police declined to comment. A French citizen, Grout may be difficult to arrest if he’s charged because France has tougher extradition laws than the U.K., the person said.
“He is not a fugitive,” said Edward Little, a partner at Hughes Hubbard & Reed LLP in New York who is representing Grout. “He visited the U.S. 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, a Spaniard, is away with his family, according to his next-door neighbor in Chipping Norton, England, who declined to give his name. Attorneys for Martin-Artajo didn’t respond to calls and e-mails seeking comment.
JPMorgan slipped 72 cents, or 1.3 percent, to $53.80 at 9:40 a.m. in New York today, down from its $54.52 close in New York on Aug. 9.
The bank first disclosed losses at its London office 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 caused more than $6.2 billion of losses for the company.
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 largest trading blunder for the New York-based bank led to the departure and reassignment of several senior executives and a 50 percent reduction in Dimon’s pay.
JPMorgan sued Martin-Artajo in a London court in October, without detailing its complaint in filings, following his departure from the bank. That lawsuit has been settled, a person with direct knowledge of the case said in January.
The U.S. 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 Aug. 8 that Iksil won’t face charges.
An attorney for Iksil declined to comment on the probe to Bloomberg News, as did a spokesman for JPMorgan in New York.
Jerika Richardson, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, and Peter Donald at the FBI’s New York office also declined to comment on the probe. Richardson didn’t immediately respond to an e-mail late yesterday on possible action against the bank.
JPMorgan is negotiating the final terms of a deal with the U.S. 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. In addition to a fine and reprimand, federal prosecutors could force the bank to bolster internal controls, the New York Times reported.
The U.K.’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.
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 $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 $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.
The FBI and the SEC have been scrutinizing 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 (CSGN) 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.
To contact the reporters on this story: Patricia Hurtado in federal court in New York at firstname.lastname@example.org; Keri Geiger in New York at email@example.com; Dawn Kopecki in New York at firstname.lastname@example.org