Photographer: Simon Dawson/Bloomberg

London Whale Prosecution Falls Apart as U.S. Drops Charges

Updated on
  • Government seeks to dismiss case against Martin-Artajo, Grout
  • Prosecution hindered by challenges getting them to the U.S.

The U.S. is dropping charges against two former JPMorgan Chase & Co. traders accused of hiding more than $6.2 billion in trading losses on wrong-way derivative bets five years ago.

It’s a blow to prosecutors who have spent years trying to get Javier Martin-Artajo and Julien Grout to come to New York from their home countries of Spain and France, respectively. And long after defense attorneys argued the government shouldn’t depend on the testimony of Bruno Iksil, the Frenchman at the center of the case who was dubbed the “London Whale,” prosecutors agreed.

“Based on a review of recent statements and writings made by Iksil,” prosecutors said in a brief statement late Friday, “the government no longer believes that it can rely on the testimony of Iksil in prosecuting this case, even if the defendants appeared.”

Martin-Artajo, who oversaw trading strategy for the synthetic portfolio at the bank’s chief investment office in London, and Grout, a trader who worked for him, were accused of scheming to inflate the value of position markings. They faced as long as 20 years in prison if convicted of securities fraud, the most serious charge. A judge will have to approve the prosecutors’ request to end a case that they had announced to great fanfare four years ago.

In a deposition in a related case filed by the U.S. Securities and Exchange Commission, Iksil disclosed he had written a 400-page memoir of the case. At a hearing in February, Edward Little, a lawyer for Grout, told the judge that Iksil claimed there was no fraud and if there were, it was committed by higher-ups.

Click here for more on the London Whale case

When Iksil’s bad bets on derivatives were exposed, authorities on two continents opened investigations into JPMorgan’s controls and disclosures. The bank agreed to pay more than $1 billion to resolve U.S. and U.K. probes of its record trading loss. Joe Evangelisti, a spokesman for the bank, declined to comment on the prosecutor’s decision.

“Julien Grout is absolutely thrilled that after four long years the government decided to do the right thing,” Little said. “We thank them for their professionalism.”

William Leone, a lawyer for Martin-Artajo, declined to comment.

Iksil was not charged after signing a non-prosecution agreement with prosecutors. He pledged to cooperate with the U.S. investigation as part of his deal. In a letter to Bloomberg in February 2016, Iksil claimed he was told to pursue the failed trading strategy by managers in the bank’s chief investment office and that he shouldn’t be held responsible.

Extradition Challenges

A Spanish court in 2015 ruled against U.S. attempts to extradite Martin-Artajo. Prosecutors didn’t seek to have Grout extradited because as a Frenchman in France, they concluded it would be “futile,” according to Friday’s statement. In one notorious case, U.S. authorities have spent years trying to get Roman Polanski, the film director, to return from France, where he fled in 1978 after pleading guilty to statutory rape charges.

It’s rare for prosecutors in New York to dismiss charges in white-collar crime cases. They did so in several recent insider-trading prosecutions after an appeals court decision made it harder for the government to prove its case. In 2009, they dropped a fraud indictment against David Stockman, the former budget director in the Reagan administration, after reevaluating the evidence against him.

The case is U.S. v. Martin-Artajo, 13-cr-00707, U.S. District Court, Southern District of New York (Manhattan)

(Updates with comment from Grout’s lawyer in seventh paragraph.)
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