‘Whale’ loss charges for former traders at JPMorgan

US prosecutors have filed criminal charges against two former JPMorgan Chase traders alleging they falsified the bank's books to hide the bank's multibillion dollar "London whale" trading losses.

Prosecutors yesterday charged Javier Martin-Artajo and Julien Grout with conspiracy, keeping false books and records, wire fraud and making false filings with the Securities and Exchange Commission. They face years in prison if convicted.

The criminal charges are the first against individuals linked to the $6 billion (€4.5 billion) in losses incurred by JPMorgan’s chief investment office in London.

The SEC filed parallel civil charges against both traders.

Bruno Iksil, the trader nicknamed "the London whale", avoided criminal charges by striking an immunity deal with prosecutors in June in exchange for his co-operation. Mr Iksil reported to Mr Martin-Artajo and oversaw Mr Grout.

Both Mr Martin-Artajo and Mr Grout are outside the US. Their lawyers have said their clients are not fleeing the charges and have denied any wrongdoing. The case centres on how the traders valued credit derivative positions – largely illiquid securities – made by the bank’s chief investment office in London where the men worked.

Prosecutors allege that, from March until May 2012, the traders artificially inflated the value of positions “to achieve specific profit daily and month-end profit and loss objectives”.

They allegedly did this to “hide the true extent of hundreds of millions of dollars of losses in that trading portfolio”, according to an FBI affidavit included in the complaint.

JPMorgan restated its first-quarter results for net revenue by $660 million as a result of the alleged mismarking.

The bank is expected to reach settlements with authorities in the next few weeks.

Prosecutors allege that as the trading losses mounted in early 2012, Mr Martin-Artajo pressured Mr Iksil and Mr Grout to stop reporting losses in the portfolio. According to the complaint, Mr Grout shifted from valuing the portfolio at the midpoint between bid and ask prices, to a price that would reflect a higher valuation.

On March 15th, 2012, prosecutors allege, the traders hid $292 million in losses. Days later, after Mr Iksil recorded a $40 million loss in the portfolio and said the “lag” or loss could grow to $880 million, the complaint claims Mr Martin-Artajo asked him “why did you do that?” and added: “This is just what we explain tomorrow. You don’t need to explain in an email man.” -(Copyright The Financial Times Limited 2013)