Two former JPMorgan Chase & Co traders were indicted for allegedly engaging in a scheme to hide trading losses that eventually surpassed US$6.2 billion on wrong-way derivatives bets last year.
Javier Martin-Artajo, who oversaw trading strategy for the synthetic portfolio at the bank’s chief investment office in London, and Julien Grout, a trader who worked for him, were named in a federal indictment, which was unsealed on Monday in federal court in Manhattan. The US first announced charges against the men last month.
Both were charged in Monday’s indictment with five criminal counts, including conspiracy, securities fraud, filing false books and records, wire fraud and making false filings with the US Securities and Exchange Commission (SEC). The pair, along with unnamed co-conspirators, are accused of engaging in a scheme to manipulate and inflate the value of position markings in the synthetic credit portfolio (SCP).
The two “manipulated and inflated the value of position markings in the Synthetic Credit Portfolio to achieve specific daily and month-end profit and loss objectives,” the US alleged in the indictment. “In other words, they artificially increased the marked value of securities in order to hide the true extent of significant losses in that trading portfolio.”
JPMorgan has agreed to pay at least US$750 million to resolve US and UK regulatory probes of its record trading loss, people with knowledge of the negotiations said. The bank is seeking to settle as many inquiries as possible before the third quarter ends on Sept. 30, the people said, asking not to be identified because the talks are private.
Ed Little, a lawyer for Grout, and Meeta Vadher, a spokeswoman for Martin-Artajo’s lawyers, did not immediately return e-mails on Monday after regular business hours seeking comment on the indictment.
New York-based JPMorgan spokesman Joe Evangelisti declined to comment on the charges against the two men.
Martin-Artajo and Grout were named in criminal complaints filed by prosecutors in the office of Manhattan US Attorney Preet Bharara on Aug. 14 that charged them with four separate counts of conspiracy, falsifying books and records, wire fraud, false filings with the SEC. Monday’s indictment adds the securities fraud charge, which carries a maximum term of 20 years in prison.
The US said that at its most profitable point in 2009, the SCP produced more than US$1 billion in revenue for JPMorgan.
Bruno Iksil, the Frenchman at the center of the case, who became known as the London Whale because his portfolio was so large, was not named in Monday’s filing. He signed a non- prosecution agreement with the US in June, Bharara said last month. Iksil has pledged to cooperate with prosecutors as part of the deal with the US.
Martin-Artajo “engaged and directed” the scheme to enhance his apparent job performance and position at JPMorgan and eligibility for promotion and bonuses, and to “forestall a possible plan by the bank to move the synthetic credit portfolio to JPMorgan’s investment bank,” prosecutors said.
Grout was accused of participating with Martin-Artajo in the conspiracy to “curry favor with his supervisor and to enhance his apparent job performance,” the indictment said.