Two former JPMorgan Chase & Co traders falsified bank records to try to cover up trading losses that were spiraling out of control, prosecutors said on Wednesday, in a criminal case that raises fresh questions about whether Wall Street learned its lessons from the 2008 financial crisis.
Javier Martin-Artajo, 49, and Julien Grout, 35, and their co-conspirators were accused of marking up the market value of an investment portfolio to hide the fact that it was plummeting in value. The portfolio eventually sank into an eye-popping US$6 billion loss attributed to Bruno Iksil, a trader who became known as the “London Whale” for his location and the supersized bets he made.
Preet Bharara, the Manhattan US attorney, hinted that the misconduct was not just the work of a couple of rogue traders, but was systemic in a bank that failed to keep adequate watch over its traders.
He said companies need to pay closer attention to the cultures they create.
“This was not a ‘tempest in a teapot,’ but rather a perfect storm of individual misconduct and inadequate internal controls,” Bharara said at a news conference — a jab at JPMorgan CEO Jamie Dimon, who once dismissed the controversy around the trading loss with that flip phrase.
The “London Whale” controversy has burdened the bank for months, but the new charges shift the narrative of the tale. Iksil, whose name has long been associated with the embarrassing loss, tried to raise questions about how his colleagues were recording the trades, according to prosecutors.
Prosecutors also portray bank employees as knowing exactly what they were doing, not workers simply overwhelmed by complicated systems — a defense banks have mounted for missteps in the financial crisis and its aftermath.
John Alan James, executive director of the Center for Global Governance, Reporting and Regulation at Pace University’s Lubin School of Business in New York, called the case a milestone.
“They’re shaking a big stick at the biggest bank in America,” he said.
Lawyers for Grout and Martin-Artajo, both based in London when they worked at JPMorgan, did not return calls for comment. Martin-Artajo is a citizen of Spain and Grout is a citizen of France, which could potentially complicate the prosecution.
Bharara said his office had contacted the two men’s lawyers.
“We are hopeful they will do the right thing and present themselves in the United States,” he said.
Mitchell Epner, a former federal prosecutor who is a criminal defense attorney at Wilk Auslander in New York, said Martin-Artajo and Grout might try to mount a defense by placing the blame on their superiors.
“It would be a full and complete defense here that these people were transparent” to superiors who determined what the bank said publicly, Epner said.
The “London Whale” accusations have been a heavy burden for JPMorgan, tarnishing its reputation as a stellar risk manager and the favorite of Washington lawmakers. It has been an embarrassment for a bank that is used to coming out ahead of its peers, forcing it to restate earnings and face bruising hearings in front of Congress.
Wednesday’s charges are hardly the end: The US Federal Reserve, US banking regulators and the UK Financial Conduct Authority, among others, are also looking into the trading loss.
US Senator Carl Levin, who heads a Senate subcommittee that investigated the loss and found that key JPMorgan executives made inaccurate public statements about it, hinted on Wednesday that ultimate responsibility may not end with the two London traders.
“It is important that this matter be thoroughly investigated and that all those who are determined to be responsible be held accountable,” Levin said in a statement.
SEEKING CHANGE: A hospital worker said she did not vote in previous elections, but ‘now I can see that maybe my vote can change the system and the country’ Voting closed yesterday across the Solomon Islands in the south Pacific nation’s first general election since the government switched diplomatic allegiance from Taiwan to Beijing and struck a secret security pact that has raised fears of the Chinese navy gaining a foothold in the region. The Solomon Islands’ closer relationship with China and a troubled domestic economy weighed on voters’ minds as they cast their ballots. As many as 420,000 registered voters had their say across 50 national seats. For the first time, the national vote also coincided with elections for eight of the 10 local governments. Esther Maeluma cast her vote in the
Nearly half of China’s major cities are suffering “moderate to severe” levels of subsidence, putting millions of people at risk of flooding, especially as sea levels rise, according to a study of nationwide satellite data released yesterday. The authors of the paper, published by the journal Science, found that 45 percent of China’s urban land was sinking faster than 3mm per year, with 16 percent at more than 10mm per year, driven not only by declining water tables, but also the sheer weight of the built environment. With China’s urban population already in excess of 900 million people, “even a small portion
UNSETTLING IMAGES: The scene took place in front of TV crews covering the Trump trial, with a CNN anchor calling it an ‘emotional and unbelievably disturbing moment’ A man who doused himself in an accelerant and set himself on fire outside the courthouse where former US president Donald Trump is on trial has died, police said yesterday. The New York City Police Department (NYPD) said the man was declared dead by staff at an area hospital. The man was in Collect Pond Park at about 1:30pm on Friday when he took out pamphlets espousing conspiracy theories, tossed them around, then doused himself in an accelerant and set himself on fire, officials and witnesses said. A large number of police officers were nearby when it happened. Some officers and bystanders rushed
HYPOCRISY? The Chinese Ministry of Foreign Affairs yesterday asked whether Biden was talking about China or the US when he used the word ‘xenophobic’ US President Joe Biden on Wednesday called for a hike in steel tariffs on China, accusing Beijing of cheating as he spoke at a campaign event in Pennsylvania. Biden accused China of xenophobia, too, in a speech to union members in Pittsburgh. “They’re not competing, they’re cheating. They’re cheating and we’ve seen the damage here in America,” Biden said. Chinese steel companies “don’t need to worry about making a profit because the Chinese government is subsidizing them so heavily,” he said. Biden said he had called for the US Trade Representative to triple the tariff rates for Chinese steel and aluminum if Beijing was