Chief investment officer quits in wake of US bank’s $2bn trading blunder with more senior executives expected to quit.
Two former employees of JPMorgan Chase have been charged with concealing the size of the investment bank’s $6bn trading loss last year.
Javier Martin-Artajo, 49, and Julien Grout, 35, and their co-conspirators were accused on Wednesday of “artificially increasing the market value of securities to hide the true extent of hundreds of millions of dollars of losses”, according to court papers filed by US prosecutors.
Martin-Artajo oversaw JPMorgan’s trading strategy in London, while Grout recorded the value of the soured investments.
The pair were charged in federal criminal complaints with conspiracy to falsify books and records, commit wire fraud and falsify Securities and Exchange Commission (SEC) filings.
They also were charged separately in an SEC civil complaint.
The SEC said the men fraudulently mismarked investments in a multibillion-dollar portfolio known as the Synthetic Credit Portfolio, a hedge against adverse credit events that began to decline in value as credit markets improved in early 2012.
From March to May 2012, following Martin-Artajo’s direction, Grout began using prices for the portfolio “deliberately chosen to minimise losses rather than represent fair value. Grout entered these marks into JPMorgan’s systems daily, and sent reports to JPMorgan management that understated the SCP’s mark-to-market losses”, the SEC said.
The two were in the middle of their mismarking scheme in April 2012 when media reports publicised the large size of the portfolio they controlled, the SEC noted.
The first trading day after the reports surfaced, the portfolio fell in value by hundreds of millions of dollars, it said.
Still, Martin-Artajo directed Grout to disclose to management only $5.7m in daily losses, a figure Grout put out but replaced later in the day with a loss of $395m, the SEC said.
In July of that year, JPMorgan announced it would restate its first quarter results for net revenue by $660m.
The SEC seeks injunctions against the two as well as unspecified fines and restitution of allegedly illicit profits they gained.
A JPMorgan spokesman declined to comment.
Deal with ‘London whale’
Lawyers for Grout and Martin-Artajo, both UK residents, did not immediately return calls for comment.
Martin-Artajo is a citizen of Spain while Grout is a citizen of France.
Martin-Artajo mainly worked in London, though he sometimes worked at JPMorgan offices in the US, including New York.
The Wall Street Journal‘s website reported that US prosecutors had reached an agreement with Bruno Iksil, a former JPMorgan trader who executed the giant trades and who was known as the “London whale”, in which he would not be criminally prosecuted for his conduct.
Iksil has agreed to fully cooperate with the investigation by US authorities as part of the deal, according to documents filed on Wednesday by the US attorney’s office quoted by the newspaper.
The “London whale” charges have engulfed JPMorgan since they were revealed last year, tarnishing the bank’s reputation as a stellar risk manager and the favourite of US legislators.