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Feds charge former JPMorgan Chase bankers in 'London Whale' case

August 14, 2013|By Andrew Tangel
  • JPMorgan Chase & Co. offices in the Canary Wharf district of London.
JPMorgan Chase & Co. offices in the Canary Wharf district of London. (Simon Dawson / Bloomberg )

NEW YORK -- Federal prosecutors have charged two former JPMorgan Chase & Co. employees in the "London Whale" case, though not the "Whale" himself.

The U.S. attorney's office in Manhattan on Wednesday announced the indictments of Javier Martin-Artajo and Julien Grout for their roles in the case. It was not immediately clear whether the pair had been arrested.

The two former bank employees face charges of falsifying records and securities filings, wire fraud and conspiracy for allegedly concealing trading losses that snowballed to more than $6 billion.

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Preet Bharara, the top federal prosecutor in Manhattan, has scheduled a news conference on Wednesday.

The London Whale saga rekindled fears of the financial crisis, tarnished the reputation of the nation's largest banks and wounded the credibility of its well-respected chief executive, Jamie Dimon, once dubbed the King of Wall Street.

The case involved complex financial instruments called synthetic credit derivatives that were essentially tied to the credit quality of corporate bonds.

Former JPMorgan trader Bruno Michel Iksil, who was based at the bank's London offices, was dubbed the Whale because of the large trading position he had amassed.

In a twist, federal prosecutors have agreed not to prosecute Iksil in exchange for his cooperation, according to a court document released by the U.S. attorney's office.

As the scheme unraveled, other Wall Street firms smelled blood in the water and made bets against JPMorgan's position, resulting in what was initially disclosed in May 2012 as a $2-billion trading loss.

Despite the losses' size, they hardly dented JPMorgan's income statement. The New York-based bank raked in record profit in subsequent quarters.

Nonetheless, the Whale fiasco caused a firestorm. Dimon, a savvy and articulate CEO who had been seen as the financial industry's chief ambassador to Washington, suddenly found himself on the defensive. Congressional committees summoned Dimon to testify, while regulators and the FBI launched investigations.

"This should never have happened," Dimon told shareholders in Tampa, Fla., days after the bank disclosed the losses. "I can't justify it. Unfortunately the mistakes were self-inflicted."

JPMorgan, after all, emerged from the financial crisis virtually unscathed. The bank was able to avoid severe wounds because it had avoided risky trading and ensuing blow-ups.

Aside from damaging reputations, the Whale losses rekindled a debate over how tightly to regulate Wall Street. For opponents of stricter rules, the losses came at an inopportune time, when Wall Street lobbyists were pushing to water down rules that would sharply limit the types of trading at the heart of the Whale case.

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