U.S. Charges Two Men With Fraud In 'London Whale' Scandal

Two former JPMorgan Chase traders charged with criminal charges following the "London Whale" scandal that costs the bank $6.2 billion USD.

NEW YORK, NEW YORK, UNITED STATES (AUGUST 14, 2013) (REUTERS) - Two former JPMorgan Chase & Co employees are facing criminal charges related to the trading scandal that cost the bank $6.2 billion (USD) last year, but the trader who earned the nickname "the London Whale" and was at first most closely tied to the scandal is not one of them.

In fact, Bruno Iksil, who is cooperating with federal prosecutors, pushed back against the efforts of his former colleagues Javier Martin-Artajo and Julien Grout to hide the mounting losses, according to court filings.Federal prosecutors in Manhattan on Wednesday (August 14) charged Martin-Artajo and Grout, who both worked for JPMorgan's chief investment office inLondon, with wire fraud and a conspiracy to falsify books and records related to the trading losses.

The charges, the first to arise from the Whale scandal, say the two deliberately tried to hide hundreds of millions of dollars in losses on trades in a portfolio of synthetic credit derivatives tied to corporate debt.

At a press conference announcing the charges, U.S. Attorney Preet Bharara said, "At the heart of this case, are alleged lies and misrepresentations about the fair value of synthetic credit derivative products and in particular, credit default swaps on JPM's books. While the transactions and financial products involved maybe complex, the criminal conduct alleged is simple and straight forward. The defendants deliberately and repeatedly lied about the fair value of billions of dollars in assets on JP Morgan's books in order to cover up massive losses that mounted month after month at the beginning of 2012. Those lies mislead investors, regulators and the public and they constituted federal crimes."

Losses from the trades, which were made in the London division of JPMorgan's chief investment office, first became public in April 2012 in a media report about the squeeze put on Iksil's group by competitors in the market.

"This was not a tempest in a teapot, but rather a perfect storm of individual misconduct and inadequate internal controls," said Bharara referring to a comment made by JPMorgan CEO Jamie Dimon who initially dismissed the losses as a "tempest in a teapot," a comment which would come back to haunt the man who run's the nation's largest bank.

It is not clear when Martin-Artajo and Grout, who are both living in Europe, will be arrested and brought to the U.S. to be formally arraigned. It is not clear if the men will be extradited to New York or will voluntarily turn themselves in.

Lawyers for Grout and Martin-Artajo, who could not be immediately reached for comment, have previously said that their clients did nothing wrong.

Iksil earned the nickname "the London Whale" for the size of the derivatives trades he made in late 2011 and early 2012. Though initially blamed for the bad decisions leading to the losses, the charges against his former colleagues are now casting him in a more heroic light, at least according to federal authorities.

Iksil emerges in the criminal complaints as a pivotal voice during the escalating scandal, a dissenter who wanted to quickly exit the unwieldy trading positions and who at times tried to argue against hiding the group's mounting losses.