NEW YORK (Reuters) – A U.S. grand jury has indicted two former JPMorgan Chase Co traders at the center of the bank’s “London Whale” scandal, court papers made public on Monday show.
Javier Martin-Artajo and Julien Grout were accused of hiding hundreds of millions of dollars of losses within JPMorgan’s chief investment office in London by marking positions in a credit derivatives portfolio at inflated prices.
Those losses were part of an overall $6.2 billion trading loss suffered by the bank centered on Bruno Iksil, the former trader known as the London Whale. Martin-Artajo supervised Iksil, while Grout worked for Iksil.
According to the indictment, Martin-Artajo and Grout from March to May of 2012 artificially inflated the value of securities “to hide the true extent of significant losses” in a trading portfolio.
The indictment said both men did this to enhance their prospects for promotions and bonuses, while Martin-Artajo hoped to stop JPMorgan from moving the trading portfolio to another division, and Grout wanted to curry favor with his supervisor.
Martin-Artajo and Grout were each charged by the grand jury with five criminal counts, including securities fraud, wire fraud, conspiracy, making false filings with the U.S. Securities and Exchange Commission and falsifying books and records.
The government wants the men to forfeit proceeds traceable to their alleged offenses, including compensation from the largest U.S. bank. The case was assigned to U.S. District Judge Lorna Schofield in Manhattan.
JPMorgan is not a defendant in the criminal case, but is nearing civil settlements with U.S. and European regulators that could result a $700 million payment, a person familiar with the matter said on Monday.
Richard Smith, a lawyer for Martin-Artajo, did not immediately respond to requests for comment. Edward Little, a lawyer for Grout, had no comment.
Julie Bolcer, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, declined to comment. JPMorgan spokesman Brian Marchiony declined to comment.
Iksil has not been criminally charged, and has been cooperating with U.S. authorities.
U.S. prosecutors charged Martin-Artajo and Grout last month. Grout sought to avert a formal indictment by portraying himself as an unwitting victim of manipulation by superiors, a person familiar with the matter said last week.
Authorities in the United States needed an indictment against Martin-Artajo to proceed with his extradition from Spain, where he was arrested and released in August. Martin-Artajo is Spanish, while Grout is French.
The case is U.S. v Martin-Artajo et al, U.S. District Court, Southern District of New York, No. 13-cr-00707.
(Reporting by Jonathan Stempel in New York; Additional reporting by Emily Flitter and David Henry. Editing by Andre Grenon)
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London Whale
The bank’s chief investment office gambled on credit derivatives, a href=”http://www.huffingtonpost.com/2012/07/13/jpmorgan-chase-q02-earnings-2012_n_1670629.html” target=”_hplink”losing $5.8 billion/a (so far), and its trading desk may have tried to hide the losses from the home office. The bank says it is being sued by shareholders over the losses and has gotten subpoenas and requests for information from “Congress, the OCC, Federal Reserve, DOJ, SEC, CFTC, UK Financial Services Authority, the State of Massachusetts and other government agencies, including in Japan, Singapore and Germany.”
Milan Swap Deal
The bank has faced a href=”http://www.bloomberg.com/news/2012-07-18/milan-swaps-prosecutor-seeks-ban-on-4-banks-from-government-work.html” target=”_hplink”lawsuits and criminal investigations/a over an interest-rate swap deal it made with the city of Milan, Italy, back in 2005. The bank settled a civil suit, but criminal charges are still pending against the bank and several employees, with hearings in the trial “occurring on a weekly basis since May 2010.”
Enron
The bank and some of its executives are still being sued over the bank’s relationship with the failed, fraud-ridden energy giant, more than a decade after its failure.
Energy Manipulation
Speaking of Enron, the a href=”http://www.huffingtonpost.com/mark-gongloff/jpmorgan-chase-power-market_b_1647131.html” target=”_hplink”Federal Energy Regulatory Commission is investigating/a charges that JPMorgan manipulated power markets in California and the Midwest.
Credit Card Swipe Fees
The bank said in the filing that a href=”http://www.bloomberg.com/news/2012-08-09/jpmorgan-says-credit-card-swipe-case-cost-1-2-billion.html” target=”_hplink”it will pay about $1.2 billion/a to settle charges that it conspired with MasterCard and Visa to rig credit-card swipe fees.
Libor
The bank is being investigated by regulators all over the world for its a href=”http://www.huffingtonpost.com/2012/08/09/jpmorgan-chase-libor-subpoenas_n_1760015.html” target=”_hplink”alleged involvement in manipulating Libor/a, a short-term interest rate that affects borrowing costs for people, businesses and governments all over the world.
Madoff Ponzi Scheme
Several lawsuits have accused the bank of aiding and abetting Bernie Madoff’s Ponzi scheme, the biggest in history. The Madoff bankruptcy trustee and others have also sued the bank to get back some Madoff clients’ money.
MF Global
The bank is under investigation by regulators for its a href=”http://www.google.com/url?sa=trct=jq=esrc=ssource=webcd=1ved=0CFEQFjAAurl=http%3A%2F%2Fwww.forbes.com%2Fsites%2Fhalahtouryalai%2F2012%2F06%2F04%2Fjpmorgans-other-messy-problem-mf-globals-missing-money%2Fei=Ui0lUNP7Eqe96QHP94CABAusg=AFQjCNEJVDksnFTh3KP1uS3u73bLgoSfZQ” target=”_hplink”relationship with the failed brokerage firm MF Global/a. It is also being sued for allegedly aiding and abetting MF Global misuse of customer money.
Mortgage Backed Securities
The bank is being sued by hordes of investors for its bundling and selling of mortgage-backed securities packed with bad mortgage debt before the financial crisis. “There are currently pending and tolled investor claims involving approximately $130 billion of such securities,” the bank says.
Mortgage Foreclosures
The bank was part of the big a href=”http://nationalmortgagesettlement.com/” target=”_hplink”$25 billion settlement/a with the government over mortgage-foreclosure abuses. But there are still several lawsuits and regulatory actions pending against the bank over its foreclosure practices.
Peregrine Financial
The bank didn’t mention this in its regulatory filing, but it is also involved in the failure of the Iowa brokerage firm Peregrine Financial. JPMorgan a href=”http://www.huffingtonpost.com/2012/07/12/pfg-customer-account-jpmorgan-chase_n_1668386.html” target=”_hplink”holds some customer money for the firm/a, and recently a href=”http://www.foxbusiness.com/news/2012/08/06/jp-morgan-objects-to-terms-proposed-by-peregrine-trustee/” target=”_hplink”tussled in court/a with the PFG bankruptcy trustee.
Ex-JPMorgan Traders Indicted Over "London Whale" Scandal
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