Fraud charges filed against boss of London Whale after $6bn loss

Tim Wallace
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THE LONDON based traders who lost JP Morgan more than $6bn (£3.9bn) were charged with wire fraud and conspiring to falsify accounts by the US authorities yesterday.

Trader Bruno Iksil, nicknamed the London Whale, is not facing charges as he entered a plea agreement and gave prosecutors information on the trading losses.

His supervisor Javier Martin-Artajo and trader Julien Grout, both formerly based at JP Morgan’s London office, are accused of conspiring to hide the losses made on derivative positions.

The Attorney’s Office for the Southern District of New York filed criminal charges accusing the team of fiddling the figures to hide the true financial position from the executives at the bank, with the result that financial reports to investors later had to be restated.

The chief investment office in which they worked traded in a range of synthetic credit derivative products, instruments which are not traded on exchanges.

As a result the traders had to estimate the market value of their positions based on the mid-point of a range of bids from brokers, the so-called crude mid. But as markets moved against the traders, it is alleged they first began to use more favourable prices from the range on offer. And investigators claim their stated values later did not even fall within that market range.

The filings presented email, phone and chat records indicating the team knew this understated the scale of their losses. One email from 15 March 2012 shows Iksil asking Grout for details.

“Can u drop me here the breakdown of the lag [the difference between where the positions were marked and the crude mids], please? And send it to [Martin-Artajo] email. Send to me and [Martin Artajo] the spreadsheet where u store the breakdown of the difference between our estimates and the crude mids.”

That spreadsheet in question showed a difference of $292m on 15 March. The gap continued to grow and by July 2012 JP Morgan had to restate its revenues by $660m.

JP Morgan sacked the trio and began clawing back their bonuses.

Martin-Artajo’s lawyers said he will clear his name, while Grout is believed to be in his native France.
US authorities did not rule out extradition proceedings if the pair do not hand themselves over.

16 March, 2012 Iksil told Grout:
“I don’t know where [Martin-Artajo] wants to stop, but it is getting idiotic.”

“Divergence has increased to 300 [million] now. It has been like this since the start of the year and the drift keeps going. I reckon we get to 400 [million] difference very soon.”

20 March 2012, Martin-Artajo to Iksil, by phone:
“I told [my boss], he told me that he didn’t want to show the loss until we know what we are going to do tomorrow [at a scheduled meeting with the chief investment officer]. But it doesn’t matter, I know you have a problem you want to be at peace with yourself…. So okay we’re just going to have to explain that this is getting worse.”

23 March 2012, Iksil chat to Martin-Artajo:
“We will lose more today… this is going to happen across the book… I reckon we have today a loss of 300m using the best bid asks … and approx 600m from [the crude] mids.”