Charges dropped after ‘London Whale’ accused Jamie Dimon of making him a fall guy
Prosecutors say they cannot rely on testimony of trader nicknamed ‘London Whale,’ who recently said he was a ‘screen’ for top J.P. Morgan execs
The case against two traders in the infamous “London Whale” case appears to have fallen apart after the Whale himself, considered a key witness, accused J.P. Morgan Chase & Co. Chief Executive Jamie Dimon of setting him up as a fall guy.
The U.S. Department of Justice revealed Friday that it is seeking permission from a judge to dismiss the charges against two former J.P. Morgan JPM, -0.34% derivatives traders, Javier Martin-Artajo and Julien Grout. According to the announcement, a key reason for dropping the case is because prosecutors no longer believed Bruno Iksil’s testimony could be relied upon to prosecute “based on a review of recent statements and writings made by Iksil.”
Iksil, the trader nicknamed “the London Whale” and a former colleague of the two defendants at J.P. Morgan, recently accused Dimon and other J.P. Morgan senior executives of using him as “ a screen” in the effort. According to a statement from the Justice Department, the prosecutors had also failed to win approval for the extradition of Martin-Artajo and Grout from Spain and France.
A spokesman for J.P. Morgan Chase JPM, -0.34% declined to comment.
Martin-Artajo and Grout were accused of participating in a scheme of mismarking the trades that led to JPM’s loss in its credit derivatives portfolio in 2012 and a restatement of its first-quarter results for that year. J.P. Morgan lost $6.3 billion from the trades made under the ultimate leadership of Ina Drew, head of the bank’s Chief Investment Office.
The bank ultimately paid more than $1 billion in fines to settle U.S. and U.K. regulatory probes into the matter. J.P. Morgan also settled the Securities and Exchange Commission’s allegations that senior management didn’t fully inform the J.P. Morgan audit committee of problems it was finding with the losses on the “Whale” trades.
The Office of the Comptroller of the Currency, or OCC, a U.S. banking regulator, also settled charges against the bank, alleging JPM’s credit derivatives trading “constituted recklessly unsafe and unsound practices, was part of a pattern of misconduct.”
Retired U.S. Sen. Carl Levin, Democrat of Michigan, led an investigation of the matter in the Senate Permanent Subcommittee on Investigations. At a hearing on the matter Levin, read from its report that concluded J.P. Morgan executives had blocked OCC examiners from receiving important information about the trading strategy and problems controls over the traders.
Martin-Artajo, Iksil and their boss, Achilles Macris, were terminated with no severance pay, and Macris was fined £800,000 by the U.K. Financial Conduct Authority for failing to be “open and cooperative” about the bank’s loss. Martin-Artajo and Grout, were indicted in the U.S. for mismarking the trades, and J.P. Morgan clawed back two years of total annual compensation under bank policies from each person, including restricted stock and canceled stock options grants.
The head of the bank’s Chief Investment Office, Drew, “offered” to give up “a significant amount of past compensation”, according to The Wall Street Journal, which cited Dimon at the time. Dimon told The Wall Street Journal it was equivalent to the maximum clawback allowable under the bank’s policies.
Dimon and the bank’s former CFO, Doug Braunstein, were not required to give back any incentive compensation and the SEC did not force them to do so under the Sarbanes-Oxley Section 304 clawback rule.