FORMER JPMORGAN EMPLOYEE SURRENDERS IN 'LONDON WHALE' CASE
c.2013 New York Times News Service
Weeks after the U.S. government charged Javier Martin-Artajo, a former JPMorgan Chase employee, with hiding trading losses that ultimately reached more than $6 billion, he had his first day in court Tuesday as he surrendered to Spanish authorities and kicked off what could be a lengthy extradition process.
Martin-Artajo, a Spaniard who worked in the bank’s London office, was released soon after his surrender and arrest. He agreed to remain at the disposal of the Spanish judiciary, but it was unclear whether his passport was confiscated to prevent him from leaving the country, according to a person briefed on the matter.
The criminal charges stem from a risky bet at JPMorgan’s chief investment office in London, where Martin-Artajo worked. The bet involved so-called credit derivatives, which allow traders to bet on the perceived health of companies like American Airlines.
When the bet soured in the spring of 2012, prosecutors claim, Martin-Artajo and Julien Grout, a lower-ranking employee, deliberately overstated the value of their positions to hide hundreds of millions of dollars in losses. The two were charged with wire fraud, falsifying bank records and contributing to false regulatory filings. Prosecutors also charged them with conspiracy to commit those crimes.
The arrest in Spain, the latest development in an episode that left a rare stain on JPMorgan’s once-stellar reputation, underscores the challenge U.S. authorities face in their pursuit of the traders. After announcing charges this month against Martin-Artajo and Grout, federal prosecutors and the FBI in Manhattan have encountered a number of logistical hurdles.
British police issued an arrest warrant for Martin-Artajo at the behest of authorities in New York and then visited his house in London only to find that he was gone. According to his lawyers, Martin-Artajo left London “on a long-planned vacation” to his native Spain without knowing of the pending charges.
Grout, for his part, left London this year for his native France, which typically does not extradite its citizens. His lawyer, Edward Little, explained that his client also spent a brief period in the U.S., where his wife’s family lives.
“I’m in discussions with the U.S. attorney’s office about how to proceed, but no decision has been made,” Little said Tuesday after Martin-Artajo’s arrest was announced.
Grout, he said, “has absolutely no intention of fleeing” France.
According to a person close to the case, both of the former traders have indicated through their lawyers that they are open to extradition but only if prosecutors recommend bail. The former traders are seeking approval to travel freely between New York and Europe, the person said, noting that they want to avoid becoming fugitives trapped in their home countries.
It is unclear if prosecutors will approve the request.
Prosecutors have not charged a third trader, nicknamed “the London Whale,” who came to embody the trading blowup. That trader, Bruno Iksil, has reached a so-called nonprosecution deal with the authorities in Manhattan that will spare him charges as long as he cooperates against his two former colleagues.
The success of the case could hinge on his testimony — along with a battery of internal messages and phone records. In an instant message cited in the government’s complaint, Iksil declared that he did not know where Martin-Artajo “wants to stop” minimizing the losses, “but it’s getting idiotic.”
Lawyers for Martin-Artajo and Grout are likely to argue that traders have leeway when valuing their derivatives bets because the actual prices might not be immediately available. Putting values on trades in the murky derivatives world, the lawyers will argue, is often guesswork.
Martin-Artajo’s lawyers did not respond to a request for comment Tuesday. In a previous statement, the lawyers said their client was “confident that when a complete and fair reconstruction of these complex events is completed, he will be cleared of any wrongdoing.”
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But Martin-Artajo’s team at JPMorgan, according to the criminal complaint against him, stopped recording the value of the bets in a “middle range” in favor of some of the most generous possible figures. Of the 132 trading positions, according to the charges, 107 were “marked more favorably” than the midpoint.
“I’m a trader,” Martin-Artajo told an employee from the JPMorgan controller’s office on one of several recorded calls the government recounted in the charges. “I do not mark the books to U.S.” accounting rules.
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JPMorgan eventually restated its first-quarter earnings for 2012 downward by $459 million, conceding that the valuations were flawed. It was a noticeable black mark for the bank at the time, once known for avoiding many of the regulatory problems dogging its Wall Street peers.
But now, the case against the traders could foreshadow actions against the bank. Federal authorities in New York continue to investigate the bank over its failure to thwart the traders’ actions, the people briefed on the matter said.
The Securities and Exchange Commission, which filed parallel civil charges against the two traders, is also planning to take action against JPMorgan for allowing the misconduct, the people briefed on the matter said. In an unusually aggressive stance for the agency, they said, the SEC is looking to extract an admission of wrongdoing from the bank and a substantial fine.