NEW YORK -- Two former JPMorgan Chase & Co. traders falsified bank records to try to cover up trading losses that were spiraling out of control, prosecutors said Wednesday in a criminal case that raises fresh questions about whether Wall Street learned its lessons from the 2008 financial crisis.
Javier Martin-Artajo, 49, and Julien Grout, 35, and their co-conspirators were accused of marking up the market value of securities to hide the fact that an investment portfolio was plummeting in value. The portfolio eventually sank into an eye-popping $6 billion loss attributed to Bruno Iksil, a trader who became known as the "London Whale" for his location and the supersized bets he made.
Preet Bharara, the Manhattan U.S. attorney, hinted that the misconduct was not just the work of a couple of rogue traders, but was systemic in a bank that failed to keep adequate watch over its traders.
"This was not a 'tempest in a teapot,' but rather a perfect storm of individual misconduct and inadequate internal controls," Mr. Bharara said at a news conference -- a jab at JPMorgan CEO Jamie Dimon, who once dismissed the controversy around the trading loss with that flip phrase.
The "London Whale" controversy has been a millstone for the bank for months, but the new charges shift the narrative of the tale. Mr. Iksil, whose name has long been associated with the embarrassing loss, tried to raise questions about how his colleagues were recording the trades, according to prosecutors.
Prosecutors also portray bank employees as knowing exactly what they were doing, not workers simply overwhelmed by complicated systems -- a defense banks have mounted for missteps in the financial crisis and its aftermath.
"They're shaking a big stick at the biggest bank in America," said John Alan James, executive director of the Center for Global Governance, Reporting and Regulation at Pace University's Lubin School of Business in New York.
Lawyers for Mr. Grout and Mr. Martin-Artajo, both United Kingdom residents when they worked at JPMorgan, did not return calls for comment. Mr. Martin-Artajo is a citizen of Spain and Mr. Grout is a citizen of France, which could potentially complicate the prosecution.
Mr. Bharara said his office had contacted the two men's lawyers. "We are hopeful they will do the right thing and present themselves in the United States," he said.
Mitchell Epner, a former federal prosecutor who is a criminal defense attorney at Wilk Auslander in New York, said the two men might try to mount a defense by placing the blame on their superiors.
"It would be a full and complete defense here that these people were transparent" to superiors who determined what the bank said publicly, Mr. Epner said.
Mr. Martin-Artajo supervised JPMorgan's trading strategy in London, and Mr. Grout, his subordinate, was in charge of recording the value of the investments each day. They were charged criminally with conspiracy to falsify books and records, commit wire fraud and falsify Securities and Exchange Commission filings. They also were charged separately in an SEC civil complaint.
A JPMorgan spokesman declined to comment.
Prosecutors also announced Wednesday that they had agreed not to prosecute Mr. Iksil, the trader who allegedly made the bad bets. The deal requires him to cooperate fully with law enforcement.
Mr. Bharara, explaining Mr. Iksil's "rare" non-prosecution deal, said of the ex-trader: "I don't think you would call him blameless." But, Mr. Bharara added, he "did sound the alarm more than once."businessnews