Ex-bosses at JPMorgan unlikely to face charges in 'Whale' scandal
By Emily Flitter and David Henry
NEW YORK (Reuters) - The JPMorgan Chase & Co executives who
supervised the traders at the center of the "London Whale" scandal are
unlikely to face any charges over a trading debacle that cost the
largest U.S. bank more than $6.2 billion, people familiar with the probe
said.
Federal prosecutors on Wednesday brought criminal charges against
two former JPMorgan traders - Javier Martin-Artajo and Julien Grout -
accusing the pair of deliberately understating losses on the trades on
JPMorgan's books.
The complaints make only passing reference to their former bosses.
Neither Ina Drew, the bank's former chief investment officer, nor
Achilles Macris, a former top Chief Investment Office executive, are
mentioned by name in the complaints filed in New York.
The filings refer to Drew and Macris only by their titles and said
they put pressure on their subordinates at one point to deal with the
high degree of risk being taken on in the portfolio of derivatives
trades that led to the losses.
There is no allegation in the complaints that either Drew or Macris
did anything wrong or encouraged Martin-Artajo and Grout to conceal the
losses, which first began to be publicly disclosed in May 2012.
Bruno Iksil, the trader most identified with the losses, is
cooperating with federal prosecutors in an agreement which means he will
not face charges. Iksil was known as "the London Whale" because of the
size of derivatives trades he made.
U.S. Attorney Preet Bharara, when asked by reporters on Wednesday
about the prospect of additional actions against higher executives,
said: "These are the charges we have brought." He said that the
investigation is ongoing.
That the two senior executives may emerge from the year-long
investigation unscathed is a sign that the scandal may not do much
additional damage to the bank's image or the reputation of its chief
executive, Jamie Dimon.
While almost never commenting publicly on Macris, Dimon and his team
have cast Drew as a hard-working, loyal veteran of the bank who was
betrayed by a small group of rogue employees in her division of the
company.
Lee Richards, the lawyer for Drew, did not return calls seeking
comment. Edward O'Callaghan, a lawyer for Macris, declined comment.
Neither Drew nor Macris could be reached for comment.
Macris, who ran the London division of the CIO and was
Martin-Atajo's supervisor, is not cooperating with investigators and
long ago returned to his native Greece, according to a person familiar
with his situation. He received relatively little attention in a report
on the debacle earlier this year from an investigative committee of the
U.S. Senate.
Drew, who resigned when the losses became public, was once a member
of Dimon's elite operating committee of executives. She was criticized
in the company's internal investigation for failing to understand the
risks the London traders had been taking as they made $2 billion in
profits over several years.
The bank also said she did not ensure that the mechanisms to monitor the risk being taken on by her traders were working.
SUPERVISION QUESTIONS
Several former Securities and Exchange Commission enforcement
lawyers said they believed there may be grounds for pursuing a civil
failure-to-supervise claim against Drew and possibly Macris.
To do so, the lawyers say, regulators would have to believe there is
sufficient evidence that the pair did not heed warning signs about the
attempts to hide the losses early last year.
There is no indication that the SEC is planning to bring such a case.
The SEC, for now, is only looking to force JPMorgan to pay a fine
and admit wrongdoing as part of a regulatory settlement, said people
familiar with the situation.
A senior SEC official did not return calls seeking comment.
Experts pointed to the recent administrative failure-to-supervise
claim the SEC filed against hedge fund manager Steven A. Cohen as
precedent for holding bosses accountable for the wrongful acts of their
employees. The SEC charged Cohen will overlooking signs of unlawful
insider trading at his $14 billion SAC Capital Advisors.
Thomas Gorman, a partner at Dorsey & Whitney in Washington and a
former senior SEC enforcement lawyer, said a failure-to- supervise
claim is still possible. He noted such cases take time to bring and new
evidence that comes from Iksil's cooperation could help regulators mount
such a claim.
To be sure, emails and other communication records show much of the
discussion about the trading strategy and loss reporting for the group
linked to the scandal was confined to the three more junior employees:
Javier Martin-Artajo, Bruno Iksil and Julien Grout.
In the event a case was brought against the more senior executives,
both Macris and Drew could say they requested reports about the group's
trading activities and the information they received in response
consisted of lies. Drew said as much when questioned by the Senate
Permanent Subcommittee on Investigations.
"TEMPEST IN A TEAPOT"
Before publicly filing the charges on Wednesday, prosecutors mined
evidence from JPMorgan emails and recorded conversations as well as
information provided under the deal they made with Iksil.
Dimon dismissed the earliest reports of the losses in April 2012 as a
"tempest in a teapot," but soon changed his tone, saying of the CIO,
"there are many errors, sloppiness and bad judgment."
"In hindsight," he added, speaking on a May 10, 2012 conference
call, the CIO's strategy was "flawed, complex, poorly reviewed, poorly
executed and poorly monitored."
Later, Dimon went out of his way to publicly praise Drew for her
integrity and hard work for the company. He told analysts in July 2012
that he has "enormous respect" for her, even after all the criticism.
As chief investment officer for JPMorgan, Drew made $29 million in
2010 and 2011, and was among the highest paid JPMorgan employees. She
oversaw employees, including more than 100 traders, in New York and
London and was responsible for investing as much as $350 billion in
2012.
(Reporting by Emily Flitter and David Henry; Editing by Matthew Goldstein, Frank McGurty)
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