The fallout continues from the multibillion-dollar trading loss at JPMorgan Chase.
Now JPMorgan, the nation's largest bank, is taking aim at one of its former executives in the chief investment office, a once little-known unit at the center of the bungled trades. JPMorgan is suing Javier Martin-Artajo, the manager who directly supervised Bruno Iksil, the so-called London Whale, according to a lawsuit made public on Wednesday.
Mr. Iksil gained that now infamous moniker after reports emerged in April that he had built up an outsize position in an obscure corner of the credit markets. That position ultimately proved devastating for the bank, resulting in a $6.2 billion loss.
The lawsuit did not disclose the details of JPMorgan's claims against Mr. Martin-Artajo, according to a person with knowledge of the complaint. Mr. Martin-Artajo and Mr. Iksil have left the bank. A spokeswoman for JPMorgan declined to comment on the lawsuit. Mr. Martin-Artajo's lawyer c ould not be reached immediately for comment.
Since announcing the problem in May, JPMorgan has worked to move beyond the loss and reassure skittish investors. JPMorgan has broadly reshuffled its management ranks and united some of its business operations.
As part of that effort, the bank conducted an internal investigation, combing through thousands of e-mails and phone records of traders to determine what went wrong at the chief investment office.
The investigation, led by Michael J. Cavanagh, the bank's former chief financial officer, uncovered that some traders within the unit might have improperly valued their positions as losses began to mount. Some phone recordings suggest that Mr. Martin-Artajo encouraged Mr. Iksil to value troubled positions in a favorable manner, according to people with knowledge of the situation.
Mr. Martin-Artajo, Mr. Iksil and two other employees who worked in the chief investment office are under investigation by crimina l and civil authorities. Authorities are examining whether the group mismarked the positions to cover up losses, according to the people. After revising the valuations on those trades, JPMorgan had to restate its first-quarter earnings.
Timeline: JPMorgan Trading Loss
Federal authorities face a high legal bar. Traders are given significant leeway to price certain financial instruments like the complex credit derivatives at the center of the bet. None of the people have been accused of any wrongdoing.
JPMorgan, too, faces scrutiny. The Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the Federal Reserve Bank are all looking into the botched trade.
The aftershocks of the trading blowup have reverberated throughout the bank. The multibillion-dollar loss tarnished the reputation of Jamie Dimon, the bank's chief executive, who is considered one of Wall Street's best risk navigators. In J uly, Mr. Dimon appeared before Congress to try to account for the misstep.
The trading debacle has also claimed the job of one of the Mr. Dimon's most-seasoned and trusted lieutenants, Ina R. Drew, who resigned as head of the chief investment office shortly after the trading losses and volunteered to give back her pay. The bank also clawed back millions of dollars of compensation from Mr. Martin-Artajo, Mr. Iksil and others.
Mr. Dimon has also moved swiftly in the last few months to remake his management team. Douglas L. Braunstein, the bank's chief financial officer since 2010, will resign by the end of the year, according to former and current executives. Mr. Braunstein initially played down concerns about the chief investment office that emerged in April. Barry Zubrow, a former chief risk officer who now runs the bank's regulatory affairs, announced his own resignation last month from his current post.
The huge loss stemmed from a complex wager on credit derivatives made by Mr. Iksil out of the London unit of the chief investment office, which was formed five years ago. The chief investment office morphed from a relatively sleepy operation into a profit center as the complexity and risk of its positions swelled.
The risk controls did not keep up with the group's increasingly large bets, according to several current and former executives familiar with the unit. Part of the problem, the executives said, was that the London branch operated without sufficient oversight. Even when some executives in New York, for example, called for greater risk controls, they were ignored or shouted down.
During JPMorgan's latest earnings call, Mr. Dimon emphasized that the bank had contained the loss from the troubled trade. It closed out the position and moved the remainder of the credit derivative trade to the investment bank.
Ben Protess contributed reporting.
