Federal authorities announced criminal charges on Wednesday against two former JPMorgan Chase employees accused of disguising losses on a trade that spun out of control last year, a rare show of government force against Wall Street risk-taking.
The former JPMorgan employees â€" Javier Martin-Artajo, a manager who oversaw the trading strategy, and Julien Grout, a low-level trader in London - were charged with wire fraud, falsifying bank records and contributing to false regulatory records. The government also charged them with conspiracy to commit those crimes.
Federal prosecutors and the F.B.I. in Manhattan spent more than a year investigating Mr. Martin-Artajo and Mr. Grout in connection with their roles in the loss at JPMorgan. Using internal e-mails and telephone records, the authorities concluded that the traders lowballed their losses. JPMorgan eventually restated its first-quarter earnings for 2012, adjusting them down by $459 million to concede that the valuations were flawed.
Federal authorities have held talks with British authorities about extraditing the men, according to people briefed on the matter.
Yet is unclear when authorities will seek to arrest them. Mr. Martin-Artajo is currently away from London on vacation. Mr. Grout left London this year for France, which typically does not extradite its citizens.
“He has absolutely no intention of fleeing,†said his lawyer, Edward Little, who noted that Mr. Grout left London after losing his job with JPMorgan last December. More recently, he has spent time with his wife’s family in the United States.
Mr. Martin-Artajo’s lawyers said their client “is confident that when a complete and fair reconstruction of these complex events is completed, he will be cleared of any wrongdoing.â€
The lawyers are likely to argue that traders have some wiggle room to value their trades on derivatives contracts because the actual prices might not be immediately available.
A third employee who came to embody the soured bets, Bruno Iksil, has reached a so-called nonprosecution deal with authorities in Manhattan, according to the people briefed on the matter who spoke on the condition of anonymity. Mr. Iksil, known as the “London Whale†for his role in the outsize bets, will not face charges as long as he cooperates against his two former colleagues, the people said.
The charges on Wednesday reflect the government’s increasingly aggressive stance toward Wall Street, after authorities came under fire for prosecuting only a few bank employees tied to the 2008 financial crisis. Taking aim at employees of a Wall Street giant like JPMorgan, even when they fall below the executive ranks, could send a warning shot across the financial industry.
