Cavalier risk-taking claims trigger JPMorgan inquiry
Employees allegedly disguised losses on a trade that spun out of control, say authorities
US attorney Preet Bharara (centre) announces criminal charges against two former JP Morgan Chase employees. Photograph:Michael Appleton/New York Times
More than 3,000 miles from the New York headquarters of JPMorgan Chase, traders in an office building nestled near the Thames River disguised the extent of their losses as a huge bet spun out of control last year, say federal authorities.
While just two former London traders for JPMorgan were criminally charged on Wednesday, the cases intensify the scrutiny of the bank’s executives in New York, where lax controls and the pressure for profits aggravated the problem.
Federal authorities outlined the breakdown in the bank’s oversight in the two criminal complaints against employees Javier Martin-Artajo, a manager who oversaw the trading strategy, and Julien Grout, a low-level trader in London. The employees, accused of manipulating the books to disguise hundreds of millions of dollars in losses, operated for months with scant supervision and the impression that higher-ups of the bank supported them.
When Martin-Artajo directed Grout to record losses only in extreme circumstances, he claimed that the directive came from New York, meaning the bank’s senior management. People inside the bank dispute that notion, arguing that Martin-Artajo had taken steps to conceal his actions from superiors. Still, according to the complaint, when another bank employee queried Grout about some of his valuations, he replied, “ask management”.
The manipulation continued, said the government, even as some of the traders were sounding alarms. According to the complaints, when Grout said he was going to show a modest loss one day of about $10 million, a fraction of the true size, another trader responded: “I don’t want to know about it.”
At a news conference to announce the charges, federal authorities took aim at not only the traders, but also the bank and its top managers, including Jamie Dimon, the chief executive who originally dismissed concerns about the trades as a “tempest in a teapot” before later acknowledging that he was “dead wrong.”
“This was not a tempest in a teapot but rather a perfect storm of individual misconduct and inadequate internal controls,” said Preet Bharara, the US attorney in New York, taking a thinly veiled swipe at Dimon’s earlier assertion. April Brooks, a senior FBI official, called the bank’s compliance regime “little more than a rubber stamp”.
JPMorgan has declined to comment. The bank has previously noted that it overhauled its internal controls, spotted the traders’ suspicious actions and reported them to the authorities.
Yet the charges and the broader critiques of JPMorgan have dealt a blow to the reputation of the bank, the nation’s largest, once renowned for its prowess in managing risk.
The case could also foreshadow further actions as Bharara’s office continues to weigh penalties for JPMorgan over the trading blow-up that has now generated more than $6 billion (€4.5 billion) in losses. Prosecutors and the FBI are also investigating more senior executives at the bank, according to people briefed on the matter.