* U.S. investigators interviewing former JPM employees
* Trans-Atlantic trading desk could complicate investigation
* JPMorgan hopes to win praise for internal probe like
By David Henry and Emily Flitter
NEW YORK, Aug 31 The fallout from a nearly $6
billion trading loss at JPMorgan Chase & Co (JPM.N) looks like
it will haunt the big U.S. bank and its high-profile chief
executive, Jamie Dimon, for months to come.
U.S. authorities are interviewing witnesses in both the
United States and Europe to determine if three former
London-based traders and others who worked with them at JPMorgan
tried to hide some of the mounting losses during the first
quarter of this year, said people familiar with the situation.
The situation presents several challenges to U.S.
authorities: the potentially irregular trading occurred in
London; and it was carried out by non-U.S. citizens, such as
French national Bruno Iksil, who became known in the market as
the "London Whale" for the size of his positions.
That translates into different rules for different
jurisdictions and could raise extradition issues if any
individuals are charged.
Meanwhile, the bank’s own internal investigation, which
first uncovered evidence in July that the London traders may
have deliberately understated the first-quarter loss, is far
from finished. A person familiar with the internal probe, but
who is not authorized to speak publicly about it, said “there is
a lot more work to do” for the team, which has numbered more
than 100 lawyers.
Dimon initially referred to what has become a scandal as a
“tempest in a teapot”. He later tried to portray it as an
isolated risk management problem that the bank has corrected.
Lawyers say because JPMorgan is the biggest bank in the
United States and Dimon is one of Wall Street’s most visible
chief executives, U.S. criminal investigators are not going to
simply accept the findings of the bank's internal investigation
– no matter how thorough they may be.
"I think they are quite careful to not stop with looking at
the narrative presented by the bank," said Daniel Richman, a
professor at Columbia Law School and a former federal
The U.S. Securities and Exchange Commission is also
investigating along with U.S. criminal authorities.
Representatives for the SEC and Manhattan U.S. Attorney Preet
Bharara declined to comment.
LINE IN THE SAND
Dimon’s own internal probe, which has forced the bank to
restate and reduce its first-quarter earnings by $459 million,
also could generate more headaches if it uncovers fresh problems
with past financial reports or credibility-wrecking details
about his management team. Either could seriously wound
JPMorgan, which lost $26 billion in market value in the first
two weeks after Dimon admitted he had been wrong in downplaying
Jill Fisch, a corporate law professor with the University of
Pennsylvania, said a credible internal investigation must not
only look at the period that the trading losses occurred but
earlier periods to ensure that those quarters when the bank’s
chief investment office was reporting big profits were also
"Doing a high-quality investigation,” is helpful in dealing
with the SEC and federal prosecutors, she said.
Dimon offered a clear challenge to outside investigators to
check his narrative when he drew a line of sorts between the
London traders blamed for the losses, and Ina Drew, long one of
his most-trusted and top-paid executives and the former head of
JPMorgan's chief investment office.
In announcing the bank had found evidence the traders may
have used improper valuations to hide the losses, Dimon went out
of his way to praise Drew during a July 13 conference with
analysts. He said Drew "acted with integrity and tried to do
what was right for the company at all times."
If Dimon's assessment of Drew turns out to have been too
hasty, it would damage his credibility further. It was Drew's
department that told Dimon early on that the derivatives
portfolio would lose no more than $250 million.
Drew, who lives in suburban New Jersey, resigned shortly
after the scandal broke and offered to surrender two years of
pay. The bank accepted her offer.
She is at least one of six former and current JPMorgan
employees, including the three former London traders, who have
hired lawyers in connection with the inquiries. All of the
lawyers either declined to comment or did not return phone calls
The trader at the heart of the case, Iksil, recently hired
counsel in Paris, as well as criminal defense attorneys in
Washington. [ID:nL2E8JNAU5] Two of Iksil's former superiors,
Achilles Macris and Javier Martin-Artajo, have also hired
lawyers in New York and London.
In the chain of command in the chief investment office,
Martin-Artajo reported to Macris, who reported to Drew.
JPMorgan fired the three men and the bank has said it will
try to take back their pay.
Iksil, in hiring Paris lawyer Jean-Francois Davené of the
firm Wenner, delivered a reminder that his French citizenship
could further complicate efforts to bring him to the United
States for trial, or obtain evidence and testimony from
JPMorgan's situation has a recent precedent that is proving
useful to government investigators and the bank. Earlier this
year the government charged traders in both New York and London
for Credit Suisse Group AG CSGN.VX with mismarking a book of
mortgage-backed securities. They hid $540 million of losses,
according to charges filed in the case, in a trading scandal
that dates back to 2007 at the start of the financial crisis.
The Credit Suisse case, which is serving as a reference for
the JPMorgan probe, resulted in two guilty pleas to criminal
charges. But Credit Suisse was not charged in the case. Instead
the SEC praised the bank because of "the isolated nature of the
wrongdoing and Credit Suisse’s immediate self-reporting to the
SEC and other law enforcement agencies."
If JPMorgan executives could win praise like that, it would
be a step toward restoring the bank's reputation.
"It changes the tenor of the discussion if Morgan can be
portrayed as the victim," said Peter Henning, a Wayne State
University law professor who specializes in white collar crime.
Still, it took Credit Suisse four years after conducting its
month-long internal probe to get the all clear from authorities.
On Feb. 1, U.S. prosecutors announced the filing of criminal
charges against three former Credit Suisse employees, two of
whom pleaded guilty to conspiring to falsify the bank's
accounts. The third employee, Kareem Serageldin, a U.S. citizen
living in London, was indicted in federal court in New York, but
has yet to come to the United States to face the charges.
Legal experts say law enforcement is likely to move much
faster with JPMorgan's bigger and more prominent trading loss.
But that said, the London Whale investigation involves more
complex financial instruments and an overall loss that is 10
times bigger than the one incurred in the Credit Suisse
(Reporting by David Henry and Emily Flitter; Editing by
Jennifer Ablan, Matthew Goldstein and Leslie Gevirtz)
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Keywords: JPMORGAN LOSS/TRANSATLANTIC
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