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US files charges against two in JP Morgan 'whale' case

Adam Jeffery | CNBC

Federal prosecutors in Manhattan on Wednesday criminally charged two former JPMorgan Chase employees with wire fraud and a conspiracy to falsify books and records related to the bank's $6.2 billion trading losses last year, according to court papers.

The charges, the first to arise from the "London Whale" trading scandal, say the two employees, Julien Grout and Javier Martin-Artajo, had deliberately tried to hide hundreds of millions of dollars in losses on trades in a portfolio of synthetic credit derivatives.

The charges are the result of an investigation into events surrounding the losses in the London division of JPMorgan's chief investment office. The losses first became public in April 2012 when it was revealed a small group of traders made outsized bets in an illiquid derivatives market and found themselves squeezed by competitors in the market.

Bruno Iksil, the trader most closely associated with the bets, earned the nickname "the London Whale" for the size of his derivatives trades.

Iksil who was not charged and is cooperating with the investigation, emerges in the criminal complaints as a pivotal participant who at times tried to argue against trying to hide the group's mounting losses.

Grout was Iksil's deputy and was in charge of marking the values of the trades in the group's books.

Martin-Artajo was Iksil's direct boss. Prosecutors are accusing him of pressuring Iksil and Grout to report prices at more favorable levels, according to the court papers.

The two men each face charges of conspiracy, falsifying books and records, wire fraud, and causing false statements to be made to the U.S. Securities and Exchange Commission. They may face up to 25 years each in prison.

The maximum fines for their charges are $250,000 each, or twice the gross gain or loss from the offenses.

U.S. Attorney Preet Bharara will hold a news conference on the charges Wednesday afternoon, his office said in a statement to the media.

Lawyers for Grout and Martin-Artajo have previously said that their clients, both of whom are in Europe, did nothing wrong.

A spokesman for JPMorgan declined to comment.

Iksil will not face criminal charges, according to the cooperation agreement, which was signed on June 20. His testimony helped build the cases against his former colleagues; he appears in both sets of charges as "cw-1," an unnamed cooperating witness.

Iksil was fired along with Martin-Artajo last year, as the scandal surrounding the bank's losses escalated.

It was not clear when Grout and Martin-Artajo would appear in U.S. court to face the charges against them. They were both based in London when they worked for JPMorgan.

Martin-Artajo, who is Spanish, still lives in London but is traveling abroad on a summer vacation.

Grout, who is French but has an American wife and two children who are U.S. citizens, was forced to resign from JPMorgan in December. He and his family are living in France with his parents.

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