Wall Street

'London Whale' deputy: I am innocent

Adam Jeffery | CNBC

A lawyer for a former JPMorgan Chase & Co employee who worked with "the London Whale" Bruno Iksil has been trying to convince U.S. prosecutors to drop criminal charges against his client, Julien Grout, a source familiar with the matter said on Friday.

On Aug. 14, prosecutors accused Grout, who was Iksil's deputy in the bank's Chief Investment Office in London, of trying to hide hundreds of millions of dollars in trading losses by marking positions in a credit derivatives portfolio at falsely inflated prices.

In a meeting with prosecutors late last month, Grout's lawyer Edward Little argued Grout did not know the prices were wrong, the source said. Instead, based on the instructions he was given by superiors, including Iksil, Grout recorded prices he thought were correct.

In response, the source said, prosecutors offered Grout the chance to talk to them directly and tell them whatever he knew without the risk of further incrimination. He declined, the source said.

The U.S.government still has the option not to pursue the charges against Grout. But if a grand jury votes to indict him, the opportunity for the charges to be dismissed will vanish. Prosecutors are expected within the next month to seek indictments against Grout and his former boss, Javier Martin-Artajo, who was also charged.

The trades in question were part of a series of outsized positions Iksil took in an illiquid market for credit derivatives. When news of the JPMorgan traders' big bets became public early last year, the bank was forced to quickly unwind the trades, incurring a $6.2 billion loss.

After conducting an internal investigation, JPMorgan said it found evidence that someone migh thave tried to deliberately hide the mounting losses from others in the bank.

The Federal Bureau of Investigation conducted its own investigation. Iksil struck a deal with U.S. authorities and agreed to become a cooperating witness for prosecutors.

(Read more: 'London Whale' cuts a deal)

Prosecutors eventually charged Martin-Artajo and Grout with fraud and conspiracy to falsify books and records. Iksil was not charged.

According to the source familiar with the meetings, Grout's lawyer told prosecutors Grout was simply following orders that Martin-Artajo and Iksil gave him.

The lawyer further argued that Grout believed there was a conspiracy on Wall Street to squeeze JPMorgan in the derivatives market, which does not have a centralized system for reporting prices, according to the source.

(Read more: Jamie Dimon defends actions in Whale case)

In response,the source said, prosecutors offered Grout the chance to meet with them for a proffer session, a special set of interviews during which he would be able to tell them whatever he knew without the risk of incriminating himself.

But Grout declined the offer, the source said, because if prosecutors were to go ahead with their case against him the proffer session would have served as a preview to his defense arguments.

Time is running out for Grout's team to get prosecutors on their side. U.S. authorities will need an indictment against Martin-Artajo to proceed with his extradition from Spain, where he was arrested and released in August. Observers were expecting Grout to be indicted at the same time.