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UPDATE 2-U.S. to drop criminal charges in 'London Whale' case

(Adds details of allegations, JPMorgan CEO comments and regulatory settlements, case citations)

NEW YORK, July 21 (Reuters) - U.S. prosecutors have decided to drop criminal charges against two former JPMorgan Chase & Co derivatives traders implicated in the "London Whale" trading scandal that caused $6.2 billion of losses in 2012.

In seeking the dismissal of charges against Javier Martin-Artajo and Julien Grout, the Department of Justice said it "no longer believes that it can rely on the testimony" of Bruno Iksil, the trader dubbed the London Whale, based on recent statements and writings he made that hurt the case.

Prosecutors also said efforts to extradite Martin-Artajo and Grout, respectively citizens of Spain and France, to face the charges have been "unsuccessful or deemed futile."

Acting U.S. Attorney Joon Kim in Manhattan asked a federal judge for permission to drop charges that included securities fraud, wire fraud and falsifying records. Martin-Artajo and Grout were indicted in September 2013.

"After four long years of protracted litigation, we are very pleased that the government has decided to do the right thing, and dismiss the criminal case," Grout's lawyer, Edward Little, said.

Lawyers for Martin-Artajo did not immediately respond to requests for comment.

Friday's dismissal request marks a fresh setback in U.S. efforts to prosecute individuals for financial crimes.

It came two days after a federal appeals court voided convictions won by Kim's predecessor, Preet Bharara, of two former Rabobank NA traders for rigging the Libor interest rate benchmark.

Martin-Artajo and Grout were accused of hiding hundreds of millions of dollars of losses within JPMorgan's chief investment office (CIO) in London by marking positions in a credit derivatives portfolio at inflated prices.

The losses were part of the $6.2 billion loss centered on Iksil, who Martin-Artajo supervised and Grout worked for.

Prosecutors said Martin-Artajo and Grout acted in part to enhance their prospects for promotions and bonuses.

The scandal briefly hurt the reputation of JPMorgan Chief Executive Jamie Dimon, who initially called it a "tempest in a teapot." JPMorgan ultimately paid more than $1 billion and admitted wrongdoing to settle related U.S. and British probes.

Iksil has chafed at the "London Whale" moniker and being portrayed as solely at fault for the losses.

In a February 2016 letter released to the media, the French national said he had been "instructed repeatedly" by senior management in the CIO to execute the trading strategy that caused the losses.

Martin-Artajo and Grout still face U.S. Securities and Exchange Commission civil charges over the scandal.

Iksil's lawyer and JPMorgan did not immediately respond to requests for comment.

The cases are U.S. v. Martin-Artajo et al, U.S. District Court, Southern District of New York, No. 13-cr-00707; and SEC v Martin-Artajo et al in the same court, No. 13-05677. (Reporting by Jonathan Stempel; Editing by Sandra Maler)