Newspaper article International Herald Tribune

As Chase Losses Piled Up, Hints of a Blind Eye in New York

Newspaper article International Herald Tribune

As Chase Losses Piled Up, Hints of a Blind Eye in New York

Article excerpt

The U.S. authorities outlined the breakdown in the bank's oversight in the two criminal complaints against Javier Martin- Artajo, a manager, and Julien Grout, a low-level trader in London.

Far from the Park Avenue headquarters of JPMorgan Chase, traders in an office building near the Thames River disguised the extent of their losses as a huge bet spun out of control last year, the U.S. authorities say.

While just two former traders for JPMorgan in London were criminally charged 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.

The U.S. authorities outlined the breakdown in the bank's oversight in the two criminal complaints against the 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 in the bank supported them.

When Mr. Martin-Artajo directed Mr. Grout to record losses only in extreme circumstances, he said that the directive had come from New York, meaning the bank's senior management. People inside the bank dispute that notion, arguing that Mr. Martin-Artajo had taken steps to conceal his actions from superiors. Still, according to the complaint, when another bank employee queried Mr. Grout about some of his valuations, he replied, "Ask management."

The manipulation continued, the government said, even as some of the traders were sounding alarms. According to the complaints, when Mr. 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, the U.S. authorities took aim not only at the traders but also at 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 had been "dead wrong."

"This was not a tempest in a teapot but rather a perfect storm of individual misconduct and inadequate internal controls," said Preet S. Bharara, the U.S. attorney in Manhattan, taking a thinly veiled swipe at Mr. Dimon's earlier assertion. April Brooks, a senior F.B.I. official, called the bank's compliance regime "little more than a rubber stamp."

JPMorgan declined to comment Wednesday. 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 Mr. Bharara's office continues to consider penalties for JPMorgan over the trading blowup, which has now generated more than $6 billion in losses. Prosecutors and the F.B.I. are also investigating more senior executives at the bank, according to people briefed on the matter.

One executive referred to in the criminal case but neither named nor charged is Achilles Macris, who was Mr. Martin-Artajo's supervisor. Mr. Macris remains under investigation. The future of the investigation, the people said, hinges on whether Mr. Martin- Artajo and Mr. Grout decide to cooperate.

Mr. Martin-Artajo and Mr. Grout were charged with wire fraud, falsifying bank records and contributing to false regulatory filings. The government also charged them with conspiracy to commit those crimes.

The U.S. authorities have held talks with the British authorities about extraditing the traders, according to people briefed on the matter. Yet Mr. Martin-Artajo is away from London on vacation and Mr. Grout left London this year for France. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.