Exclusive: A fourth trader under scrutiny in JPM "Whale" probe

NEW YORK Wed Sep 5, 2012 4:06pm EDT

The lobby of JP Morgan headquarters is photographed through a window in New York May 22, 2012. REUTERS/Eduardo Munoz

The lobby of JP Morgan headquarters is photographed through a window in New York May 22, 2012.

Credit: Reuters/Eduardo Munoz

NEW YORK (Reuters) - A fourth London-based JPMorgan Chase trader is under scrutiny in the investigation by U.S. authorities into the bank's nearly $6 billion trading loss, according to sources familiar with the situation.

Julien Grout, a trader who joined JPMorgan Chase in 2009, is drawing attention because he worked in the bank's Chief Investment Office and reported to Bruno Iksil, the French credit trader who is a central figure in the federal probe, said the two sources.

U.S. authorities are trying to determine whether traders in the bank's London office, including Iksil, took steps to try and hide some of the losses the bank was incurring on a series of complex derivatives trades. In the trading community in London, Iksil became known as the London Whale because of the large positions he and his colleagues were taking on.

Grout is still working for JPMorgan, according to a bank spokeswoman. He has declined to comment, she said.

He has retained a lawyer in connection with the investigation, the sources said.

Grout, who is also French, is at least the seventh current or former JPMorgan employee to retain outside counsel in connection with the probe.

The JPMorgan spokeswoman declined to comment further on the matter. The spokeswoman agreed to pass on a request for comment to Grout's lawyer but the lawyer did not respond to the request.

Grout worked for Iksil during the time the bank's Chief Investment Office was taking on increasingly large positions in an illiquid credit market, including an index that tracks derivatives tied to corporate defaults.

For a good while, the trades were profitable for the bank. But early this year, Iksil and the other traders then found themselves squeezed by hedge funds on the opposite sides of the trades when the market turned on JPMorgan.

After JPMorgan's positions became public, the bank unwound the trades and reported a loss of at least $5.8 billion.

An ongoing internal investigation has revealed that individuals inside the bank may have deliberately tried to cover up the size of the losses by mismarking the values of the trading positions.

Federal investigators, including prosecutors in New York and the U.S. Securities and Exchange Commission, are now examining the matter to try to determine whether anyone involved committed a crime. Both internal and external investigators are reviewing emails and other records and interviewing current and former employees to try to piece together the events surrounding the losses.

Representatives for the Federal Bureau of Investigation and the Manhattan U.S. Attorney's Office declined to comment. The SEC did not immediately respond to a request for comment.

Iksil was fired from the bank in July along with two superiors, Javier Martin-Artajo and Achilles Macris, after JPMorgan's internal inquiry found evidence the traders attempted to hide some of the losses.

The investigation by the bank and U.S. authorities has focused on others who worked for the bank outside of the four London traders.

So far, the highest ranking executive at JPMorgan to draw scrutiny is Ina Drew, the former head of the Chief Investment Office, who resigned from the bank in May. Drew's lawyer has declined repeated requests for a comment.

Two people who had risk-oversight roles connected to the CIO have also hired lawyers. They are Irvin Goldman, who served as chief risk officer for the CIO from February until he resigned from the bank in July, and Peter Weiland, who was the CIO's chief risk officer before Goldman.

Weiland is now part of a recently formed risk control team overseeing the CIO. Of the seven people who have retained lawyers, Weiland and Grout are the only ones who remain employed by the bank.

(Reporting By Emily Flitter with additional reporting by David Henry; editing by Matthew Goldstein, Jennifer Ablan and Bernard Orr)