Hedge fund in 'Whale' trade tried to poach JPM employees -sources

Thu Feb 28, 2013 2:47pm EST

* BlueMountain Capital bet against JPM CIO in 'Whale' trade

* Fund had targeted JPM traders, risk managers before big loss

By Emily Flitter

NEW YORK, Feb 28 (Reuters) - BlueMountain Capital, a hedge fund involved in JPMorgan Chase & Co.'s $6.2 billion trading loss last year, tried to recruit several employees in the bank's chief investment office in the months before the losses, according to two people familiar with the matter.

The New York-based hedge fund had targeted people in the trading and risk management divisions of JPMorgan's chief investment office, the same part of the bank where Bruno Iksil, the trader who became known as the 'London Whale' for his outsized positions in a small derivatives market, was working.

None of JPMorgan's CIO employees left the bank for BlueMountain in 2011 or 2012 during the time the $12.5 billion hedge fund had sought to lure them away, said a person familiar with the situation.

The sources who confirmed the recruiting attempt by BlueMountain did not suggest anything improper by the hedge fund. However, the development adds a new thread to the already tangled connection between BlueMountain and JPMorgan over the Whale losses.

When losses from Iksil's trades began to mount as a group of hedge funds, including BlueMountain, bet against Iksil's positions, a complaint was raised by some inside the bank about BlueMountain's prior recruiting efforts, according to the sources.

It's not clear what those bank employees complained about, however.

"BlueMountain has no comment on recruiting efforts, out of respect for the confidential nature of their conversations with candidates," a spokesman for the hedge fund said.

Months after the big trading loss became public, one JPMorgan employee would eventually leave for a post at BlueMountain: Jes Staley, the former CEO of JPMorgan's investment bank. Staley left for the hedge fund after being shifted to a lesser role at the bank last year in the wake of the 'Whale' losses. He announced his move to BlueMountain on Jan. 8.

Staley did not respond to requests for an interview.

Reuters previously reported that traders inside the CIO were worried that they had come under a coordinated attack from hedge funds in the fairly illiquid market where positions in the CDX index are traded. The CDX index is an index representing the prices of selected corporate credit default swaps.

Last spring, when prices in the CDX market started moving against them, causing large losses, Iksil and his boss accused JPMorgan's investment bank and its traders of deliberately trying to move the market against the CIO by leaking information on its position to hedge funds.

The investment bank itself had taken a position opposite the CIO in the CDX market.

A lawyer for Iksil declined to comment.

After betting against the CIO positions, BlueMountain then helped JPMorgan unwind the CIO's trades once a public firestorm over the losses forced the bank to quickly exit the positions.

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