By Emily Flitter and Matthew Goldstein
NEW YORK, Sept 17 U.S. prosecutors are still
investigating JPMorgan Chase & Co's "London Whale"
trading scandal for potential criminal wrongdoing, according to
people familiar with the probe, in a sign that an expected $700
million regulatory settlement may not put the issue to rest for
the largest U.S. bank.
Federal prosecutors in New York and FBI agents are piecing
together the events that led JPMorgan to restate its 2012
first-quarter earnings and eventually reveal more than $6
billion of losses from enormous bets a group of London-based
traders made on illiquid credit derivatives, according to
News of the continuing criminal investigation was first
reported by Reuters on Tuesday. Meanwhile, a source told Reuters
the U.S. Securities and Exchange Commission approved its portion
of the civil settlement in a split vote.
The investigators are focusing on whether people inside the
bank had more detailed knowledge about the potential losses than
the bank had expressed in its early public statements about the
matter, the sources said.
Two former bank employees - Javier Martin-Artajo and Julien
Grout - have already been charged with trying to hide some of
those losses by deliberately giving inaccurate values to the
sophisticated securities involved in the trades. Authorities are
trying to determine whether Martin-Artajo and Grout and others
working with them had felt pressured to minimize the losses, the
Bruno Iksil, the trader whose large bets earned him the
nickname "London Whale," has signed a cooperation agreement with
prosecutors and has not been charged with any wrongdoing.
JPMorgan has said its previous statements have been truthful
regarding the events related to the London Whale trades.
"Our senior executives said what they believed to be true at
the time," Mark Kornblau, a bank spokesman, said on Tuesday.
The news of the continuing criminal investigation into the
bank's actions underscores the extent of legal and regulatory
troubles facing JPMorgan and its chief executive, Jamie Dimon.
JPMorgan is facing probes by various government agencies
into areas that include possible bribery in hiring practices in
China, and potentially fraudulent sales of mortgage securities.
Following the "Whale" scandal, Dimon faced a bruising battle
with some shareholders to retain his chairman title and has
since been under pressure to improve the bank's relationship
In a memo to employees on Tuesday, Dimon said the bank is
braced for more legal and regulatory scrutiny in the coming
weeks and months. He outlined a series of steps JPMorgan has
taken to improve operations, including devoting "unprecedented"
resources to fix its risk, legal and compliance operations.
Dimon said he has also begun meeting personally with regulators
to improve relationships.
JPMorgan has added 4,000 staff to its control group since
2012 - three quarters of them this year - and increased spending
on those efforts by about $1 billion. The bank's control group
includes risk, compliance, legal, finance, technology, oversight
and control and audit functions.
"Never before have we focused so much time, effort,
brainpower, technological power and money on a single,
enterprise-wide objective," Dimon said in the memo, which was
reviewed by Reuters.
News of the criminal investigation comes after a source said
on Monday that the bank was nearing a deal with regulators,
including the U.S. Securities and Exchange Commission, the
Office of the Comptroller of the Currency and the Federal
Reserve, to settle their probes into the "Whale" scandal for at
least $700 million.
In a split vote late last week, the SEC approved its portion
of the settlement with J.P. Morgan, according to people familiar
with the matter. Mary Jo White, the SEC chairman, and Daniel
Gallagher, an SEC commissioner, both recused themselves. Most
votes by the commission are unanimous.
White withdrew because JPMorgan was among her clients when
she worked as a defense attorney at Debevoise & Plimpton.
Gallagher's former firm, WilmerHale, also did work for JPMorgan.
It is too early to say whether any additional charges will
be brought or whether the bank itself will face any criminal
liability. But federal prosecutors did not participate in
settlement talks between the bank and its regulators, sources
"The Justice Department is saying, 'We don't want to buy a
pig in a poke. We want to know what the scope of the issues are
before we say you're done, we have no more business with you on
this issue,'" said Samuel Buell, a professor at Duke University
The U.S. attorney in Manhattan, Preet Bharara, at an August
press conference announcing the criminal complaint against
Martin-Artajo and Grout, said his office was continuing to
investigate the trading losses. On Monday, a federal grand jury
in Manhattan indicted the two former JPMorgan traders.
Martin-Artajo, who supervised Iksil, is charged with
conspiracy to commit fraud, falsify books and records, and make
false statements to the SEC. Grout is facing similar charges.
U.S. prosecutors say the two deliberately reported inflated
values for Iksil's derivatives positions to try to hide the
losses they were suffering from higher-ups in the bank.
Both men are living in Europe and federal authorities aim to
extradite them to New York for trial. Martin-Artajo's lawyer
recently said he would fight extradition from Spain. Grout's
lawyer said in a statement emailed to the press on Tuesday, "We
look forward to his vindication."
The ongoing criminal probe leaves JPMorgan in a position
similar to the one in which the embattled hedge fund SAC Capital
Advisors found itself last spring when it agreed to pay more
than $600 million to settle an insider trading case brought by
the SEC, only to find itself facing similar criminal charges
Just as with the London Whale regulatory investigation,
federal prosecutors did not take part in the settlement talks
Steve A. Cohen's SAC Capital had with the SEC.