SEC to Drop Civil Charges Against Ex-J.P. Morgan 'London Whale' Traders
August 18 2017 - 3:33PM
Dow Jones News
By Rebecca Davis O'Brien
Federal regulators said they would drop civil charges against
two former J.P. Morgan Chase & Co. traders at the center of the
2012 "London Whale" saga, ending the last U.S. case against traders
involved in a debacle that cost the New York bank more than $6
billion.
The decision by the Securities and Exchange Commission,
disclosed in a court filing Friday, follows a similar move in July
by U.S. prosecutors to drop criminal charges against the same
ex-employees, Javier Martin-Artajo and Julien Grout.
The former traders were accused of hiding the losses as they
mounted inside a London outpost of J.P. Morgan. The government
cases relied on a key witness, Bruno Iksil, who worked alongside
Mr. Martin-Artajo and Mr. Grout. Mr. Iksil, nicknamed the "London
Whale" for his outsize bets, agreed in 2013 to testify against his
former co-workers for their then-alleged roles in hiding the
losses.
The one-paragraph filing Friday from the SEC doesn't disclose
the reason for the dismissal. But people familiar with the case
said the move reflected concerns about Mr. Iksil, who in recent
public statements and deposition testimony stated the defendants
hadn't engaged in mismarking and had acted with assent from senior
management. That potentially contradicted the government's theory
of the case, these people said.
The criminal case collapsed in July for similar reasons. On July
21, prosecutors in the Manhattan U.S. attorney's office said the
government "no longer believes that it can rely on the testimony of
Iksil in prosecuting this case" after a "review of recent writings
and statements made by Iksil."
Lawyers for Messrs. Martin-Artajo and Grout welcomed the
decision to drop the civil and criminal cases. "At the end of the
day there was no evidence against him that justified the charges,"
said Edward Little, a lawyer for Mr. Grout. Bill Leone, a lawyer
for Mr. Martin-Artajo, said his client was "grateful," adding:
"This was not an unfair or an unjust result."
The U.S. Attorney's Office also cited extradition challenges in
its decision to drop the criminal charges: Mr. Martin-Artajo is a
Spanish citizen, Mr. Grout is a French citizen, and neither
appeared in the U.S. to face the charges.
Because of the extradition issue, the SEC was allowed to move
forward with civil proceedings before the criminal case against
Messrs. Martin-Artajo and Grout was resolved-an unusual sequence of
events that allowed for extensive discovery in the civil matter,
including depositions of witnesses. U.S. prosecutors asked the
court overseeing the SEC case in 2015 to take "any available
measures to prevent the defendants from using the civil discovery
process to circumvent the criminal process while they remain
fugitives from justice in the criminal case."
It was during discovery that Mr. Iksil's changing account
emerged. In a February hearing in the SEC matter, Mr. Little told
the court that they had learned of a 400-page memoir by Mr. Iksil
that appeared to contradict the government's case. Mr. Iksil had
also published some of his claims online.
"If I had to point to one thing that helped us prove our
client's innocence, it was our ability to gather information in the
civil case," Mr. Leone said. The lawyers presented the information
gathered in the process to civil and criminal authorities, he said.
"The amount of discovery that was permitted by this case was very
unusual, and it was much appreciated."
Gregory Zuckerman contributed to this article.
Write to Rebecca Davis O'Brien at rebecca.obrien@wsj.com
(END) Dow Jones Newswires
August 18, 2017 15:18 ET (19:18 GMT)
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