U.S. authorities have struck an unusual deal by agreeing to waive criminal charges against the former JPMorgan Chase & Co. trader nicknamed the “London whale” in exchange for his testimony against two former colleagues whom prosecutors allege hid losses of more $6-billion.
Bruno Iksil, the Frenchman who earned his nickname for his large bets in credit derivatives, has agreed to co-operate with authorities against Javier Martin-Artajo, his former supervisor, and Julien Grout, a lower level trader who entered the valuations for the trades on the bank’s books.
Prosecutors with the U.S. attorney’s office in the Southern District of New York filed criminal charges against Mr. Grout and Mr. Martin-Artajo on Wednesday.
However, the decision to not charge Mr. Iksil or force him to plead guilty to a crime is “extraordinarily unusual,” one former Southern District prosecutor said.
It is odd in two respects, lawyers say. Usually prosecutors build cases by gaining the co-operation of low-level employees and “flip” them to make a case against their supervisors. Mr. Iksil’s co-operation may help build a case against his supervisor but he is also co-operating against his underling.
More unusual, former alumni of the Southern District attorney’s office say, is the break with tradition in not forcing a guilty plea from a key player in the case.
“It goes back decades. You make the co-operators plead to something. Even Sammy ‘The Bull’ Gravano had to plead to 19 murders in order for him to get John Gotti,” the former prosecutor said referring to the case involving the two notorious U.S. mobsters.
Under a deal with the government Mr. Gravano admitted to his role in 19 murders and testified against Mr. Gotti, before serving five years in prison and subsequently entering the U.S. witness protection scheme.
In the broad investigation into insider trading on Wall Street that has resulted in criminal charges against 82 people, only one person, an elderly medical doctor, was given a non-prosecution agreement.
That was in exchange for his testimony and co-operation against Mathew Martoma, a former portfolio manager at SAC Capital, who was charged with insider trading.
The case was the first to directly link alleged insider trading to Steven Cohen, SAC’s founder. Prosecutors later charged SAC with insider trading. The firm has pleaded not guilty.
“He’s the central guy. It’s hard to believe he gets the pass,” another former prosecutor said of the London whale.
“It would be unusual in a case of this profile to not charge the trader and at least make him plead guilty. Maybe the circumstances are such that he put the trades on and the positions were valued by someone else.”
Mr. Iksil’s lawyer declined to comment. Lawyers for Mr. Martin-Artajo and Mr. Grout have said their clients are not fleeing from the charges and that there was no attempt to conceal losses.
A spokeswoman for the U.S. attorney’s office declined to comment.
Mr. Iksil stands between Mr. Grout, who entered the marks, and Mr. Martin-Artajo who prosecutors allege directed both traders to avoid taking big losses.
In complaints filed by prosecutors and the Securities and Exchange Commission, authorities described how the traders struggled to value the positions and went from marking the trades at the midpoint between bid and ask quotes provided by dealers to marking at the values most favourable to the position.
In March 2012, Mr. Iksil allegedly recommended to Mr. Martin-Artajo that they take a one-time hit to get the values in line with market prices but was rebuffed.
Mr. Martin-Artajo “does not say anything. I find this ridiculous,” Mr. Iksil allegedly said to Mr. Grout. “I can’t, I can’t deal with this.”
Later that month, Mr. Iksil advised Mr. Grout to tell Mr. Martin-Artajo the losses were more than $500m, according to the SEC complaint. “It pisses me off … tell him it’s more than 500 … Tell him it’s more than 500 so he gets it,” Mr. Iksil allegedly said.
Despite the pleading, Mr. Grout allegedly followed Mr. Martin-Artajo’s instruction and marked the portfolio to show a loss of $9.5-million, according to the SEC.
Mr. Martin-Artajo also allegedly directed Mr. Grout to wait for New York prices before marking the portfolio in case they improved their position, the complaints allege.
JPMorgan fired Mr. Martin-Artajo and Mr. Iksil in July 2012 and restated its earnings. Mr. Grout was suspended and later left the bank and returned to France.