A probe into JPMorgan Chase (NYSE:JPM) conducted earlier this year by the Senate Permanent Subcommittee on Investigations revealed one salient issue: The nation’s largest bank ignored internal controls and manipulated documents as trader Bruno Iksil — now known as the London Whale — racked up a more than $6 billion loss from outsize derivatives trades. His actions were at the center of the bank’s wider losses.
Next, United States prosecutors filed criminal charges against two former JPMorgan traders who allegedly attempted to disguise the bank’s mounting losses: Javier Martin-Artajo, the man in charge of the team that made the so-called whale-sized wagers in corporate-credit investments, and Julien Grout, the man responsible for recording the daily values on the team’s positions.
Both men have been accused of of covering up hundreds of millions of dollars in losses within the bank’s chief investment office by marking positions in a credit derivative portfolio at inflated prices. Iksil has not been charged with any wrongdoing and is cooperating with authorities.
One of the more significant impacts of the government investigation into the trading loss is the damage done to the reputation of JPMorgan and the bank’s CEO, Jamie Dimon, who once dismissed media coverage of the London Whale incident as a “tempest in a teapot.”
Dimon has long been the most powerful man in the U.S. banking industry, a status that was largely built on the fact that he led JPMorgan through the financial crisis with not a single quarterly loss darkening its balance sheet.
Once known as Washington’s favorite child, the chief executive has seen the relationship crumble as the overseas trading debacle unfolded, as it showed that JPMorgan was no longer the bank that could do no wrong. JPMorgan is also no longer the bank with the most outstanding balance sheet: In the third quarter, the bank swung to a loss because a number of legal and regulatory problems forced it to spend more than $9 billion on litigation-related fees.
The London Whale incident has left the bank under heightened regulatory scrutiny, but it’s not just the institution itself or its top executives that are regulators are trying to rein in. On Friday, Martin-Artajo — who is currently residing in his native Spain — rejected an extradition request from the United States.
Through a source from Spain’s High Court, Reuters learned that after Martin-Artajo turned himself over to the police at the end of August, he told officials that he was opposed to extradition, but judges can still decide to send him to the U.S. to face charges. “He said that in any case, the alleged events took place in the United Kingdom and not in the United States,” the court source said to the news service. Martin-Artajo is the most senior JPMorgan employee to be charged over the trading losses.
As Reuters reports, the fact that Martin-Artajo, whose great-uncle was Francisco Franco’s foreign minister after World War II, had a home and relatives in Spain helped him avoid jail time after he was arrested, as a judge determined he was not a flight risk. After police approached his family, he turned himself over.
The terms of Spain’s extradition treaty with the United States do not oblige the country to hand over its citizens. However, an extradition lawyer told the publication that Martin-Artajo may still be sent to the U.S. because the alleged crimes he committed are also punishable in Spain. The next step in the case will be for a Spanish judge to determine whether to request additional information from the U.S. Then, the case could be transferred to a higher panel of judges who will examine the extradition request.
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