The Guardian – by Rupert Neate
A former JP Morgan banker has been arrested in Spain 10 days after US authorities filed charges against him over the “London Whale” affair that cost the bank $6bn (£3.9bn).
Javier Martin-Artajo, who was the direct supervisor of Bruno Iksil, the trader dubbed the “London Whale”, handed himself in on Tuesday in Madrid following a conversation with the specialist fugitive unit of the Spanish police.
Martin-Artajo, a 49-year-old Spanish national, is wanted by US authorities on four charges of conspiracy, keeping false books and records, wire fraud, and making false filings to the Securities and Exchange Commission watchdog.
His passport has been confiscated pending extradition proceedings, a spokeswoman for the Spanish national court said. He faces up to 20 years in prison if convicted of the most serious charges, although extraditions from Spain to the US are rare.
He is accused of trying to inflate the value of trading positions held on JP Morgan’s books. The mismarking allegedly took place as the traders tried to hide mounting losses in an illiquid derivatives market, where they had made outsized bets.
Martin-Artajo, who was paid $11m a year for his work as head of Europe for JP Morgan’s chief investment office (CIO), was charged by the New York attorney general, Preet Bharara, earlier this month. Bharara alleges that as the London losses mounted Martin-Artajo and former junior JP Morgan trader Julien Grout began to “creatively cook the books”.
Iksil, who avoided criminal charges by agreeing to help prosecutors build a case against his former colleagues, is said to have warned Martin-Artajo in an email that the size of his trading positions had become “scary”.
“I don’t know where he [Martin-Artajo] wants to stop, but it’s idiotic,” Iksil, who was paid $6.8m in 2011, told colleagues as the losses spiralled.
FBI assistant director George Venizelos said it was a story of a “group of traders who got in over their heads, and to get out, doubled down on a series of risky positions”. He added: “In the first quarter of 2012 boom turned to bust, as the defendants, concerned about losing control to other traders at the bank, fudged the numbers on their daily book, and in some cases completely made them up. It brought a whole new meaning to cooking the books.”
Prosecutors allege JP Morgan issued its results for the quarter to 31 March 2012 on the basis of false and fraudulent information about the value of complex credit derivatives conducted by the bank’s CIO. Those results were later restated by $660m as a result of misvalued trading positions, the prosecution alleges.
Martin-Artajo was head of credit and equity trading of the CIO, working out of London but visiting New York. Iksil worked for him, as did Grout. The prosecutors said JP Morgan later discovered that 107 of 132 trading positions were marked in the books at more favourable prices than they should have been.
Martin-Artajo’s lawyer, who was not available for comment on Tuesday, has previously said he “is confident that when a complete and fair reconstruction of these complex events is completed, he will be cleared of any wrongdoing”.
A lawyer representing Grout, a French national, told Reuters his client had not committed any wrongdoing. He has not yet been arrested and is believed to be in France. “No, they have not arrested Julien, nor would they because France does not extradite their own citizens,” Grout’s US lawyer, Edward Little, told Reuters. “We are in discussions with US prosecutors about how we will proceed, but no decision has been made yet.”
JP Morgan declined to comment on the arrest.
http://www.theguardian.com/business/2013/aug/27/jp-morgan-banker-arrested-spain-london-whale-charges