Remarks as Prepared by Special Agent in Charge April Brooks on Charges Against Two Derivatives Traders Involved in Multi-Billion-Dollar Trading Loss at JPMorgan & Chase Company
|FBI New York August 14, 2013|
FBI New York SAC April Brooks prepared the below remarks in connection with a multi-billion-dollar trading loss at JPMorgan & Chase Company.
The complaints tell 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. Javier Martin-Artajo and Julian Grout, who in prior years had turned profits as high as a billion dollars, sought to exceed the high expectations of JPMorgan for the portfolio they managed.
In the first quarter of 2012, boom turned to bust. Losses mounted and hedge funds shorted the bank’s massive position in the synthetic credit portfolio. 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.
Martin-Artajo not only approved of this, he alleged that the bank’s Chief Investment Officer also supported the reckless behavior.
Month after month, to provide themselves more time to exit their position, the defendants increasingly exaggerated the value of the synthetic derivatives the bank held.
Martin-Artajo and Grout were required by law to make and keep records, in reasonable detail, of the positions JPMorgan held. Obviously, they ignored the part about keeping those books fairly and accurately. They grossly inflated the value of the bank’s synthetic derivatives. It brought a whole new meaning to "cooking the books."
Buckling to pressure from J.P. Morgan’s Chief Investment Officer, Martin-Artajo and Grout continued to manipulate the positions in their book to show smaller losses than actually occurred. These records were eventually filed in the bank’s quarterly report with the SEC.
As losses mounted, JPMorgan moved aggressively to defend the position in the bank’s synthetic credit portfolio. Simply put, the traders thought they could buy their way out of their problem.
You’d think one of the biggest banks on the street would have rigorous compliance and oversight over their books. Think again. As described in the complaints, compliance over the bank’s synthetic portfolio was little more than a rubber stamp. It was compliance in name only.
JPMorgan’s Valuation Control Group relied on market views and price quotes from the very group of traders they were supposed to be overseeing. Banks and financial institutions who believe that they don’t need to conduct meaningful oversight should think again.
This should be a warning to bankers and traders everywhere. Integrity and probity cannot be sacrificed in the pursuit of income and profitability.
As today’s announcement shows, it’s just not worth it. Breaking the law by cooking the books is a recipe for imprisonment.
The integrity of our markets and our banking system are critical. We will continue to investigate these cases so long as people fail to heed that message.
I want to thank United States Attorney Preet Bharara, who has been an invaluable partner in bringing these cases; Deputy United States Attorney Richard Zabel; and Assistant U.S. Attorneys Eugene Ingoglia and Matthew Schwartz.
This investigation wouldn’t have been possible without the tireless work of FBI Special Agents Matthew Taylor, Sal Cincinelli, John Polonitza, and their supervisors David Chaves and Mario Pisano.
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