On Aug. 12, rumors began circulating that JPMorgan Chase & Co. (JPM) wouldn’t be able to escape allegations they intentionally misled investors by just paying out a settlement, and that criminal charges would be officially levied against traders at the bank. Those rumors came true on Aug. 14 as the Department of Justice issued warrants for former traders Javier Martin-Artajo and Julien Grout, charging them with conspiracy, falsifying records, wire fraud, and filing false documents with the Securities and Exchange Commission. If convicted, the two could face up to 20 years in jail apiece.
Martin-Artajo and Grout are being concomitantly charged by the SEC for the same crimes. The SEC is also asking JPMorgan to officially admit culpability in the scandal, which could potentially open the investment bank up to shareholder lawsuits.
Prior to 2009, Martin-Artajo and Grout had made billions for the bank via their Synthetic Credit Portfolio, an unstable type of complex derivative financial security built on credit default swaps. The synthetic portfolio eventually fell apart as the housing crisis amplified, yet Martin-Artajo and Grout continued to juke the numbers to hide the losses from investors.
Once the lie was uncovered, JPMorgan got rocked. The usually financially conservative bank went reeling, with CEO Jamie Dimon himself taking a massive pay cut to offset losses.
Dimon had previously downplayed the London Whale case, infamously referring to it as a “tempest in a teapot,” before finally admitting the true scope of the losses. In a letter to shareholders in April, Dimon wrote, “The London Whale was the stupidest and most embarrassing situation I have ever been a part of.”
The alleged mastermind, Bruno Iksil, nicknamed the “London Whale” because of his unusually large positions at JPMorgan, is turning state’s evidence to avoid prosecution. Iksil oversaw the $6.2 billion derivatives loss that went unnoticed by the top brass at JPMorgan until it was too late.
Despite the London Whale debacle, JPMorgan booked their third straight year of record profitability in 2012. The company reported $5.7 billion in profits on $24.4 billion in revenue. In the second quarter of 2013 JPMorgan reported continued explosive growth, with net income topping $6.5 billion during the period.
JPMorgan was flat on the day, down .08 percent to hit $54.25 a share.
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