When the Senate Permanent Subcommittee on Investigations wrote its 300 page report on JPMorgan’s $6.2 billion trading loss known as the “London Whale,” they identified four key actors in executing the trades and then allegedly covering up the true extent of the losses who were out of the country and not available to speak with investigators.
The subcommittee said that Achilles Macris, Javier Martin-Artajo, Bruno Iksil, and Julien Grout “played key parts in the events at the center of the inquiry.” Martin-Artajo and Grout, who worked in the London office of the Chief Investment Office were charged today with conspiracy, wire fraud, and making false statements while Iksil was an unnamed co-conspirator who secured a non-prosecution agreement. Macris, however, was not named or charged.
Macris started working for JPMorgan in 2006 and moved to the CIO in 2007. At the time of the “London Whale” trades, he was head of the CIO’s London office and one of Ina Drew’s chief deputies. In 2010 and 2011, according to documents published by the Senate committee, Macris made just under $32 million.
In Drew’s testimony before the Permanent Subcommittee, she said that Macris had “supervisory responsibility for the cash and synthetic credit books.” The Senate report says he “directly oversaw the Synthetic Credit Portfolio” that was the source of the massive losses in early 2012. Macris was fired in July along with Martin-Artajo and Iksil. Preet Bharara, the U.S. Attorney for the Southern District, said today that “remains open” and so “there are other people who remain under investigation.”
But according to the Senate investigation and the criminal complaint, Macris was at the very heart of the office that executed and then allegedly tried to cover up the disastrous trades. In the complaint, prosecutors allege that Martin-Artajo told Grout to mark derivatives trades in what was called the Synthetic Credit Portfolio because of pressure from his superiors over the portfolio’s flagging performance in the beginning of 2012.
On January 31, as losses started to mount, according to the complaint, Macris sent Martin-Artajo an email saying that he needed to “discuss the synthetic book” and that its “financial performance was worrisome.” The complaint says Martin-Artajo was “subject to continued and increasing scrutiny from the executives senior to him.”
A month later, on March 1, Macris sent another email to Martin-Artajo, telling him that he should “focus on the metrics and P+L [profit and loss] of the synthetic book.” He also told Martin-Artajo that if they actually reduced the size of the trades, they would “not be able to defend our positions.” Macris also wrote that it “would be important to focus on the P+L.”
It was at this point, prosecutors allege, that Martin-Artajo told Iksil and Grout “not to show any additional losses” on the derivatives trades if they were just due to market fluctuations. The complaint further alleges that Martin-Artajo claimed that these new instructions were what the bank’s senior management wanted, which would implicate not only Macris, but also Ina Drew, who was head of the Chief Investment Office. Throughout March, the difference between the standard prices for the derivatives and the prices Grout and Martin-Artajo were reporting got into the hundreds of millions according to the charges unsealed today.
In the Southern District’s other high profile white collar crime cases, like the insider trading investigations at the hedge funds Galleon and SAC Capital, their strategy has been to get to lower level employees and get them to flip on their superiors. So far, they already secured Iksil’s cooperation in flipping on employees both above and below him. The unsealed complaint attested that the information he provided to them was “accurate and reliable” and consistent with other records they obtained.
In a statement, April Brooks, a special agent-in-charge for the criminal division of the FBI, said that the two traders, Martin-Artajo and Grout, were “buckling to pressure from J.P. Morgan’s Chief Investment Officer” which lead the two “to manipulate the positions in their book to show smaller losses than actually occurred.”