Ex-JPM 'Whale' deputy argues he was just following orders: source

Fri Sep 13, 2013 5:02pm EDT
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By Emily Flitter

NEW YORK (Reuters) - A lawyer for a former JPMorgan Chase & Co employee who worked with "the London Whale" Bruno Iksil, has been trying to convince U.S. prosecutors that his client was the unwitting victim of manipulation by his superiors, a source familiar with the matter said on Friday.

The negotiations, which have taken place privately and only involved a handful of lawyers in the Manhattan U.S. Attorney's office, are part of former employee Julien Grout's bid to have criminal charges of fraud against him dropped.

On August 14, prosecutors accused Grout, who was Iksil's deputy in the bank's Chief Investment Office in London, of trying to hide hundreds of millions of dollars in trading losses by marking positions in a credit derivatives portfolio at falsely inflated prices.

In a meeting with prosecutors late last month, Grout's lawyer Edward Little argued Grout did not know the prices were wrong, the source said. Instead, based on the instructions he was given by superiors, including Iksil, Grout recorded prices he thought were correct.

In response, the source said, prosecutors offered Grout the chance to talk to them directly and tell them whatever he knew without the risk of further incrimination. He declined, the source said.

The U.S. government still has the option not to pursue the charges against Grout. But if a grand jury votes to indict him, the opportunity for the charges to be dismissed will vanish. Prosecutors are expected within the next month to seek indictments against Grout and his former boss, Javier Martin-Artajo, who was also charged.

To prove in criminal court Grout committed fraud, prosecutors will have to show he knew the prices of the trades he was entering were too high and that he consciously decided to record incorrect prices.

The trades in question were part of a series of outsized positions Bruno Iksil took in an illiquid market for credit derivatives, leading other traders to nickname him "the London Whale." When news of the JPMorgan traders' big bets became public early last year, the bank was forced to quickly unwind the trades, incurring a $6.2 billion loss.   Continued...