“Despite the staggering decline,” the SEC said, “on the evening of April 10, Grout disseminated a report, at the direction of Martin-Artajo, showing a daily mark-to-market loss for the SCP of only $5.7 million. An hour and a half later, Grout replaced this report with another one that reported a much higher daily loss of $395 million.”
According to the criminal complaints, on April 13, JPMorgan reported its results for the first quarter of 2012, and because of the actions of the defendants, the bank’s consolidated income was overstated by hundreds of millions of dollars.
A week later, JPMorgan received collateral calls of more than half a billion dollars related to the SCP’s investments, at which point the bank relieved both Martin-Artajo and Grout of their authority to trade and mark the SCP, the government said.
The U.K.’s FCA is investigating whether JPMorgan provided the regulator with enough information about the risk the bank was taking, a person briefed on the matter said. A decision probably won’t come until the end of the year, the person said.
JPMorgan released its own internal report on the trading loss in January, which found an “error prone” risk-management system, traders overwhelmed by the complexity of their bets, and managers including Dimon who weren’t aggressive enough in halting the losses.
The bank still made a record $21.3 billion in profit last year.
In March, a Senate subcommittee accused JPMorgan in a 301- page report of hiding losses, deceiving regulators and misinforming investors.
Drew, who ran the CIO, and her head of international CIO, Achilles Macris, left the company along with other top executives. The bank clawed back more than $100 million in pay from Drew and other managers.
The Senate subcommittee, led by Michigan Democrat Carl Levin, referred its findings to the SEC and Justice Department in April.
“There is reasonable cause to believe a violation of the law may have occurred,” Levin said at the time.
The FBI and the SEC scrutinized public statements, calls with investors and an April 2012 earnings presentation by Dimon and then-Chief Financial Officer Douglas Braunstein, according to five people with knowledge of the probes.
Investigators also reviewed, among other issues, whether London traders “painted the tape,” a form of market manipulation that allows them to inflate the value of their positions, three of the people said at the time.
“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,” said FBI Assistant Director George Venizelos in a statement following the charges. “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.”
The cases are U.S. v. Grout, 13-MAG-01976, and U.S. v. Martin-Artajo, 13-MAG-01975, U.S. District Court, Southern District of New York (Manhattan). The SEC case is Securities and Exchange Commission v. Martin-Artajo, 13-cv-05677, U.S. District Court, Southern District of New York (Manhattan).