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Feds Let JPM London Whale Swim Free; Go After London Minnow

Posted by Larry Doyle on August 15, 2013 8:00 AM |

Can you imagine if instead of suspending Alex Rodriguez and others for the use of PEDs that Major League Baseball went after the clubhouse boy, who may have been perhaps knowingly delivering them “the stuff,” and presented that to the public as cleaning up the game?

Or, if we were to steal a scene from the fabulous flick Goodfellas, picture the Feds charging the young and impressionable Spider for his involvement — albeit as a barboy — in “the family” running rackets and presenting that to the public as one of the first cases to clean up the mob.

The authorities in either case would face a fair bit of ridicule. As well they should. 

Yet it is not a stretch to make these comparisons to the charges levied against former London-based JP Morgan junior trader Julien Grout — whom I would characterize as the London Minnow  — for his involvement in the London Whale scandal.

On the heels of the SEC winning its case against Goldman Sachs vice president Fab Tourre and with these charges levied against Mr. Grout, the Feds are setting the bar mere inches off the ground in their attempt to clean up our financial industry. All I can say is that the job of being a junior trader on Wall Street just got decidedly more risky.

How is it that the London Whale, Bruno Iksil, who directly engaged in putting on the trades that led to the misrepresentations and potential fraud is allowed to cut an immunity deal and swim free while an individual, Mr. Grout, who simply took orders now faces the potential of doing serious time? The pursuit of justice here seems dramatically misplaced. The FT touches upon this theme this morning:

The former JPMorgan Chase trader nicknamed the “London whale” escaped without criminal charges in exchange for his testimony against two former colleagues whom prosecutors allege “concealed massive losses”.

Bruno Iksil, the Frenchman who earned his nickname for his large bets in credit derivatives, signed a nonprosecution agreement with authorities to testify against Javier Martin-Artajo, his former supervisor, and Julien Grout, a lower level trader who entered the valuations for the trades on the bank’s books. Both men were charged on Wednesday in New York with conspiracy and misleading investors.

The decision to not charge Mr Iksil or force him to plead guilty to a crime is “extraordinarily unusual”, one former Southern District of New York prosecutor said.

 . . . the deal stands out in two respects, lawyers say. Usually prosecutors build cases by gaining the co-operation of low-level employees and “flip” them to make a case against their supervisors. Mr Iksil’s co-operation may help build a case against his supervisor but he is also co-operating against his underling.

More unusual, former alumni of the Southern District attorney’s office say, is the break with tradition in not forcing a guilty plea from a key player in the case.

I am all for pursuing the truth and justice here.

The Feds should connect the dots to Martin-Artajo and elsewhere up the chain of command. Let the chips then fall where they may. Subpoena Grout and get a wealth of evidence to make the case.

To charge an individual like Mr. Grout, though, who is really little more than a caddy, sends the message that the Feds are more interested in getting a scalp — regardless of whose scalp it is — than meaningfully pursuing truth and justice and cleaning up Wall Street.

Junior traders on Wall Street should navigate accordingly.

Larry Doyle

Please pre-order a copy of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy, that will be published by Palgrave Macmillan on January 7, 2014.

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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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