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Ex-bosses at JPMorgan unlikely to face charges in 'Whale' scandal

Ina Drew, (2nd L), former Chief Investment Officer of JP Morgan Chase Bank, confers with an aide before testifying before the Senate Homelan
Ina Drew, (2nd L), former Chief Investment Officer of JP Morgan Chase Bank, confers with an aide before testifying before the Senate Homelan

By Emily Flitter and David Henry

NEW YORK (Reuters) - The JPMorgan Chase & Co executives who supervised the traders at the center of the "London Whale" scandal are unlikely to face any charges over a trading debacle that cost the largest U.S. bank more than $6.2 billion, people familiar with the probe said.

Federal prosecutors on Wednesday brought criminal charges against two former JPMorgan traders - Javier Martin-Artajo and Julien Grout - accusing the pair of deliberately understating losses on the trades on JPMorgan's books.

The complaints make only passing reference to their former bosses. Neither Ina Drew, the bank's former chief investment officer, nor Achilles Macris, a former top Chief Investment Office executive, are mentioned by name in the complaints filed in New York.

The filings refer to Drew and Macris only by their titles and said they put pressure on their subordinates at one point to deal with the high degree of risk being taken on in the portfolio of derivatives trades that led to the losses.

There is no allegation in the complaints that either Drew or Macris did anything wrong or encouraged Martin-Artajo and Grout to conceal the losses, which first began to be publicly disclosed in May 2012.

Bruno Iksil, the trader most identified with the losses, is cooperating with federal prosecutors in an agreement which means he will not face charges. Iksil was known as "the London Whale" because of the size of derivatives trades he made.

U.S. Attorney Preet Bharara, when asked by reporters on Wednesday about the prospect of additional actions against higher executives, said: "These are the charges we have brought." He said that the investigation is ongoing.

That the two senior executives may emerge from the year-long investigation unscathed is a sign that the scandal may not do much additional damage to the bank's image or the reputation of its chief executive, Jamie Dimon.

While almost never commenting publicly on Macris, Dimon and his team have cast Drew as a hard-working, loyal veteran of the bank who was betrayed by a small group of rogue employees in her division of the company.

Lee Richards, the lawyer for Drew, did not return calls seeking comment. Edward O'Callaghan, a lawyer for Macris, declined comment. Neither Drew nor Macris could be reached for comment.

Macris, who ran the London division of the CIO and was Martin-Atajo's supervisor, is not cooperating with investigators and long ago returned to his native Greece, according to a person familiar with his situation. He received relatively little attention in a report on the debacle earlier this year from an investigative committee of the U.S. Senate.

Drew, who resigned when the losses became public, was once a member of Dimon's elite operating committee of executives. She was criticized in the company's internal investigation for failing to understand the risks the London traders had been taking as they made $2 billion in profits over several years.

The bank also said she did not ensure that the mechanisms to monitor the risk being taken on by her traders were working.

SUPERVISION QUESTIONS

Several former Securities and Exchange Commission enforcement lawyers said they believed there may be grounds for pursuing a civil failure-to-supervise claim against Drew and possibly Macris.

To do so, the lawyers say, regulators would have to believe there is sufficient evidence that the pair did not heed warning signs about the attempts to hide the losses early last year.

There is no indication that the SEC is planning to bring such a case.

The SEC, for now, is only looking to force JPMorgan to pay a fine and admit wrongdoing as part of a regulatory settlement, said people familiar with the situation.

A senior SEC official did not return calls seeking comment.

Experts pointed to the recent administrative failure-to-supervise claim the SEC filed against hedge fund manager Steven A. Cohen as precedent for holding bosses accountable for the wrongful acts of their employees. The SEC charged Cohen will overlooking signs of unlawful insider trading at his $14 billion SAC Capital Advisors.

Thomas Gorman, a partner at Dorsey & Whitney in Washington and a former senior SEC enforcement lawyer, said a failure-to- supervise claim is still possible. He noted such cases take time to bring and new evidence that comes from Iksil's cooperation could help regulators mount such a claim.

To be sure, emails and other communication records show much of the discussion about the trading strategy and loss reporting for the group linked to the scandal was confined to the three more junior employees: Javier Martin-Artajo, Bruno Iksil and Julien Grout.

In the event a case was brought against the more senior executives, both Macris and Drew could say they requested reports about the group's trading activities and the information they received in response consisted of lies. Drew said as much when questioned by the Senate Permanent Subcommittee on Investigations.

"TEMPEST IN A TEAPOT"

Before publicly filing the charges on Wednesday, prosecutors mined evidence from JPMorgan emails and recorded conversations as well as information provided under the deal they made with Iksil.

Dimon dismissed the earliest reports of the losses in April 2012 as a "tempest in a teapot," but soon changed his tone, saying of the CIO, "there are many errors, sloppiness and bad judgment."

"In hindsight," he added, speaking on a May 10, 2012 conference call, the CIO's strategy was "flawed, complex, poorly reviewed, poorly executed and poorly monitored."

Later, Dimon went out of his way to publicly praise Drew for her integrity and hard work for the company. He told analysts in July 2012 that he has "enormous respect" for her, even after all the criticism.

As chief investment officer for JPMorgan, Drew made $29 million in 2010 and 2011, and was among the highest paid JPMorgan employees. She oversaw employees, including more than 100 traders, in New York and London and was responsible for investing as much as $350 billion in 2012.

(Reporting by Emily Flitter and David Henry; Editing by Matthew Goldstein, Frank McGurty)

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