The Simple Argument The JP Morgan 'London Whale' Traders Could Use To Stay Out Of Jail

There are two main things law enforcement and lawyers are thinking about in the case of the two former JP Morgan traders accused of trying to hide the ‘London Whale’ trading loss — first, how to get them to the U.S., and then, how to defend them once they get here. It’s all broken down in the Wall Street Journal.

The two men, Javier Martin-Artajo and Julien Grout, face criminal charges including wire fraud, conspiracy to falsify books and records, and falsifying records to the SEC. They did all of that, the Justice Department alleges, in order to hide trading losses in JPMorgan’s London Chief Investment Office that ultimately ballooned into a $US6 billion hole for the bank.

Right now both Martin-Artajo and Grout are in Europe on vacation, so prosecutors are trying to figure out how to get them to New York City to face charges as quickly as possible. It could mean extraditing them from Spain, where Martin-Artajo is, or France, where Grout is — Spain would be more cooperative, says the WSJ.

On the other side, defence lawyers have to be thinking about how they’re going to structure the argument for their clients. One likely argument is pretty simple actually — Because the derivatives Martin-Artajo and Grout were trading were less liquid, they were also harder to value. The defence could argue that their clients were simply confused, not criminal.

There were instances when the JP Morgan traders felt their positions were being undervalued by their counterparties, and according to experts, this argument could actually work (from the WSJ):

Charges related to valuations placed on trades have had mixed results for prosecutors. Barry A. Bohrer, a partner with the law firm Schulte Roth & Zabel LLP who specialises in white-collar litigation, said a challenge for the prosecution will be explaining complex and opaque financial products to jurors. The government will need to show that the traders purposely mismarked the value of the assets.

“It’s more art than science in an area where the prosecution has a very high burden of proof,” he said. “I think it’s a real question as to whether they’ll be able to get a jury to find criminal liability here.”

Sounds familiar. On the other hand, you have to remember that the trader first pinpointed as the ‘London Whale’ is cooperating with the Department of Justice — so there’s that.

If you want to go deeper into the legalese, head to the WSJ>

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