JPMORGAN CHASE WHALE TRADES: A CASE HISTORY OF DERIVATIVES RISKS AND ABUSES

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The SCP had never before experienced those types of sustained losses. According to
CIO personnel, at the beginning of 2012, $5 million was considered a sufficiently large loss that
the head of CIO, Ina Drew, would ask about it. 657 On February 29, 2012, the SCP book reported
internally a daily loss of $15 million. CIO trader Bruno Iksil informed his supervisor, Javier
Martin-Artajo, on that date that he had made some large trades, all of which experienced
“adverse” price changes, and seemed to obliquely reference manipulating the marks as a method
to limit the amount of losses reported, when he wrote that the trades had experienced “month end
price moves that were all adverse although we could limit the damage.” 658 He also advocated
analyzing “the lags we have in the core book.” 659 The “core book” was a reference to the SCP,
which the traders often described as the “Core Credit Book.” According to the bank, the term
“lag” referred to “the aggregate differential between the prices being assigned and the unadjusted
mid-market price.” 660
On March 9, 2012, in a recorded telephone conversation with Mr. Iksil, Mr. Grout
expressed concern about how “we’re lagging,” predicting that the final outcome of the SCP
trading strategy would be “a big fiasco” and “big drama when, in fact, everybody should have …
seen it coming a long time ago.” 661 His use of the term “lagging” in the telephone conversation
appears to have been a reference to the SCP’s ongoing, unreported losses. He cautioned: “We
have until December to cover this thing. … [W]e must be careful.” 662 His supervisor, Mr.
Martin-Artajo, later told the JPMorgan Chase Task Force investigation that their strategy was as
follows: “We can lose money on a daily basis, but correct with carry of the book. 663
Month-end
657 Javier Martin-Artajo, head of CIO equity and credit trading, reported: “If we ever had a loss over $5 million, Ina
calls me at night.” JPMorgan Chase Task Force interview of Javier Martin-Artajo, CIO (partial read out to
Subcommittee on 9/6/2012). See also 2013 JPMorgan Chase Task Force Report, at 50, footnote 64.
658
2/29/2012 email from Bruno Iksil, CIO, to Javier Martin-Artajo, CIO, “Core credit book update”, JPM-CIO
0003443. A later analysis by JPMorgan Chase’s Controller showed that, of 18 positions on February 29 examined
to verify their values, five or nearly one third had used more favorable prices than the midpoint prices. See chart on
February valuations, 5/10/2012 JPMorgan Chase Controller’s special assessment of CIO’s marks, January to April
2012, JPM-CIO 0003637-654, at 653.
659
2/29/2012 email from Bruno Iksil, CIO, to Javier Martin-Artajo, CIO, “Core credit book update”, JPM-CIO
0003443.
660
2013 JPMorgan Chase Task Force Report, at 47. The JPMorgan Chase Task Force defined the “unadjusted midmarket
price” as “the mathematical mid-point between the best bid and best offer in the market.” Id. It also noted
that “at times” some traders used the term “lag” to refer to “the amount by which the Synthetic Credit Portfolio was
underperforming a theoretical or fundamental valuation of the positions – i.e., how far behind their expectations it
was.” Id. at 48, footnote 57. For a longer discussion of the meaning of the term “lag,” see below.
661
See 3/9/2012 transcript of a recorded telephone conversation between Julien Grout, CIO, and Bruno Iksil, CIO,
JPM-CIO 0003445-3456, at 3449. (“Mr. Grout: Here we’re lagging – we’re lagging. Well, you’ll tell me this on
Monday and, and anyway, I see the impact very well. I have a vague idea you know how this is going to end up.
You know that [indecipherable] Trevor is going to try to get some capital, Ina will say no, so it will be a big fiasco
and it will be a [b]ig drama when, in fact, everybody should have, should have seen it coming a long time ago. ...
Anyway, you see, we cannot win here. … I believe that it is better to say that it’s dead, that we are going to crash.
The firm will service the debt. … It’s going to be very uncomfortable but we must not screw up. … It’s going to
be very political in the end. … We have until December to cover this thing. … we must be careful.”).
662
Id.
663
“Carry” refers to the cash premiums that short counterparties were paying to the CIO as the long party on certain
credit derivatives. Mr. Martin-Artajo seemed to be saying that the daily losses in the SCP book could be
“correct[ed]” or lessened through the receipt of the cash premiums or “carry” from the short counterparties.