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

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JPMorgan Chase told the Subcommittee that the decision to restate its financial results
was a difficult one, since neither $660 million nor $459 million was clearly a “material” amount
for the bank. 850 In addition, the bank told the Subcommittee that the valuations used by the CIO
did not, on their face, violate bank policy or GAAP, because the CIO had generally used prices
that fell within the bid-ask spread to value its credit derivative positions. 851 The bank told the
Subcommittee that it finally decided, however, that the telephone calls, instant messages, and
emails indicated that the London CIO personnel had not acted in “good faith” when selecting
prices for the SCP positions, and so the SCP valuations had to be revised. 852
Ina Drew resigned on May 13, 2012. On July 12, 2012, the day before the restatement
was announced, the bank sent termination letters to Achilles Macris, Javier Martin-Artajo, and
Bruno Iksil. Mr. Martin-Artajo’s letter included the following explanation for his termination:
“During March and April 2012, when the Book began to show significant losses,
you directed Bruno Iksil and/or Julien Grout to show modest daily losses in the
marking of the Book rather than marking the Book in a manner consistent with
the standard policies and procedures of JP Morgan Chase & Co…and/or to
provide daily profit and loss reports that would show a long-term trend in the
value of the Book’s positions that did not necessarily reflect the exit price for
those positions under the Firm’s standard policies and procedures.” 853
Bruno Iksil’s termination letter included a similar explanation:
“During March and April 2012, when the Book began to show significant losses,
you received or were aware of instructions from Javier Martin-Artajo (i) to show
modest daily losses in the marking of the Book rather than marking the Book in a
manner consistent with the standard policies and procedures of JP Morgan Chase
& Co…and/or (ii) to provide daily profit and loss reports that would show a longterm
trend in the value of the Book’s positions that did not necessarily reflect the
exit price for those positions under the Firm’s standard policies and procedures.
You complied with, or permitted the compliance by Julien Grout with, such
instructions in whole or in part with the result that there was a significant
divergence between values under the Firm’s standard policies and procedures in
the Book’s stated value.” 854
850
Subcommittee interview of Michael Cavanagh, JPMorgan Chase (12/12/2012).
851
Id. See also 5/10/2012 JPMorgan Chase Controller’s special assessment of CIO’s marks, January to April 2012,
at 10, JPM-CIO 0003637-654, at 646 (“CIO book marks on individual positions were generally within the bid offer
spread.”); 2013 JPMorgan Chase Task Force Report, at 6, 55. 74.
852
Subcommittee interview of Michael Cavanagh, JPMorgan Chase (12/12/2012). See also 2013 JPMorgan Chase
Task Force Report, at 7-8, 89.
853
7/12/2012 letter from JPMorgan Chase to Javier Martin-Artajo, CIO, JPM-CIO-PSI-H 0002744-745, at 744.
854
7/12/2012 letter from JPMorgan Chase to Bruno Iksil, CIO, JPM-CIO-PSI-H 0002740-741, at 740. See also
7/12/2012 letter from JPMorgan Chase to Achilles Macris, CIO, JPM-CIO-PSI-H 0002742-743, at 742.