United States authorities are planning to arrest two former JPMorgan Chase employees suspected of masking the size of a multibillion-dollar trading loss, a dramatic turn in a case that tarnished the reputation of the nation's biggest bank and highlighted the perils of Wall Street risk-taking.
The former employees, who worked in London, could be arrested soon and could face criminal fraud charges, people briefed on the matter said.
Javier Martin-Artajo, a manager who oversaw the trading strategy from London, and Julien Grout, a low-level trader responsible for recording the value of the soured bets, could ultimately be extradited under an agreement with British authorities. But it is unclear whether British authorities will be able to locate the men, who are natives of other European countries.
The plan to arrest the traders hints at an aggressive stance from the US, which has come under fire for prosecuting only a few Wall Street employees tied to the 2008 financial crisis. Taking aim at employees of a Wall Street giant such as JPMorgan, even when they fall below the executive ranks, could send a warning shot to the financial industry.
The losses at the heart of the JPMorgan case stemmed from outsize wagers made by the traders at the bank's chief investment office in London. They used derivatives, which are complex financial contracts whose value is typically tied to an asset such as corporate bonds, to bet on the health of large corporations including American Airlines.
Those trades soured last year, creating steep losses for the bank. JPMorgan, which initially disclosed the problem in May last year, has since announced that the losses reached more than US$6 billion.
While authorities are not pursuing charges against JPMorgan's top executives, according to the people briefed on the matter, the bank is nonetheless bracing for civil charges from regulators.
The Securities and Exchange Commission, which is expected to cite the bank for lax controls that allowed the traders to undervalue the value of the bets, could strike a settlement with the bank as soon as the autumn.
The Financial Conduct Authority, a British regulator, also planned to fine the bank in the coming months, one person said.