SEC v. Javier Martin-Artajo and Julien G. Grout, Case No. 13-cv-5677 (S.D.N.Y.). On August 14, 2013, the SEC announced fraud charges against Traders Javier Martin-Artajo and Julien Grout, former traders at JPMorgan Chase & Co. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges
against them. The SEC alleges that Martin-Artajo and Grout worked in JPMorgan’s chief investment office (“CIO”), which created a portfolio known as Synthetic Credit Portfolio(“SCP”). The portfolio was invested in credit derivative indices. When the market value of SCP’s positions declined, Martin-Artajo and Grout tried to hide the losses by giving management fake valuations of SCP’s investments. According to the SEC, under generally accepted accounting principles and JPMorgan’s own policies, Martin-Artajo and Grout were supposed to mark the portfolio’s investments at fair value. As the losses mounted, however, they mismarked positions by maximizing their value instead of marking them at the appropriate value which would have shown the losses. As a result, JPMorgan’s reported first quarter income before income tax expense to be overstated by $660 million. The SEC alleges that on several occasions, Martin-Artajo provided a desired daily loss target to conceal the extent of the losses. Grout used the marks in JPMorgan’s books and records and sent false daily profit and loss reports to CIO management. A few months later, trading counterparties raised issues with SCP positions and then, JPMorgan’s management stripped the SCP traders of their marking authority and began valuing the book at the consensus mid-market prices. The SEC charged Martin-Artajo and Grout with violating Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5 and 13b2-1, and with aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-11 and 13a-13. The SEC seeks injunctive relief, disgorgement and civil monetary penalties.
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