The Securities and Exchange Commission has dropped its claims against two former JP Morgan Chase traders who were accused of hiding upwards of six billion dollars in trading losses as part of the infamous London Whales scandal. Javier Martin our top Are Tahoe and Julian Grout had been accused of working with Bruno Exel, a fellow trader whose massive derivative bets were at the center of the scandal. The SEC move comes four weeks after the US US prosecutors dropped
criminal charges against the two men. With me to talk about all this is Robert Hockett. He's a professor at Cornell University Law School. Bob, thanks as always for joining us here on Bloomberg Law. Um, let's just start with what the SEC was claiming in this case. What did it say that the two men did that was against the law? Great? Well, thanks so much, Greig. Great to
be with you again. Um. The principal charges that both the SEC and the the o J originally head levied against these two so they had conspired to seal certain trades that have since that, of course, were known as the so called London whale trades, um. And so they claim was that they worked to conceal those trades, in particular in order to conceal the losses were incurred as a result of them. And why what do we know
about why the SEC decided to drop the case. There seemed to be two principal reasons at least that they're offering, uh. And these are the same reasons essentially that the o J offered about this time last month when they dropped the case, as you mentioned at the top of the power here or at the top of our chat here um. So the first reason that's given is that the two defendants, Mr Grooves Uh and Mr our Tayo are citizens of other nations, right, Mr Group I believe it's from France
and Mr howgier Tyo is in Spain. We have extradition treaties with both of those countries, but they've also both declined to extradite. So one of the claims is that, well, we wouldn't have been able to get them over here
of the US anyway. I think the more important reason is that that's given as the second, assuming of course that it's possible or true, um, and that is that the prosecution's case, both in the case of the d J and that at the SEC was essentially reliant upon and he was completely dependent up on anticipated testimony from Mr ick Sil, who was the supervisor of one of the defendants and was the immediate underling of the other
of the defendants. Uh and uh. So the claim is that Mr Exxil has sort of since changed his mind about whether he's willing to cooperate as a prosecutorial witness. Uh and he's signaled that change of heart both verbally or orally, you might say, on the one hand, and in writing, in the sense that he's written a very lengthy narrative about everything that transpired, and in that narrative he says that really all of this was all of this was caused by people up at the very top
of j JP Morgan, uh Chase, nobody down below. Is the reason I think that the government bungled this case.
So they cut a deal with Exel, who's the guy at the center of it, and then it turns out what they get from him is something that is unreliable enough they have to drop claims, both both criminal and and now civil against a couple of the individuals who supposedly were working with him, Right, Well, it'll be very I think it'll be very interesting to see what happens next, if anything does happen next, because um, that will tell us whether Exil is unreliable in any kind of broad
general sense on the one hand, or whether he's simply unreliable to witness to prosecute needs to lower in on
the totem pole characters on the other hand. So, for example, if indeed excels charges about what happened up at the top, including on the part of Jamie Diamond, or plausible or or even correct, then it's a little much to say that he's not reliable in a general sense, right, It would only make sense to say he's not reliable as a witness if you're going to prosecute people who are less responsible, who are lower on the jp M Chase food chain, so to speak. Um, and that's what I'm
kind of I'm curious to see what happens next. Right If the government is I mean, if they're serious, right that there actually is you know something there, but that Exel is simply not going to be reliable on it, then you know, to put their money where their mouths are. So to speak, they really ought to be then investigating
people higher uough the people who bill sas are actually responsible. If, on the other hand, they think that Excel is just across the board unreliable, he's just sort of too mercurial as to what he says, then of course they are effectively admitting that they can bundle the case because they built the whole thing around the exil's testimony, and now they're saying that Xil has bamboozled them. Bob only about a minute left. But but tell me this is it?
You know, so JP Morgan Chase agreed to pay something like a billion dollars um to resolve claims against it. Is is there a theme or that it's just much easier or why is it it seems so much easier to get the company to to agree to a deal than it is to win cases the criminal or civil against individuals. Yeah, so there's a there's a cynical answer
in a in a more sort of a non cynical answer. Uh, the cynical answer is that you know, they're much more willing to go for the money damages just because those are easier to have. Right that Basically, Um, I'm sure. This is The non cynical is that the the the money damages are easier to have, it's much harder to convict, especially when the burden's a proof are so high when they due process rights, so various dependants are implicated, either in a criminal case or to a lesser degree in
that regulatory case. The more cynical answer is is that you know, this particular government is really not that unfriendly to the higher ups in these firms, and so they're content to let them simply pay fines. In the firms themselves are too because the fines are the penalties that they pay are peanuts compared to the gains that they stand to make. We're gonna have to leave it there, thank you very much, Bob. How can of Cornell you know RCTY Law School