[ by Howard Haykin, Larry Goldfarb ]

JPMorgan Chase's $6.2 billion trading loss caper gets "curiouser and curiouser."  On Wednesday, it was disclosed that JPMorgan had, in ghoulish fashion, filed suit against Javier Martin-Artajo, the former manager who directly supervised Bruno Iksil, the so-called London Whale.  Mr. Martin-Artajo is one of JPM's former executives in the Chief Investment Office ("CIO"), a once little-known unit at the center of the bungled trades. 

As we all know by now, the London Whale had built an outsized position in an obscure corner of the credit markets which, when liquidated, translated into bank losses exceeding $6bn.  The lawsuit, which was filed in a London court, did not disclose the details of JPMorgan's claims against Mr. Martin-Artajo, according to a person with knowledge of the complaint. Mr. Martin-Artajo and Mr. Iksil have left the bank. 

As part of that effort, the bank conducted an internal investigation, combing through thousands of e-mails and phone records of traders to determine what went wrong at the chief investment office. The investigation, led by Michael Cavanagh, the bank's former CFO, uncovered that some traders within the unit might have improperly valued their positions as losses began to mount. Some phone recordings suggest that Mr. Martin-Artajo encouraged Mr. Iksil to value troubled positions in a favorable manner, according to people with knowledge of the situation.

Mr. Martin-Artajo, Mr. Iksil and 2 other employees who worked in the CIO are under investigation by criminal and civil authorities, that reportedly are examining whether the group mismarked the positions to cover up losses.  After revising valuations on those trades, JPMorgan had to restate its Q1 earnings. Federal authorities face a high legal bar.   Traders are given significant leeway to price certain financial instruments, like the complex credit derivatives at the center of the bet.  None of the people, as yet, have been accused of any wrongdoing.

For further details, go to:   [ Dealbook, 10/31/12 ].