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Speaker 1: The London Whale prosecution is falling apart, and Manhattan federal

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Speaker 1: prosecutors are dropping all criminal charges against two former JP

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Speaker 1: Morgan Chase traders accused of hiding more than six point

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Speaker 1: two billion dollars in trading losses five years ago. Prosecutors

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Speaker 1: have spent years trying unsuccessfully to have Javier Martin Ortello

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Speaker 1: and Julian Grout extradited from their home countries of Spain

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Speaker 1: and France. But the reason for dropping the charges goes

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Speaker 1: to the heart of the evidence. The testimony of Bruno Exel,

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Speaker 1: the Frenchman who was dubbed the London Whale because of

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Speaker 1: huge derivative trades he made. Prosecutors no longer believe they

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Speaker 1: can rely on Exel's testimony because in a recent deposition

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Speaker 1: he said he had written a four hundred page memoir

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Speaker 1: of the case, claiming there was no fraud. Joining us

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Speaker 1: is Robert Hockett, a professor at Cornell University Law School,

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Speaker 1: Bob Federal prosecutors don't often dropped charges in white color

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Speaker 1: criminal cases. How big a blow is this for the

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Speaker 1: Manhattan US Attorney's Office. Well, in one sense, it's a

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Speaker 1: very large It's it's a considerable blow. And in another

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Speaker 1: sense it's it's sort of routine, and it's not really

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Speaker 1: that surprising or out of the ordinary. The I'll start

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Speaker 1: with the latter. The sense in which it's not out

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Speaker 1: of the ordinary, or the sense in which it's kind

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Speaker 1: of routine, is that it's it's it's long been understood

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Speaker 1: and long been established that certain countries are reluctant to

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Speaker 1: extradite their own citizens for proceedings in other nations criminal courts.

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Speaker 1: France in particular is notorious, are well known for this.

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Speaker 1: Germany is as well, And in this particular case, of course,

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Speaker 1: Spain is equally reluctant to to extradite a citizen of

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Speaker 1: its own over here to the US. So that happens

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Speaker 1: all the time. And anytime you have a case then

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Speaker 1: where you actually are requiring or um in need of

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Speaker 1: another nation to sort of extradite its own citizens rather

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Speaker 1: than others who are just resident within those other nations, Uh,

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Speaker 1: you're sort of taking a chance. Um. So in the

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Speaker 1: sense it's not that surprising. The sentence which it's blow,

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Speaker 1: of course, is that these were really the remaining defendants

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Speaker 1: in the criminal case. Uh. And if they're not going

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Speaker 1: to be expertited. And if furthermore, Exhil's testimony is not

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Speaker 1: actually going to be incriminating of them, then it does

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Speaker 1: look as though this particular case falls apart. We should

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Speaker 1: keep in mind, however, that there's nothing to prevent the

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Speaker 1: SEC or other financial regulators from continuing to pursue this case.

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Speaker 1: It's just that these are not going to be criminal cases. Well, Bob,

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Speaker 1: let's talk for a second about the government's rationale here.

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Speaker 1: So they've been pursuing this case for a very long

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Speaker 1: time now rights this memoir. But in the context of

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Speaker 1: the charges, why is it that they really felt they

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Speaker 1: needed to drop the case here? I think there are

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Speaker 1: a couple of couple of reasons. But one is that

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Speaker 1: they were going to be relying very heavily on the

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Speaker 1: testimony of Kicksiel himself. Right, um, And so if it

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Speaker 1: looks now is though Exil is not going to be

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Speaker 1: particularly helpful when it comes to going after these particular defendants,

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Speaker 1: then pretty much the entire predicate of the suit has

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Speaker 1: been removed. Right, as you probably know and as you

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Speaker 1: probably have have read. I mean, Exel's claim is is

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Speaker 1: not so much that there was no fraud at all.

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Speaker 1: It's as much as it is that essentially it all

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Speaker 1: came from higher up. So in a sense, what he's

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Speaker 1: saying is, look, if you guys want to go after

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Speaker 1: somebody and JP Morgan chase, you've got to go to

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Speaker 1: the higher ups. I'm not going to help you go

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Speaker 1: after the traders because we were actually just doing what

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Speaker 1: we were told to do. So in effect, he's just

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Speaker 1: telling the government that it's you know, at this point

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Speaker 1: it looks as the strategy or the targets that they

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Speaker 1: chose with the wrong targets. The other thing again is

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Speaker 1: the fact that the two defendants can't be extradited anyway,

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Speaker 1: that the nations of which their citizens are not going

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Speaker 1: to extradite them here. That of course also undercut the case,

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Speaker 1: at least as as far as criminal charges are concerned.

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Speaker 1: So Bob tell us what the traders are actually charged with.

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Speaker 1: They were charged with concealing, right, taking various measures to

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Speaker 1: conceal the magnitude of losses that JP Morgan actually incurred

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Speaker 1: through a series of derivative trades back in the lead

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Speaker 1: up to the London Whales scandals breaking back in the

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Speaker 1: spring of so these would have been classic securities fraud

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Speaker 1: type charges. Where you're actually concealing from your own investors.

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Speaker 1: You're concealing from the wider public how much you've lost

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Speaker 1: in particular transactions with a view, of course, to sort

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Speaker 1: of maintaining the value of your shares out there and

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Speaker 1: maintaining the attractiveness of yourself as an object of investment

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Speaker 1: for investors. Can they now, you know, you now have

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Speaker 1: a case where they've dropped the case because it's the

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Speaker 1: co operators not being so credible. Can they now rescind

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Speaker 1: the cooperation agreement? You mean JP Morgan itself? Oh? Um,

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Speaker 1: I h that's that really, it's that's unclear. I had said,

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Speaker 1: I don't think there's a good clear answer to that.

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Speaker 1: And the reason is that we don't know precisely what

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Speaker 1: is in Exil's Foe memoir yet, and we don't know

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Speaker 1: whether the content of it, which is likely to which

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Speaker 1: is thought to undercut or sort of render the government's

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Speaker 1: taste less helpful. We don't know to what extent that

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Speaker 1: content itself was uh sort of prohibited let's say, by

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Speaker 1: the cooperation agreement, right. In other words, it's not we

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Speaker 1: can't decide. We can't know yet whether Exil's four age

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Speaker 1: memorial is itself in some sense in contravention of the

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Speaker 1: cooperation Agreement until we actually have a chance to comb

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Speaker 1: through it, Bob, looking back hindsight, should EXEL have been

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Speaker 1: given this kind of a deal, that's that's just another

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Speaker 1: tough call. I mean, certainly in retrospect it's looking is

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Speaker 1: though it wasn't a good strategy. Um. But again it's

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Speaker 1: hard to tell, because it might well be that the

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Speaker 1: agreement itself precluded a memorial of the kind right that

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Speaker 1: Exil is now said to have written. And if that's

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Speaker 1: the case, right, then we can say, all right, look,

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Speaker 1: the government sort of covered its tracks very well here,

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Speaker 1: or it's sort of provided for a contingency at this

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Speaker 1: time very well by virtue of the terms of the agreement.

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Speaker 1: But we can't know yet whether that was provident or not,

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Speaker 1: because we don't know yet whether again, the details of

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Speaker 1: this four page document that EXEL has put together actually

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Speaker 1: end up, you know, being in contravention of of that agreement. Yeah,

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Speaker 1: I think, you know, if if anything might might inclination

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Speaker 1: is to say that the real mistake here, uh is

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Speaker 1: is more likely to be the concentration on traders themselves.

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Speaker 1: Those are sort of lower down than the hierarchy, rather

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Speaker 1: than looking up higher up in the hierarchy, which of

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Speaker 1: course Excel has maintained all along, was where the government

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Speaker 1: should have been looking very quickly in about thirty seconds, Bob,

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Speaker 1: do we have left are when you say, you know

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Speaker 1: the SEC might go forward? So what kind of jeopardy

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Speaker 1: of these traders still face in terms of what charges

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Speaker 1: they might see? Sure, so they still stand if they

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Speaker 1: still uh face the possibility of significant find being lefted

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Speaker 1: by the SEC or suspensions or prohibitions from ever participating

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Speaker 1: in the US financial markets, which their non trivial sanctions. Right,

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Speaker 1: So now it could be that they they're not really

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Speaker 1: interested in doing it anyways, that they set quot in

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Speaker 1: the United States, they would be subject to prosecution. But nevertheless,

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Speaker 1: I mean these would be significant regulatory sanctions of a

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Speaker 1: kind that would affect quite significantly anybody who actually wanted

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Speaker 1: to participate in US financial markets. Again, Bob, always a

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Speaker 1: pleasure to have you on Bloomberg Law. That's Robert Hockett,

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Speaker 1: professor at Cornell University Laws Goal