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Speaker 1: The Securities and Exchange Commission has dropped its claims against

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Speaker 1: two former JP Morgan Chase traders who were accused of

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Speaker 1: hiding upwards of six billion dollars in trading losses as

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Speaker 1: part of the infamous London Whales scandal. Javier Martin our

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Speaker 1: top Are Tahoe and Julian Grout had been accused of

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Speaker 1: working with Bruno Exel, a fellow trader whose massive derivative

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Speaker 1: bets were at the center of the scandal. The SEC

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Speaker 1: move comes four weeks after the US US prosecutors dropped

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Speaker 1: criminal charges against the two men. With me to talk

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Speaker 1: about all this is Robert Hockett. He's a professor at

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Speaker 1: Cornell University Law School. Bob, thanks as always for joining

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Speaker 1: us here on Bloomberg Law. Um, let's just start with

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Speaker 1: what the SEC was claiming in this case. What did

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Speaker 1: it say that the two men did that was against

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Speaker 1: the law? Great? Well, thanks so much, Greig. Great to

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Speaker 1: be with you again. Um. The principal charges that both

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Speaker 1: the SEC and the the o J originally head levied

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Speaker 1: against these two so they had conspired to seal certain

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Speaker 1: trades that have since that, of course, were known as

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Speaker 1: the so called London whale trades, um. And so they

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Speaker 1: claim was that they worked to conceal those trades, in

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Speaker 1: particular in order to conceal the losses were incurred as

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Speaker 1: a result of them. And why what do we know

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Speaker 1: about why the SEC decided to drop the case. There

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Speaker 1: seemed to be two principal reasons at least that they're offering, uh.

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Speaker 1: And these are the same reasons essentially that the o

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Speaker 1: J offered about this time last month when they dropped

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Speaker 1: the case, as you mentioned at the top of the

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Speaker 1: power here or at the top of our chat here um.

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Speaker 1: So the first reason that's given is that the two defendants,

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Speaker 1: Mr Grooves Uh and Mr our Tayo are citizens of

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Speaker 1: other nations, right, Mr Group I believe it's from France

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Speaker 1: and Mr howgier Tyo is in Spain. We have extradition

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Speaker 1: treaties with both of those countries, but they've also both

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Speaker 1: declined to extradite. So one of the claims is that, well,

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Speaker 1: we wouldn't have been able to get them over here

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Speaker 1: of the US anyway. I think the more important reason

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Speaker 1: is that that's given as the second, assuming of course

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Speaker 1: that it's possible or true, um, and that is that

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Speaker 1: the prosecution's case, both in the case of the d

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Speaker 1: J and that at the SEC was essentially reliant upon

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Speaker 1: and he was completely dependent up on anticipated testimony from

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Speaker 1: Mr ick Sil, who was the supervisor of one of

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Speaker 1: the defendants and was the immediate underling of the other

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Speaker 1: of the defendants. Uh and uh. So the claim is

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Speaker 1: that Mr Exxil has sort of since changed his mind

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Speaker 1: about whether he's willing to cooperate as a prosecutorial witness.

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Speaker 1: Uh and he's signaled that change of heart both verbally

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Speaker 1: or orally, you might say, on the one hand, and

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Speaker 1: in writing, in the sense that he's written a very

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Speaker 1: lengthy narrative about everything that transpired, and in that narrative

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Speaker 1: he says that really all of this was all of

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Speaker 1: this was caused by people up at the very top

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Speaker 1: of j JP Morgan, uh Chase, nobody down below. Is

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Speaker 1: the reason I think that the government bungled this case.

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Speaker 1: So they cut a deal with Exel, who's the guy

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Speaker 1: at the center of it, and then it turns out

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Speaker 1: what they get from him is something that is unreliable

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Speaker 1: enough they have to drop claims, both both criminal and

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Speaker 1: and now civil against a couple of the individuals who

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Speaker 1: supposedly were working with him, Right, Well, it'll be very

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Speaker 1: I think it'll be very interesting to see what happens next,

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Speaker 1: if anything does happen next, because um, that will tell

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Speaker 1: us whether Exil is unreliable in any kind of broad

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Speaker 1: general sense on the one hand, or whether he's simply

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Speaker 1: unreliable to witness to prosecute needs to lower in on

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Speaker 1: the totem pole characters on the other hand. So, for example,

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Speaker 1: if indeed excels charges about what happened up at the top,

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Speaker 1: including on the part of Jamie Diamond, or plausible or

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Speaker 1: or even correct, then it's a little much to say

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Speaker 1: that he's not reliable in a general sense, right, It

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Speaker 1: would only make sense to say he's not reliable as

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Speaker 1: a witness if you're going to prosecute people who are

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Speaker 1: less responsible, who are lower on the jp M Chase

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Speaker 1: food chain, so to speak. Um, and that's what I'm

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Speaker 1: kind of I'm curious to see what happens next. Right

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Speaker 1: If the government is I mean, if they're serious, right

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Speaker 1: that there actually is you know something there, but that

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Speaker 1: Exel is simply not going to be reliable on it,

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Speaker 1: then you know, to put their money where their mouths are.

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Speaker 1: So to speak, they really ought to be then investigating

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Speaker 1: people higher uough the people who bill sas are actually responsible. If,

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Speaker 1: on the other hand, they think that Excel is just

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Speaker 1: across the board unreliable, he's just sort of too mercurial

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Speaker 1: as to what he says, then of course they are

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Speaker 1: effectively admitting that they can bundle the case because they

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Speaker 1: built the whole thing around the exil's testimony, and now

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Speaker 1: they're saying that Xil has bamboozled them. Bob only about

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Speaker 1: a minute left. But but tell me this is it?

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Speaker 1: You know, so JP Morgan Chase agreed to pay something

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Speaker 1: like a billion dollars um to resolve claims against it.

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Speaker 1: Is is there a theme or that it's just much

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Speaker 1: easier or why is it it seems so much easier

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Speaker 1: to get the company to to agree to a deal

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Speaker 1: than it is to win cases the criminal or civil

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Speaker 1: against individuals. Yeah, so there's a there's a cynical answer

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Speaker 1: in a in a more sort of a non cynical answer. Uh,

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Speaker 1: the cynical answer is that you know, they're much more

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Speaker 1: willing to go for the money damages just because those

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Speaker 1: are easier to have. Right that Basically, Um, I'm sure.

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Speaker 1: This is The non cynical is that the the the

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Speaker 1: money damages are easier to have, it's much harder to convict,

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Speaker 1: especially when the burden's a proof are so high when

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Speaker 1: they due process rights, so various dependants are implicated, either

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Speaker 1: in a criminal case or to a lesser degree in

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Speaker 1: that regulatory case. The more cynical answer is is that

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Speaker 1: you know, this particular government is really not that unfriendly

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Speaker 1: to the higher ups in these firms, and so they're

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Speaker 1: content to let them simply pay fines. In the firms

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Speaker 1: themselves are too because the fines are the penalties that

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Speaker 1: they pay are peanuts compared to the gains that they

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Speaker 1: stand to make. We're gonna have to leave it there,

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Speaker 1: thank you very much, Bob. How can of Cornell you

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Speaker 1: know RCTY Law School