WEBVTT - SEC Drops Claims Against Traders in London Whale Case (Audio)

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<v Speaker 1>The Securities and Exchange Commission has dropped its claims against

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<v Speaker 1>two former JP Morgan Chase traders who were accused of

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<v Speaker 1>hiding upwards of six billion dollars in trading losses as

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<v Speaker 1>part of the infamous London Whales scandal. Javier Martin our

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<v Speaker 1>top Are Tahoe and Julian Grout had been accused of

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<v Speaker 1>working with Bruno Exel, a fellow trader whose massive derivative

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<v Speaker 1>bets were at the center of the scandal. The SEC

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<v Speaker 1>move comes four weeks after the US US prosecutors dropped

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<v Speaker 1>criminal charges against the two men. With me to talk

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<v Speaker 1>about all this is Robert Hockett. He's a professor at

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<v Speaker 1>Cornell University Law School. Bob, thanks as always for joining

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

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<v Speaker 1>what the SEC was claiming in this case. What did

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<v Speaker 1>it say that the two men did that was against

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<v Speaker 1>the law? Great? Well, thanks so much, Greig. Great to

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<v Speaker 1>be with you again. Um. The principal charges that both

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<v Speaker 1>the SEC and the the o J originally head levied

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<v Speaker 1>against these two so they had conspired to seal certain

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<v Speaker 1>trades that have since that, of course, were known as

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<v Speaker 1>the so called London whale trades, um. And so they

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<v Speaker 1>claim was that they worked to conceal those trades, in

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<v Speaker 1>particular in order to conceal the losses were incurred as

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<v Speaker 1>a result of them. And why what do we know

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<v Speaker 1>about why the SEC decided to drop the case. There

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

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<v Speaker 1>And these are the same reasons essentially that the o

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<v Speaker 1>J offered about this time last month when they dropped

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<v Speaker 1>the case, as you mentioned at the top of the

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<v Speaker 1>power here or at the top of our chat here um.

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<v Speaker 1>So the first reason that's given is that the two defendants,

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<v Speaker 1>Mr Grooves Uh and Mr our Tayo are citizens of

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<v Speaker 1>other nations, right, Mr Group I believe it's from France

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<v Speaker 1>and Mr howgier Tyo is in Spain. We have extradition

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<v Speaker 1>treaties with both of those countries, but they've also both

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<v Speaker 1>declined to extradite. So one of the claims is that, well,

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<v Speaker 1>we wouldn't have been able to get them over here

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<v Speaker 1>of the US anyway. I think the more important reason

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<v Speaker 1>is that that's given as the second, assuming of course

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<v Speaker 1>that it's possible or true, um, and that is that

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<v Speaker 1>the prosecution's case, both in the case of the d

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<v Speaker 1>J and that at the SEC was essentially reliant upon

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<v Speaker 1>and he was completely dependent up on anticipated testimony from

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<v Speaker 1>Mr ick Sil, who was the supervisor of one of

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<v Speaker 1>the defendants and was the immediate underling of the other

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<v Speaker 1>of the defendants. Uh and uh. So the claim is

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<v Speaker 1>that Mr Exxil has sort of since changed his mind

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<v Speaker 1>about whether he's willing to cooperate as a prosecutorial witness.

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<v Speaker 1>Uh and he's signaled that change of heart both verbally

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<v Speaker 1>or orally, you might say, on the one hand, and

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<v Speaker 1>in writing, in the sense that he's written a very

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<v Speaker 1>lengthy narrative about everything that transpired, and in that narrative

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<v Speaker 1>he says that really all of this was all of

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<v Speaker 1>this was caused by people up at the very top

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<v Speaker 1>of j JP Morgan, uh Chase, nobody down below. Is

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<v Speaker 1>the reason I think that the government bungled this case.

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<v Speaker 1>So they cut a deal with Exel, who's the guy

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<v Speaker 1>at the center of it, and then it turns out

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<v Speaker 1>what they get from him is something that is unreliable

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<v Speaker 1>enough they have to drop claims, both both criminal and

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<v Speaker 1>and now civil against a couple of the individuals who

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<v Speaker 1>supposedly were working with him, Right, Well, it'll be very

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

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<v Speaker 1>if anything does happen next, because um, that will tell

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<v Speaker 1>us whether Exil is unreliable in any kind of broad

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<v Speaker 1>general sense on the one hand, or whether he's simply

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<v Speaker 1>unreliable to witness to prosecute needs to lower in on

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<v Speaker 1>the totem pole characters on the other hand. So, for example,

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<v Speaker 1>if indeed excels charges about what happened up at the top,

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<v Speaker 1>including on the part of Jamie Diamond, or plausible or

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<v Speaker 1>or even correct, then it's a little much to say

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<v Speaker 1>that he's not reliable in a general sense, right, It

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<v Speaker 1>would only make sense to say he's not reliable as

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<v Speaker 1>a witness if you're going to prosecute people who are

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<v Speaker 1>less responsible, who are lower on the jp M Chase

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

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<v Speaker 1>kind of I'm curious to see what happens next. Right

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<v Speaker 1>If the government is I mean, if they're serious, right

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<v Speaker 1>that there actually is you know something there, but that

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<v Speaker 1>Exel is simply not going to be reliable on it,

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<v Speaker 1>then you know, to put their money where their mouths are.

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<v Speaker 1>So to speak, they really ought to be then investigating

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<v Speaker 1>people higher uough the people who bill sas are actually responsible. If,

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<v Speaker 1>on the other hand, they think that Excel is just

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<v Speaker 1>across the board unreliable, he's just sort of too mercurial

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<v Speaker 1>as to what he says, then of course they are

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<v Speaker 1>effectively admitting that they can bundle the case because they

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<v Speaker 1>built the whole thing around the exil's testimony, and now

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<v Speaker 1>they're saying that Xil has bamboozled them. Bob only about

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<v Speaker 1>a minute left. But but tell me this is it?

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<v Speaker 1>You know, so JP Morgan Chase agreed to pay something

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<v Speaker 1>like a billion dollars um to resolve claims against it.

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<v Speaker 1>Is is there a theme or that it's just much

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<v Speaker 1>easier or why is it it seems so much easier

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<v Speaker 1>to get the company to to agree to a deal

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<v Speaker 1>than it is to win cases the criminal or civil

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<v Speaker 1>against individuals. Yeah, so there's a there's a cynical answer

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<v Speaker 1>in a in a more sort of a non cynical answer. Uh,

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<v Speaker 1>the cynical answer is that you know, they're much more

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<v Speaker 1>willing to go for the money damages just because those

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

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<v Speaker 1>This is The non cynical is that the the the

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<v Speaker 1>money damages are easier to have, it's much harder to convict,

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<v Speaker 1>especially when the burden's a proof are so high when

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<v Speaker 1>they due process rights, so various dependants are implicated, either

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<v Speaker 1>in a criminal case or to a lesser degree in

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<v Speaker 1>that regulatory case. The more cynical answer is is that

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<v Speaker 1>you know, this particular government is really not that unfriendly

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<v Speaker 1>to the higher ups in these firms, and so they're

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<v Speaker 1>content to let them simply pay fines. In the firms

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<v Speaker 1>themselves are too because the fines are the penalties that

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<v Speaker 1>they pay are peanuts compared to the gains that they

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<v Speaker 1>stand to make. We're gonna have to leave it there,

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<v Speaker 1>thank you very much, Bob. How can of Cornell you

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<v Speaker 1>know RCTY Law School