Reuters
Hiding a London whale was one stressful task. And it even came with a spreadsheet.

The criminal complaints filed Wednesday against two former J.P. Morgan employees near the center of the bank’s $6 billion loss lay out in detail how the unit allegedly “marked” their daily positions in what was known as the synthetic-credit portfolio. That portfolio was traded by Bruno Iksil who was dubbed the London Whale.

The complaints allege Mr. Iksil’s boss, Javier Martin-Artajo, and another trader, Julien Grout, worked to hide the losses that were mounting in early 2012. Mr. Grout, at Mr. Iksil’s urging, even kept a spreadsheet showing how the losses should have been normally marked, the complaint adds.

Lawyers for Messrs. Martin-Artajo and Grout couldn’t immediately be reached by WSJ for comment.
Mr. Iksil isn’t being charged with wrongdoing and isn’t named in the complaint but is referred to as CW-1, for a cooperating witness, a designation that appears about 70 times.

According to the complaint, it all started in January 2012, when the portfolio sported a $130 million loss for the month, grabbing the attention of J.P. MorganJPM +0.02% executives, who ordered Mr. Martin-Artajo to “urgently reevaluate” the core position and focus “all his attention” on its performance.

After another month of losses in February, Mr. Martin Artajo warned his traders not to show any mark-to-market losses, unless there were actual market events that would have moved the portfolio, according to the complaint.
Mr. Iksil and Mr. Grout had different ideas on how to interpret Mr. Martin-Artajo’s orders, the complaint says.

Normally, the trio worked each day to report their profits and losses by looking at the buying and selling prices of the securities in the open market and taking a median for the end of the day, what is known as the “crude mid.”
But as the losses continued to mount, Mr. Grout, the complaints allege, started moving further away from that crude mid, masking portions of the losses. He would record in the spreadsheet where he was reporting the losses, what the actual crude mid would have been and the gap between the crude mid and what was reported, the complaints say.

To do this, Mr. Grout concentrated on shifting the marks on one particular security, the CXD.NA.IG9-10Y, which was an index based on an underlying set of corporate bonds, and which the CIO held a particularly large position. “As a result, that one position was marked extremely far from the crude mid price,” the complaint says.

Mr. Iksil was becoming increasingly uncomfortable with the marks. According to the complaint on March 15, Mr. Iksil told Mr. Group that he didn’t think the mark on that security was “realistic.”

Mr. Grout agreed, responding in an online chat cited in the complaint: “I mean, im trying to keep a relatively realistic picture here — ig9 10y aside.”

Later, Mr. Iksil told him: “I don’t’ know where [Martin-Artajo] wants to stop, but it’s getting idiotic,” the complaint said.

Mr. Iksil then attempted to convince Mr. Martin-Artajo to adjust the marks back to reality or take a large “one-off” loss, but Mr. Martin-Artajo “rebuffed” him, according to the complaint.
When Mr. Iksil and Mr. Grout reported a daily loss later in March, Mr. Martin-Artajo said to Mr. Iksil that he didn’t understand his logic. Mr. Martin-Artajo added that he couldn’t tell Mr. Iksil to intentionally mismark:

“Okay, it’s fine you’ve done it I cannot really tell you, you know, not to do this, you’ve done it because you feel you have to do it, that’s okay. What I don’t’ understand is at all why you are explaining this, this way on the email? … because this only creates, it just created more tension you understand? It’s not going to help me as much, right?”

Later Mr. Martin-Artajo said: “You know, I think you’re an honest guy, you know, it’s just that, I didn’t not want you to do it this way, but I know you feel that the bid offer spreads are giving you a headache…”

By the end of the month, which closed the first quarter for the bank, Mr. Grout reported a $138 million loss for the month, which Mr. Martin-Artajo said was “excellent,” according to the complaint. Mr. Iksil had suggested it would have been about $250 million.

For the whole year, at that point, the difference across the synthetic-credit portfolio and the marks entered amounted to a $767 million difference in CIO’s favor, the government said.