Julien Grout worked for Bruno Iksil, the “London Whale”, at JP Morgan Chase Bank NA, in London.
In July 2012, JP Morgan announced that it had incurred trading losses of $5.8m on a portfolio of synthetic credit derivatives.
In August 2012, the FCA opened an investigation into JP Morgan, Iksil, Iksil’s managers (Achilles Macris and Javier Martin-Artajo), and Iksil’s assistant, Grout.
In July 2013, Grout, a French national, returned to live in France.
In September 2013, a US federal grand jury indicted Grout and Martin-Artajo for conspiracy, falsifying JP Morgan’s books and records, and causing false statements to be made in JP Morgan’s SEC filings.
In December 2013, the FCA stopped investigating Grout because he was the subject of US criminal proceedings; he wasn’t working in the UK; and he was unlikely to do so again. So, the FCA thought it would be inappropriate to keep spending time and money investigating him.
Grout sought to challenge this by judicial review, arguing that it was irrational because: (1) like cases should be treated alike, and the FCA was still investigating two other people, so it was wrong to stop investigating him; (2) the FCA placed too much weight on the US criminal proceedings, when they would operate unfairly against him; and (3) it made no sense to argue that it was inappropriate to spend time and money investigating him, when the same people at the FCA were investigating similar issues in related cases. Grout’s stated objective was to have the FCA investigation re-opened and completed, so that he could clear his name.
When it handed down its judgment on 9 March 2015, the Court quickly dismissed these claims:
- Grout was not being treated differently to other people who were in the same position because they were in a very different position to him. “…they were not subject to criminal proceedings in the United States[; and] they were senior to [Grout] … It [was] legitimate for the FCA to conclude that an investigation should continue into the conduct of the trader who was primarily responsible for the loss making trades … and … the senior manager responsible for the [department]…, but not into a junior trader playing a subordinate role“.
- Grout’s argument that the US proceedings had been given too much weight when the FCA made its decisions could “only succeed if the weight given to the … US proceedings was “manifestly disproportionate”. A burden that Grout was seeking to discharge “by showing that the … proceedings [would] operate unfairly against him” in up to three ways:
- Because Iksil “is … a prosecution witness immune from prosecution … in circumstances where he [has] every incentive to cast as much of the blame as possible on Mr Grout” – But, if Grout participates in the US proceedings, “there will be abundant material available to his lawyers to demonstrate Mr Iksil’s role in the affair and to challenge whatever evidence he may give …“;
- Because “Grout will not have access to some of the evidence against him … until after the trial is under way” – Even though this is “normal United States procedure”; and “the … indictment … appears to contain an indication of at least the gist of Mr Iksil’s evidence on the central issue[s]“; and
- Because “the timing of any trial is uncertain … because … Martin-Artajo, Mr Grout’s co-defendant, is resisting extradition to face trial in the United States from Spain” – but then so too would be the timing of any continued investigation by the FCA; and the US proceedings would continue regardless of the FCA’s decision and the timing of its investigation. At all events, Grout “is presently residing in France [and] if he chooses not to attend his trial … he cannot … be extradited to the United States from France“.
- Grout was arguing that “the FCA’s reliance on the time and resources required to continue the investigation into his conduct is irrational when time and resources would continue to be devoted to the investigation of Mr Iksil and Mr Macris … I reject this contention. When deciding whether to continue … an investigation it is undoubtedly permissible for the FCA to take into account the resources available to it, [and] the time and cost commitment likely to be involved in continuing … I see no basis for any challenge … on the [grounds] that the required time and resources in investigating Mr Grout will not be significant in view of the ongoing investigations into Mr Iksil and Mr Macris … the investigation into Mr Grout was at a relatively early stage … It had not even reached the stage of a preliminary investigation report. Such a report, if adverse to Mr Grout, would undoubtedly have been met by extensive representations, and it might have been necessary to proceed through all the subsequent stages up to and including … the Upper Tribunal … The FCA was [therefore] entitled to take the view that to proceed with the investigation into Mr Grout would require a heavy commitment of time, personnel and cost.”
“Ultimately Mr Grout’s complaint appears to be that it was unfair (and therefore irrational) for the investigation to have been terminated after all the publicity about him which has occurred because it deprived him of an opportunity to clear his name … This is not … part of his … grounds for judicial review. I would, however, reject [it]. First, it was not the FCA which generated the publicity about the “London Whale” affair and Mr Grout’s involvement in it … Second, I doubt whether it would be a proper use of the FCA’s resources to pursue an investigation for the purpose of establishing that no misconduct had occurred. In any event, it is hard to see that the FCA should be required to devote substantial public resources to investigating a case in order to establish that there was no misconduct by an individual, let alone that it would be irrational to decide not to do so… Third, a forum exists in which Mr Grout has an opportunity to clear his name, namely the criminal proceedings in the United States…”
In many respects this decision is unsurprising. The Courts are only entitled to disturb the decisions of public body in highly exceptional circumstances; and they are reluctant to do so even then. And this is for good reason: (in many cases) Parliament has conferred decision-making powers on the relevant public body (and no-one else); the public body is often making a complex judgment-based decision; and the body best placed to make that decision is often the public body itself. The court will therefore usually only intervene if the public body has acted outside the scope of its powers, it’s taken irrelevant factors into account when reaching a decision, or it’s breach the rules of natural justice. This – perhaps regrettably – emboldens the FCA. It knows that it’s decisions are unlikely to be challenged or quashed by judicial review, and it’s more confident in making its decisions, as a result. That’s not to suggest that this decision was wrong – there’s no reason to suppose that it was – but it’s still an unfortunate fact of life: the FCA can and does sometimes get it wrong; but judicial reviews are rare because they’re complex, expensive, and only rarely succeed. That probably means that some unjust decisions go unchallenged. And that must mean that those who are regulated by the FCA are entitled to expect the FCA to hold itself to the highest possible standards at all times. Hands up, if you think it does.