Julien Grout, a former JPMorgan (JPM) Chase & Co.

trader charged with trying to hide the banks record trading loss last year, is arguing to prosecutors that he was following orders from his thenboss, Bruno Iksil, people with knowledge of the matter said. Grouts lawyers provided records including e-mails to U.S. prosecutors in Manhattan in the past two weeks in an effort to cast doubt on the governments assertion that Iksil resisted pressure to inflate the value of the trades, said the people, who asked not to be named because the talks were private. While Grout and another supervisor, Javier Martin-Artajo, were charged with conspiracy and wire fraud, Iksil -- nicknamed the London Whale -- avoided prosecution after agreeing to cooperate with authorities. The exchange shows that Grout, who is fighting accusations he improperly marked assets to hide losses, is trying to damage his former bosss credibility. In announcing charges against Grout and Martin-Artajo last month, U.S. Attorney Preet Bharara in Manhattan said Iksil had sounded the alarm more than once to co-workers. It may be part of an attempt to tell the government that this case is weaker than you think, and youll be embarrassed, John Coffee, a securities law professor at Columbia University Law School, said of Grouts effort. E-mails are often a matter of debate, with defense attorneys trying to tell the prosecution that they cant go forward because their interpretation is wrong. Accurate, Reliable JPMorgan, the biggest U.S. bank by assets, lost more than $6.2 billion last year on the derivatives bets made by its U.K. chief investment office, where the three men worked. Grout reported to Iksil, who reported to Martin-Artajo, the CIOs head of credit trading. Iksil, nicknamed the whale because his trades were big enough to move markets, signed a non-prosecution agreement in June that requires him to truthfully and completely disclose all information while cooperating. Iksils information has been accurate and reliable, and corroborated by, among other things, documents, e-mails and recordings of telephone conversations, Jonathan Polonitza, a special agent at the Federal Bureau of Investigation, wrote in a statement for the complaint against Grout. It referred to Iksil by the acronym CW-1, which can stand for cooperating or confidential witness. Proffer Session It wont be easy for Grouts lawyers to change prosecutors view of the case, even if he hasnt been indicted yet, Coffee said. Once you file a criminal complaint, while youre not compelled to go forward with the indictment, you have crossed the Rubicon, he said. Prosecutors have discussed allowing Grout to describe his version of events in a so-called proffer session, according to the people. Such an interview, also known as a Queen for a Day agreement, typically lets someone under investigation explain what happened, with the understanding that those statements wont be used against them in court. No such session has been set yet for Grout, the people said. Prosecutors wouldnt be conceding they made a mistake in their deal with Iksil if they meet with Grout, said Samuel Buell, a former federal prosecutor who teaches at Duke University Law School. The government gives up almost nothing, by having such a meeting, Buell said. As for the notion that prosecutors had overlooked or missed exculpatory evidence, Buell said he was skeptical, because JPMorgan would have made all relevant documents and e-mails available to investigators.

Prompting Inquiries Jim Margolin, a spokesman for Bharara, declined to comment on whether the office may meet with Grout for a proffer session. A spokesman for the FBI and attorneys for Grout, Martin-Artajo and Iksil also said they couldnt comment. JPMorgans losses prompted government probes on two continents, U.S. congressional hearings and an internal review that led to a 50 percent pay cut for Chief Executive Officer Jamie Dimon, 57, who the board said bore some responsibility for lapses. Regulators in the U.K. and U.S. are preparing to impose fines on the bank as soon as this month, a person with direct knowledge of the matter said in August. Grout and Martin-Artajo, 49, mismarked investments to conceal hundreds of millions of dollars in losses from derivatives trades, the U.S. Securities and Exchange Commission said in a parallel lawsuit last month. Grout was 35 years old when the suit was filed. E-Mails Debated The agency described how Grout allegedly ignored Iksils requests to mark certain CIO positions within the latest bid-offer spreads available. As an example, the complaint stated that Grout told Iksil he was able to come up with a $4 million loss for March 16 last year with lots of effort. If Grout had followed Iksils marking request, the daily loss would have been greater than $100 million, the SEC said. Internal e-mails have become a regular part of Wall Street court battles, with the government and defense attorneys arguing over which messages best reflect the thinking of bank employees. A New York jury found Fabrice Tourre, an ex-Goldman Sachs Group Inc. (GS) trader, liable Aug. 1 in a lawsuit brought by the SEC over his role in selling a $1 billion investment that failed. The agency focused on Tourres e-mails to overcome his defense that as a junior employee he wasnt primarily responsible for the deal. Defendants Acquitted A Brooklyn jury in 2009 found two former Bear Stearns Cos. portfolio managers not guilty of defrauding investors by improperly touting the health of funds made up mostly of subprime mortgage-backed securities. After the trial judge barred prosecutors from presenting a key 2006 e-mail, jurors acquitted the men, saying other e-mails shown by the government were ambiguous. Grout and Martin-Artajo remain in Europe, facing as long as 20 years in prison if convicted of the most serious counts. Grout, a French citizen, moved to France this year and hasnt been arrested. Martin-Artajo was on vacation when prosecutors unsealed the criminal charges Aug. 14, according to a statement that week from his attorneys at Norton Rose Fulbright LLP. He turned himself in to Spanish police Aug. 27, a police official there said at the time. Martin-Artajo was released on bail in Madrid and said he was unwilling to be extradited, a spokeswoman for the National Court said. Stock Slide JPMorgans stock stock fell 5.5 percent through yesterday from Aug. 7 when the company disclosed a criminal probe of its mortgage-bond sales practices. A criminal probe tied to the firms energy-trading practices and a U.S. investigation of the companys hiring in Asia also emerged in that time. The broader KBW Bank Index of 24 U.S. firms fell 2.8 percent in the period. The criminal cases are U.S. v. Grout, 13-MAG-01976, and U.S. v. Martin-Artajo, 13-MAG-01975, U.S. District Court, Southern District of New York (Manhattan). The SEC case is Securities and

Exchange Commission v. Martin-Artajo, 13-cv-05677, U.S. District Court, Southern District of New York (Manhattan). If you liked this article, you can also check out my blog at www.investleaks.com. You can also connect with me on facebook at https://www.facebook.com/InvestmentLeaks and give us that like.