London Whale' Has a New Target: J.P. Morgan's Top Brass

The U.S. case against two former J.P. Morgan Chase & Co. traders charged with concealing billions of dollars in losses fell apart because a key witness known as the London Whale shifted blame to Chief Executive Officer James Dimon and other top executives, according to a person familiar with the matter.

The 2012 trading debacle that unfolded inside a London outpost of J.P. Morgan ultimately cost the bank more than $6 billion. Former trader Bruno Iksil, who was nicknamed the London Whale for his outsize bets, agreed in 2013 to testify against ex-coworkers Javier Martin-Artajo and Julien Grout for their alleged roles in hiding the losses.

But over the past year, Mr. Iksil changed his story.

"I mostly inferred that Dimon and his close lieutenants were responsible much, much more than my two colleagues could ever be," Mr. Iksil said in an email, his first comments since prosecutors requested the case be dropped on July 21.

Mr. Iksil's shifting explanations about who was responsible helped to end the high-profile U.S. criminal case, the person said.

On July 21, prosecutors in the Manhattan U.S. attorney's office filed a motion in federal court to drop the charges against Messrs. Martin-Artajo and Grout, saying the government "no longer believes that it can rely on the testimony of Iksil in prosecuting this case" after "a review of recent statements and writings made by Iksil." The office provided no other details beyond that statement.

The reversal is an unexpected turn in one of the biggest banking scandals since the end of the 2008 financial crisis. The 2012 fiasco raised questions about risk controls inside J.P. Morgan -- which initially had dismissed the possibility of significant losses related to the trades -- and led to congressional testimony from many of the bank's top officers, including Mr. Dimon. The bank eventually paid at least $800 million in fines to regulators. "We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them," Mr. Dimon said in a September 2013 statement.

The evolution of Mr. Iksil's views over the past year were reflected on a website he created to explain his version of events; a 400-page unpublished memoir; and a letter to several publications.

The losses, Mr. Iksil wrote in a chapter of the unpublished memoir reviewed by Dow Jones & Co.'s Financial News, developed in the years after senior managers asked a London outpost of the bank known as the Chief Investment Office to reduce certain positions.

Mr. Iksil never asserted that Mr. Dimon gave this initial order, but on his website, he cited a September 2010 public presentation from the CEO that predicted such reductions as a way of meeting new regulatory demands.

Even as losses mounted in 2012, valuations of those positions weren't hidden, Mr. Iksil wrote in his memoir. Instead, he wrote, they were communicated to top bank officers, suggesting to Mr. Iksil that others were fully aware of the issues.

A J.P. Morgan spokeswoman declined to comment about Mr. Iksil's allegations.

A federal judge formally closed the criminal case against Messrs. Martin-Artajo and Grout last week. Both men still face civil charges brought by the Securities and Exchange Commission. They have denied wrongdoing.

Mr. Iksil in 2013 reached a deal with U.S. prosecutors to not be prosecuted in exchange for his willingness to testify. J.P. Morgan hasn't been charged.

The question of who was ultimately responsible for the losses was a subject of public debate after the losses came to light. J.P. Morgan said in its 2013 report on the episode that Mr. Dimon and the bank's chief financial officer instructed the office in late 2011 to reduce its exposure to riskier assets as a way of meeting new regulatory demands, but traders then placed inaccurate values on certain positions as they debated the size of the losses.

Top J.P. Morgan executives, including the person in charge of the office responsible for the trades, testified publicly that they were often misinformed about the positions by the firm's traders.

But a report issued by the U.S. Senate Permanent Subcommittee on Investigations concluded the bank didn't express a problem with how the positions were being treated, brushed off internal warnings and misled regulators and investors about the scope of its losses. The same report, citing testimony from Mr. Iksil, stated that a decision was first made in 2010 to shrink the positions but didn't attribute that order to any specific person.

Mr. Iksil's latest version of events aligns more closely with the Senate's report. In his emailed comment, he says he looked through reports published by the Senate and J.P. Morgan in 2013 as well as details of an investigation into the matter by the U.K.'s Financial Conduct Authority. The FCA shared those details with Mr. Iksil before it dropped its investigation of the trader in 2015, according to the FCA and Mr. Iksil.

In his email, Mr. Iksil surmised that his change hurt the U.S. case against his former colleagues. It "certainly relied on my testimony...after reading my recent statements and writing...the DOJ got the 'belief' that they could not proceed with the case," Mr. Iksil wrote.

But Mr. Iksil said the failure of the case wasn't all due to his new stance. The case stalled, he said, because U.S. authorities weren't able to extradite Mr. Martin-Artajo, a Spanish citizen, and Mr. Grout, a French citizen.

"Extradition was impossible so far, which means that the DOJ could not proceed with its case anyway," he wrote.

When announcing they would drop the charges on July 21, federal prosecutors noted that a Spanish court had rejected a request to extradite Mr. Martin-Artajo, and said they had determined attempts to extradite Mr. Grout from France "would have been futile."

"Even if the defendants appeared," the prosecutors said, they no longer believed they could rely on Mr. Iksil's testimony.

Write to Lucy McNulty at Lucy.McNulty@dowjones.com and Gregory Zuckerman at gregory.zuckerman@wsj.com