EXPERT VIEW: High Court Dismisses Challenge To UK Regulator's Decision To Discontinue Probe

Signature Litigation, 1 May 2015


This article by laywers examines a decision by the UK regulator not to push ahead with an investigation relating to the recent massive losses sustained by JP Morgan, and what that says about current regulatory thinking.

High Court dismisses challenge to FCA decision to discontinue investigation

This article looks a complex issue surrounding a decision by the UK financial regulator, the Financial Conduct Authority, to discontinue a specific investigation, raising issues about how the FCA operates, its philosophy and likely approach to future cases. The article is by Abdulali Jiwaji, a partner at Signature Litigation, and Rory Spillman. Jiwaji has more than 15 years of experience in litigation and contentious regulatory matters in London and Hong Kong, with experience in areas such as advice on disputes around financial products and mis-selling, shareholder agreements, joint ventures and M&A transactions, regulatory investigations and disciplinary proceedings, complaints handling and compliance issues and internal investigations.

As always, while this publication is grateful for such expert commentary, the comments here are not necessarily endorsed by this news service and we invite readers to respond. For anyone interested in commenting on this matter, please contact

In March the High Court dismissed the application for judicial review of a decision of the Financial Conduct Authority to close its investigation into a junior trader in relation to what is commonly known as the JP Morgan "London Whale" losses.

The court is often reluctant to interfere with decisions of regulatory/investigatory bodies, and this type of judicial review application is never straightforward.  However, stepping back, a significant point to reflect on is the strategy to be adopted, especially by individuals caught up in cross-border civil and criminal regulatory investigations, as they go into the interview process.
Facts and outcome of proceedings

Mr Grout was formerly a junior trader employed within a London-based division of JP Morgan Chase Bank known as the Chief Investment Office. CIO was responsible for trading complex derivative investments principally as part of a synthetic credit portfolio. In July 2012 JP Morgan announced that CIO had sustained $5.8 billion in trading losses on the SCP in the first half of 2012.  These losses are said to be the result of what has become known as the “London Whale” trades on account of the nickname attributed to the individual responsible for trading the SCP, Mr Bruno Iksil.

In 2012, the FCA appointed investigators under section 168 of the Financial Services and Markets Act 2000 to investigate Mr Grout, JP Morgan itself, as well as Mr Iksil, and Mr Macris and Mr Martin-Artajo (managers within the CIO). Mr Grout was interviewed on several occasions by the FCA.

In September 2013, the FCA fined JPM £137.61 million for various failings in connection with the significant losses incurred on the SCP. This was part of a wider settlement with JP Morgan co-ordinated with the US authorities. A number of individuals, including Mr Grout, have argued that they are identified within the JP Morgan Final Notice and have referred the Notice to the Upper Tribunal.

In December 2013, the FCA informed Mr Grout that it was closing its investigation into him in light of ongoing US civil and criminal proceedings against him (and Mr Martin-Artajo).
Mr Grout issued Judicial Review proceedings against the FCA's decision to close the investigation into him. As Males J (the judge hearing the substantive issue) noted:

"It may seem surprising that Mr Grout should want the FCA to continue to investigate his conduct. Many subjects of an FCA investigation would be relieved to hear that the FCA had decided not to proceed further. But Mr Grout says that he wants the investigation to continue so that he can clear his name."

Amongst other things, the FCA disclosed a report indicating that the FCA's investigations into Mr Iksil and Mr Macris, who were not the subject of criminal proceedings in the US, would continue. There are no criminal proceedings in the US against Mr Iksil (the "London Whale"), who is a protected witness, offering evidence against Mr Grout and Mr Martin-Artajo in return for immunity from prosecution.

Mr Grout complained that the decision to terminate the investigation into him was irrational (in the Wednesbury unreasonable sense) because: (1) he was being treated differently to others in the same position who continued to be investigated by the FCA, (2) the FCA placed too much weight on the fact that there are proceedings against him in the United States which proceedings, he contended, will operate unfairly against him; and (3) the FCA’s reliance on the time and resources required to continue the investigation was irrational when time and resources continued to be devoted to the investigation of others, based on the very same facts.

In dismissing the action, the High Court held that Mr Grout was not in the same position as Mr Macris and Mr Iksil or at least that the FCA was entitled to conclude that he was not. Mr Macris and Mr Iksil were not subject to criminal proceedings in the US and were both senior figures at JP Morgan. Mr Grout was the most junior of the team. The Court concluded that the grounds of alleged unfairness fell short of what would be required to show that the weight given by the FCA to the existence of the US proceedings was manifestly disproportionate.

Notably, within his judgment, Males J commented that as to the JPM Final Notice: "[Mr Grout] was not given an opportunity to comment on the findings before they were published, but it appears that he was given an opportunity (indeed, was required) to give his account of what had occurred and his involvement in it...."

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