In March the High Court of Justice of England and Wales dismissed the application for judicial review of a decision by the UK's 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 High Court is often reluctant to interfere with decisions of regulatory/investigatory bodies, so this type of judicial review application is never straightforward.

This case has a bearing on the strategy that individuals might follow when caught up in cross-border civil and criminal regulatory investigations as they go into the interview process.

The facts and outcome of R (Grout) v FCA [2015] EWHC 596 (Admin)

Mr Grout was formerly a junior trader at a London division of JPMorgan Chase Bank known as the Chief Investment Office. That office was responsible for trading complex derivative investments principally as part of a synthetic credit portfolio. In July 2012 JPM announced that the Chief Investment Office had sustained $5.8 billion in trading losses on the synthetic credit portfolio 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 man responsible for trading the synthetic credit portfolio, Mr Bruno Iksil.

In 2012, the FCA appointed investigators under section 168 Financial Services and Markets Act 2000 to investigate Mr Grout, JPM itself, Mr Iksil and two managers who worked in the Chief Investment Office, Messrs Macris and Martin-Artajo. The FCA interviewed Mr Grout on several occasions.

In September 2013, the FCA fined JPM £137.61 million for various failings in connection with the significant losses incurred on the synthetic credit portfolio (thereby issuing and publishing the "JPM Final Notice"). This was part of a wider settlement with JPM that it had co-ordinated with the US authorities. A number of people, including Mr Grout, have argued that their identities are obvious to anyone who reads the JPM Final Notice and have referred that notice to the Upper Tribunal.

In December 2013, the FCA informed Mr Grout that it was closing its investigation into him in the light of continuing 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."

Among other things, the FCA disclosed a report indicating that its investigations of Messrs Iksil and 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 Messrs Grout and Martin-Artajo in return for immunity from prosecution.

Mr Grout complained that the decision to end the investigation into him was irrational (in the "Wednesbury unreasonable" sense) because:

• the FCA was still investigating others in the same position as his, thereby treating him differently for no good reason;
• 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
• 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 (which is based on the very same facts) of others.

In dismissing the action, the High Court held that Mr Grout was not in the same position as Messrs Macris and Iksil or at least that the FCA was entitled to conclude that he was not. Messrs Macris and 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 High Court concluded that the grounds of alleged unfairness fell short of what would be required to show that the weight the FCA placed on the existence of the US proceedings was manifestly disproportionate.

Notably, within his judgment, Males J commented about 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..."

Not a desirable result

The judge's view seems to have been that the opportunity to respond to questions posed during FCA interviews was sufficient to set out the interviewee's position with respect to the subject matter of the investigation. However, this is often not the way in which regulators set up interviews. The interviewee often attends under compulsion and will, save for perhaps having had the opportunity to review in advance certain contemporaneous documentats, generally be in the dark about the interviewer's line of investigation and the direction of the process.

The interviewer may on occasion share some insight into the way the investigation is going, but it does this in a very controlled way, and only insofar as it suits the interviewer's purposes. The interviewee will therefore often be on the defensive, replying in a cautious manner, and on most occasions he would be well-advised to stick to responding to the questions he is asked and not volunteer anything extra. Usually, the expectation will be that, if the interviewee is to be pursued, the interviewee will have a further opportunity to respond if and when the FCA provides its preliminary findings or issues a Warning Notice, at which point the interviewee will have a full understanding of the FCA's case and he will be better placed to put forward any points in defence.

Certainly, in the light of the FCA's decision and the High Court's comments, in more complex investigations interviewees should be mindful of the fact that in any future connected proceedings the view may be taken that the interview was an effective opportunity for them to account for their involvement in a more comprehensive manner. They will therefore have to plan their strategy for advancing points in defence and points in mitigation well in advance of that interview. This could be a problem, because at such a stage the interviewee has not yet heard what case is being made against him/her.

There are, therefore, a number of practical implications for both people and firms in the process of being investigated by the FCA, particularly in wider multi-jurisdiction civil and criminal investigations.

Subjects of investigations may attempt to obtain assurances from the FCA that they will have an opportunity to answer any findings the FCA may make against them, even in cases where it only uses those findings for the purposes of public final notices against their employers, but such assurance is highly unlikely to be forthcoming. This being the case, in some situations interviewees may well seek to state their positions in full on every topic and document during their interviews, whether or not this directly responds to the interviewers' questions. In addition, there are likely to be more situations where legal advisers feel it appropriate to send material by way of submissions to the FCA in advance of interviews while also planning to play much more active parts at the interviews themselves.

Although this is not a desirable result from any perspective, people must be mindful of the risks of passing up the "opportunity" to state their case in interviews and take the appropriate steps to protect their positions. This may have exactly the opposite result to that which the FCA intended - a more costly and time-consuming investigation, increasing the burden on the FCA's resources.

* Abdulali Jiwaji and Rory Spillman can be reached at abdulali.jiwaji@signaturelitigation.com and rory.spillman@signaturelitigation.com or on +44 (0)20 3818 3500. Signature Litigation is a unique and specialised law firm that focuses on commercial litigation, arbitration and regulatory investigations.