The Department of Justice in the US has charged one former and two current executives from JPMorgan Chase & Co with supposed racketeering as well as manipulating metals prices including platinum, palladium, gold, and silver between the years of 2008 and 2016.
These charges have come to be thanks to an investigation into suspected duplicitous trading practices that created "millions of dollars in profit" at JPMorgan. This profit had an adverse effect on the customer who had "tens of millions of dollars of losses" according to assistant attorney general Brian Benczkowski.
The three suspects are Michael Nowak, the global precious metals desk head, Gregg Smith, the precious metals trader, and Christopher Jordan, the former trader who left the company back in 2009. They were charged with federal crimes including racketeering conspiracy according to a Department of Justice statement.
Their cases are about spoofing, the practice of making bids to buy contracts or offers to sell them while intending to cancel before their execution, which means spoofers can influence their prices to their benefit.
In the US, there has been a considerable upsurge in prosecutions relating to spoofing recently. John Edmonds and Christiaan Trunz, two of JPMorgan’s former metal traders, have already pleaded guilty to charges in a similar way in the same investigation.
JPMorgan has failed to comment on the issue. In a regulatory filing in August, JPMorgan said it was "responding to and cooperating with" all the investigations from the authorities, which includes the Department of Justice about its metals market trading practice.
Jocelyn Strauber and David Meister, Nowak’s attorneys from Skadden, Arp, Slate, Meagher & Flom, said that Nowak had not done anything incorrect and predict that he will be fully exonerated. Jordan and Smith have not yet commented.
On a separate note, on Monday the US Commodity Futures Trading Commission said that it charged Smith and Nowak for manipulating prices and spoofing in precious metals futures.
Prosecutors described in the indictment and a statement how the three men executed several thousands of trading sequences that were unlawful including "layering" orders rapidly at different prices. They also explained attempts in influencing the prices in the market towards chosen price points to avoid triggering or to trigger options.
Options are financial instruments allowing a buyer to buy or sell an asset at an agreed time and price. The value of it is linked to the underlying asset's value.
Previously, spoofing prosecutions often preceded guilty pleas. However, a case with similarities to this with the Swiss bank, UBS Group, was thrown out by the jury in 2018, pointing out the problems in proving that canceling an order is an act of criminality especially given many orders often go unfilled.
On September 12, Reuters reported that Smith and Nowak were suspended on leave from the company as a result of the continuing investigation.
Benczkowski said, “This is, in our view, a very strong case, and as strong a case as we've seen in this area. We believe that there were millions of dollars in profit, at least to the bank, and tens of millions of dollars of losses (to customers).”
The Department of Justice said that the case as unsealed at the start of this week after being filed in Chicago at the US District Court.
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