Precious metals traders at JP Morgan made millions through fraudulent trades, operating a sprawling criminal conspiracy to manipulate prices, according to the US Justice Department, which appears to be signaling a crackdown.
Current and former JP Morgan precious metals traders Gregg Smith, Michael Nowak, and Christopher Jordan engaged in “a massive, multiyear scheme to manipulate the market for precious metals futures contracts and defraud market participants,” Assistant Attorney General Brian Benczkowski said in a Justice Department statement released on Monday. The DOJ claimed the bankers made millions of dollars by defrauding other market participants, including some of their own clients, in thousands of illegal trade sequences.
The trio allegedly engaged in “spoofing” on a massive scale – placing trades that they intended to cancel before execution in order to manipulate the price of gold, silver, and other precious metals – dating back over 10 years, openly discussing their illegal behavior in chat logs obtained by the prosecution and included in the indictment. They are charged with bank, wire, and commodities fraud, price manipulation and spoofing, and “conspiracy to conduct the affairs of an enterprise involved in interstate or foreign commerce through a pattern of racketeering activity” – a charge usually reserved for members of an organized crime ring.
These charges should leave no doubt that the Department is committed to prosecuting those who undermine the investing public’s trust in the integrity of our commodities markets
Clearly, the charges are meant to send a message – though whether that message is directed at Wall Street criminals or at Americans tired of banksters getting away with financial crime is uncertain. The Justice Department has lost the last two price manipulation cases in court.
Smith and Nowak were placed on leave by JP Morgan last month, as the investigation neared its completion, while Jordan had already left for greener pastures, trading precious metals at Credit Suisse and First New York. All three had arrived at the bank through its acquisition of the failed Bear Stearns, where their illegal trading had been even more flagrant, according to the indictment.
Their indictments were secured with the help of at least two former traders at the bank who had pleaded guilty in what has become a sprawling multi-bank investigation of price-rigging in the precious metals sector, ensnaring 16 people so far, according to Bloomberg.
Deutsche Bank, HSBC, and UBS reached agreements with the Commodity Futures Trading Commission last year to settle claims that their traders used spoofing to manipulate precious metals futures prices – paying $30 million, $1.6 million, and $15 million, respectively – in order to avoid admitting wrongdoing and the possibility of a prolonged court battle.