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3 from JPMorgan accused in scheme to game precious metals market
[WASHINGTON] Federal prosecutors accused a JPMorgan Chase executive and two of his colleagues on Monday of manipulating commodities markets for nearly a decade, operating a "massive, multiyear scheme" that the US Justice Department said was tantamount to a sprawling criminal enterprise.
The indictment listed eight unnamed co-conspirators, including supervisors, sales employees and traders at the bank's offices in New York, London and Singapore. Of the eight, the government said that three had specifically manipulated prices.
Michael Nowak, the head of precious metals trading at JPMorgan and a bank managing director, and two others, Gregg Smith and Christopher Jordan, were accused of placing fake orders to buy and sell futures contracts — a practice called spoofing — to manipulate prices. That allowed the men and unidentified co-conspirators "to generate trading profits and avoid losses for themselves and other members of the precious metals desk", the government said in its indictment.
The men operated their scheme from 2008 to 2016, generating millions of dollars in profits for the bank, Brian Benczkowski, the head of the Justice Department's criminal division, told reporters on Monday.
The Justice Department charged the men under the federal government's Racketeer Influenced and Corrupt Organizations (RICO) Act, under which prosecutors pursue people involved in an organisation that perpetuates organised crime, including gangs and drug cartels. The law is commonly associated with the mafia, but it was used to pursue Wall Street traders in the 1990s.
Mr Benczkowski said the Justice Department brought the case under the racketeering act because investigators had identified a pattern of widespread illegal activity, conducted over an eight-year span. "This is precisely the kind of conduct the RICO statute is meant to punish," Mr Benczkowski said.
David Meister and Jocelyn Strauber, lawyers for Nowak, said their client had done nothing wrong and called it "regrettable" that prosecutors had moved forward with a case against him. "We look forward to representing him at trial and expect him to be fully exonerated," they said.
Smith and Jordan, who left JPMorgan in 2009, did not respond to emails and phone calls seeking comment.
JPMorgan declined to comment. In public filings, the bank has said that it is cooperating with the Justice Department's investigations related to "trading practices in the metals markets". The bank has also said it faces a federal class-action suit in which it is accused of illegally monopolizing the silver futures market.
While Monday's indictment could be a prelude to additional charges, the federal government was not successful in one recent case to crack down on spoofing. Last April, prosecutors in Connecticut charged Andre Flotron, a former trader at UBS, with manipulating precious metals markets by offering and then quickly cancelling offers to buy and sell contracts before they could be accepted. At the time, the government said that Flotron's behaviour reflected a "systemic problem" in the market, but a jury acquitted the former trader.
Mr Benczkowski said that the alleged conduct in Monday's indictment was more sprawling than that in the case against Flotron, and that the JPMorgan indictment was built on data analysis and the testimony of a number of cooperating witnesses, at least one of whom described how the defendants carried out the scheme.
The government said Jordan was engaging in illegal trading behaviour before 2008, then helped create a large-scale effort to game the precious metals market with the help of Smith, who joined the desk from Bear Stearns when it filed for bankruptcy and was acquired by JPMorgan in March 2008.
According to the indictment, Smith taught Jordan a new way of executing illegal fake trades: Spoofing could be more easily concealed if traders quickly layered a series of fake orders rather than placing one large order. The government said that new style of illegal trading "took hold on the precious metals desk" at JPMorgan and was adopted by other traders, including Nowak and three unidentified co-conspirators.
In one electronic message exchange captured by federal investigators, one cooperating witness — Christian Trunz, who had also joined the desk from Bear Stearns — explained to an unnamed co-conspirator that a large bid coming into the market was Smith "bidding up on the futures", Trunz has pleaded guilty and awaits sentencing.