Two current and one former
JPMorgan Chase employees have been arrested and charged by the FBI for their
alleged participation in a racketeering conspiracy in connection with the
manipulation of the markets for precious metals.
Michael Nowak, 45, and
Gregg Smith, 55, are on leave, making them the third and fourth JPMorgan
employees to be connected to the criminal investigation, which has
resulted in guilty pleas from two former JPMorgan metals traders.
Christopher
Jordan, 47, who left the company in 2009, was an executive director and
trader on JPMorgan’s precious metals desk in New York.
All three were arrested as
part of a spoofing investigation. Spoofing involves placing bids to buy or
offers to sell contracts with the intent to cancel them before execution.
By creating an illusion of
demand, spoofers can influence prices to benefit their market positions.
‘The defendants and others
allegedly engaged in a massive, multi-year scheme to manipulate the market for
precious metals futures contracts and defraud market participants,’ said
Assistant Attorney General Brian A. Benczkowski.
Authorities said the alleged
criminal activity spanned over eight years and involved thousands of unlawful
trading sequences.
Nowak is a managing
director and global head of base and precious metals trading in New York for
the bank, according to his LinkedIn profile.
According to the source,
Nowak was placed on leave around late August. Smith was an executive director
and trader on JPMorgan’s precious metals desk in New York.
Authorities said in the
thousands of sequences, the employees ‘placed deceptive orders for gold,
silver, platinum and palladium futures contracts traded on the New York
Mercantile Exchange Inc and Commodity Exchange Inc, which are commodities
exchanges operated by CME Group Inc’.
‘This false and misleading
information was intended to, and at times did, trick other market participants
into reacting to the apparent change and imbalance in supply and demand by
buying and selling precious metals futures contracts at quantities, prices and
times that they otherwise likely would not have traded’, the indictment
alleges.
JPMorgan, one of the
largest gold trading banks in the world, said in an August regulatory filing it
is ‘responding to and cooperating with’ investigations by various authorities,
including the Department of Justice, relating to trading practices in the
metals markets.
There has been a surge in
spoofing-related prosecutions in recent years.
Bank of America Corp’s
Merrill Lynch commodities unit, for example, paid $25million in July to resolve
actions by the US Commodities Futures Trading Commission and Department of
Justice for precious metals spoofing trades between 2008 and 2014.
The Department of Justice
already secured guilty pleas from two former JPMorgan metals traders,
Christiaan Trunz and John Edmonds.
Authorities said in the thousands of sequences, the
employees ‘placed deceptive orders for gold (file image), silver, platinum and
palladium futures contracts traded on the New York Mercantile Exchange Inc and
Commodity Exchange Inc
The announcement of their
pleas, in August 2019 and October 2018, respectively, indicated that they had
collaborated on spoofing with their supervisors, who were not named.
Trunz placed ‘thousands’ of
orders he did not plan to execute for gold, silver, platinum and palladium futures
contracts between 2007 and 2016, and had learned to spoof from more senior
traders, the Department of Justice said in August, adding that he was
cooperating with ‘the ongoing investigation’.
Nowak and another former
JPMorgan trader, Robert Gottlieb, are named as defendants in at least one other
civil suit related to metals spoofing at JPMorgan.
A December 2018 class
action complaint, for example, said that Edmonds, Nowak, Gottlieb and others
made hundreds of spoof orders or more as ‘part of a conspiracy’ with the bank
and other internal traders.
An attorney for Gottlieb
did not respond to a request for comment. Koch Industries Inc, Gottlieb’s last
known employer, did not immediately respond to a request for comment.
JPMorgan has also been sued
separately by a group of investors, who said they lost money as a result of the
bank spoofing its trades.
In one of the lawsuits
brought against the bank by Daniel Shak, a metals trader, Shak estimated he
suffered immediate losses of around $25million after he was forced to liquidate
his position as a result of JPMorgan’s market manipulation, a court document
showed.
The civil suits against
JPMorgan have been stayed pending the Department of Justice probe.
Attorneys for Nowak did not
respond to a request for comment.
A call to Smith’s number at
the bank was answered by an employee at the metals desk who directed questions
to the bank’s public relations department. A spokesman for the Department
of Justice declined to comment.
All three defendants were
charged with one count of conspiracy to conduct the affairs of an enterprise
involved in interstate or foreign commerce through a pattern of racketeering
activity; one count of conspiracy to commit wire fraud affecting a financial
institution, bank fraud, commodities fraud, price manipulation and spoofing;
one count of bank fraud and one count of wire fraud affecting a financial
institution.
In addition, Smith and
Nowak were each charged with one count of attempted price manipulation, one
count of commodities fraud and one count of spoofing.