Traders Charged With Manipulating Metals Prices -- WSJ
September 17 2019 - 3:02AM
Dow Jones News
By Dave Michaels and Dave Sebastian
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 17, 2019).
Two traders and one former executive at JPMorgan Chase & Co.
were indicted and charged with manipulating prices for
precious-metals futures contracts over an eight-year period.
Gregg Smith, Michael Nowak and Christopher Jordan were
criminally charged in Chicago federal court and became the latest
targets of a government campaign to punish a type of illicit
trading known as spoofing. The Justice Department said the scheme
was focused on the bank's precious-metals desk, involving offices
in New York, London and Singapore, and involved thousands of
fraudulent orders intended to benefit the traders' positions.
In addition to spoofing and other federal offenses, the
indictment charged all three men with racketeering, a claim that is
more typically found in cases against organized crime entities.
Authorities said it represents the first time that defendants
accused of spoofing electronic derivatives markets have been
charged with racketeering.
"Based upon the fact it was conduct that was widespread on the
desk, it was engaged in thousands of episodes, that it is precisely
the kind of conduct that the RICO statute is meant to punish,"
Assistant Attorney General Brian Benczkowski said Monday.
Spoofing involves submitting orders to exchanges that traders
have no intention of fulfilling, according to regulators. The
problematic orders are typically sent in large volume on one side
of the market, creating the appearance of greater interest in
buying or selling. When spoofers get the trade they want, they
cancel the other orders, sometimes leaving their counterparties
with a loss.
JPMorgan placed Mr. Smith, 55 years old, and Mr. Nowak, 45 and a
managing director at the firm, on leave, said a person familiar
with the matter. Mr. Jordan, 47, left the bank in 2009 and
subsequently worked as a metals trader at other banks.
An attorney representing Mr. Smith declined to comment. A lawyer
for Mr. Jordan couldn't be reached. Lawyers for Mr. Nowak said in a
statement that he plans to fight the charges and expects to be
exonerated.
"It's truly regrettable that the DOJ decided to go forward with
a prosecution of Mike Nowak, who has done nothing wrong," said the
lawyers, David Meister and Jocelyn Strauber of Skadden, Arps,
Slate, Meagher & Flom LLP.
While the CFTC has settled numerous civil cases related to
spoofing charges, prosecutors have a mixed record when it comes to
advancing criminal charges.
A jury in Connecticut last year acquitted Andre Flotron, a
former UBS Group AG metals trader accused of spoofing futures
markets. The Justice Department in April dropped spoofing charges
against another defendant, Jitesh Thakkar, after a federal jury in
Chicago couldn't reach a unanimous verdict in his trial.
Mr. Benczkowski said Monday that the case against the JPMorgan
traders is stronger than prior ones because the alleged misconduct
went on for many years, and the government has the backing of
"multiple cooperating witnesses."
The JPMorgan traders earned millions of dollars and imposed
losses on counterparties totaling tens of millions, said Mr.
Benczkowski. He declined to be more specific about the alleged
gains from fraud on a call with reporters.
The indictment includes some electronic messages attributed
co-conspirators of Messrs. Smith, Nowak and Jordan. One of the men,
Christian Trunz, pleaded guilty last month in Brooklyn federal
court to one count of conspiracy to engage in spoofing and one
count of spoofing. An attorney for Mr. Trunz didn't return a phone
message seeking comment.
"So you know its gregg bidding up on the futures trying to get
some off, " Mr. Trunz wrote in one message, according to the
indictment.
The response from an alleged co-conspirator: "sweet mate."
The Commodity Futures Trading Commission on Monday separately
filed a civil enforcement action in the Northern District of
Illinois against Mr. Nowak and Mr. Smith.
The other co-conspirator identified in the criminal case, John
Edmonds, pleaded guilty in October 2018 to commodities fraud and
conspiracy to commit wire fraud, commodities fraud, price
manipulation and spoofing.
In a separate statement on Monday, the CFTC said Mr. Trunz
settled its civil charges and doesn't face any immediate financial
penalties because of his cooperation with the regulatory
agency.
Write to Dave Michaels at dave.michaels@wsj.com
(END) Dow Jones Newswires
September 17, 2019 02:47 ET (06:47 GMT)
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