Two former JPMorgan traders were convicted in Chicago on federal charges of commodities fraud, wire fraud, and attempted market manipulation for their role in rigging gold markets over a period of years.
The jury deliberated for eight days before finding top gold trader Gregg Smith and precious-metals desk chief Michael Nowak guilty on charges related to “spoofing,” a practice of placing false trades that was outlawed in 2010 but that continued widely in trading houses.
The jury exonerated the pair on charges of conspiracy and racketeering, the latter charge indicating prosecutors saw JPMorgan’s gold desk as a criminal enterprise.
The defense lawyers argued that the government could not prove that the traders had a criminal intent when they spoofed.
Jeffrey Ruffo, a fund salesman who collaborated with the pair, was acquitted on all charges.
Spoofs are intended to trick markets into moving in the direction a trader wants them to go.
For example, if a trader wants to sell gold, he would place an order to buy gold far above the current market price. Computer algorithms notice the trade and begin to buy on the assumption that gold’s price is rising.
Within a second or two, the price of gold begins to climb; then the spoofer cancels his buy order and sells his gold at the new, higher price he duped the market into setting.
Spoofers also push the market in reverse, driving prices down with a sell order, leading other traders to sell, then the spoofer buys a desired commodity at the suddenly lower market price.
Smith spoofed “all the time,” former colleague Christian Trunz testified. Trunz, another ex-JPMorgan gold trader, said he learned to spoof by watching Smith. Trunz pleaded guilty to spoofing-related charges in 2019.
Nowak also spoofed, but less often, witnesses testified.
JPMorgan’s spoofs “represented 50 to 70 percent of the visible gold and silver markets at a particular time,” prosecutors claimed.
In 2020, JPMorgan paid $920 million in fines related to the gold traders’ spoofing practices.
TRENDPOST: If JPMorgan’s trading department isn’t a criminal organization, we wonder what one looks like.
In December 2021, the Securities and Exchange Commission fined the brokerage arm of JPMorgan Chase $125 million, the largest fine ever levied for violations of SEC rules requiring brokerages to document communications and make such records available to regulators.
Having access to such records is essential to the SEC’s function of protecting investors and the market’s integrity.
These communications, involving salespeople, traders and bankers, were once conducted on recorded phone lines or messaging software that was digitally archived, but now take place via cell phones and encrypted apps.
The bank conveniently failed to see that employees kept records of those communications, with the failure predating the work-from-home revolution.
The same type of communications violations had figured in the earlier justice department case against JPMorgan, and the firm had been on probation and under a Deferred Prosecution Agreement that required the bank to stay out of trouble.
Before this new guilty verdict last week, JPMorgan had previously admitted to five felony counts brought by the justice department since 2014, all related to market-rigging, and had paid more than $920 million in fines.
The government even sued the bank for falsely reporting it was in compliance with its agreements with the justice department, according to a December 2021 Wall Street on Parade (WSoP) article.
JPMorgan allegedly used complex, convoluted, confusing, and outright false record-keeping to obfuscate and conceal its alleged improprieties, the WSoP reported; the lawsuit alleges that to carry out the deception, JPMorgan kept, in essence, two sets of books.
Throughout what WSoP calls “this serial crime wave at the largest federally-insured bank in the United States,” nobody went to jail, no other actions were taken, and JPMorgan’s chairman and CEO, Jamie Dimon, and his board of directors not only kept their jobs, but Dimon was praised by the bank for his leadership and awarded a series of eight-figure annual bonuses.
This long and ugly history of criminality and deception reveals the internal culture over which Dimon reigns: make money at all costs and treat laws as inconveniences to ignore or outsmart.
That culture will continue until the fines charged exceed the profits made through wrongdoing.
If violating laws and rules still leaves a profit after the fines are paid, and no one goes to the slammer, then penalties will remain just another cost of doing business.