Posted on 08/24/2023 12:16:58 AM PDT by ransomnote
Defendants Were J.P. Morgan’s Former Head of Global Precious Metals Business and J.P. Morgan’s Former Head Gold Trader in New YorkTwo former precious metals traders at JPMorgan Chase & Co. (JPMorgan) were sentenced today for engaging in fraud, attempted price manipulation, and spoofing as part of a market manipulation scheme that spanned over eight years, involved tens of thousands of unlawful trading sequences, and resulted in over $10 million in losses to market participants.
Gregg Smith, 59, of Scarsdale, New York, was sentenced to two years in prison and a $50,000 fine. Michael Nowak, 49, of Montclair, New Jersey, was sentenced to one year and one day in prison and a $35,000 fine.
“The defendants used their positions as some of the most powerful traders in the worldwide precious metals markets to engage in an egregious effort to manipulate prices for their benefit,” said Acting Assistant Attorney General Nicole M. Argentieri of the Justice Department’s Criminal Division. “This case reaffirms the Department’s steadfast commitment to hold accountable those who engage in fraud and manipulation that undermines the investing public’s trust in the integrity of our commodities markets.”
According to court documents, between approximately May 2008 and August 2016, Smith and Nowak, along with other traders on the JPMorgan precious metals desk, engaged in a widespread spoofing, market manipulation, and fraud scheme. Smith was an executive director and trader on JPMorgan’s precious metals desk in New York, and Nowak was a managing director and ran JPMorgan’s global precious metals desk. As part of their market manipulation scheme, Smith and Nowak placed orders for precious metals futures contracts that they intended to cancel before execution to drive prices on orders they intended to execute on the opposite side of the market. Smith and Nowak engaged in tens of thousands of deceptive trading sequences for gold, silver, platinum, and palladium futures contracts traded through the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by CME Group Inc. These deceptive orders were intended to inject false and misleading information about the genuine supply and demand for precious metals futures contracts into the markets.
“As today’s sentencing demonstrates, the FBI and its partners remain committed to investigating and bringing to justice anyone who attempts to manipulate our financial markets for their own selfish gain,” said Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division. “In order to maintain economic security, investors in equity and commodities markets must have confidence that exchanges are operated in a transparent and equitable manner, and that investments are free from manipulation and fraud. Today’s outcome should serve as a reminder that the FBI remains highly focused on combatting bad actors conducting sophisticated fraud schemes targeting the securities and commodities markets.”
In September 2020, JPMorgan admitted to committing wire fraud in connection with: (1) unlawful trading in the markets for precious metals futures contracts; and (2) unlawful trading in the markets for U.S. Treasury futures contracts and in the secondary (cash) market for U.S. Treasury notes and bonds. JPMorgan entered into a three-year deferred prosecution agreement through which it paid more than $920 million in a criminal monetary penalty, criminal disgorgement, and victim compensation, with parallel resolutions by the Commodity Futures Trading Commission (CFTC) and the Securities Exchange Commission announced on the same day.
The FBI New York Field Office investigated the case. The CFTC’s Division of Enforcement provided valuable assistance.
Market Integrity & Major Frauds Unit Chief Avi Perry and Trial Attorneys Matthew F. Sullivan, Lucy B. Jennings, and Christopher Fenton of the Criminal Division’s Fraud Section prosecuted the case.
Updated August 22, 2023
They neglected to give Joe his 10%?
Understood - but would like to know how, exactly, they intended to profit from the artificially boosted precious metal prices.
J.P. Morgan obviously profited directly, in that they could then charge higher trading fees based on the (slightly) higher prices - like charging 3% on an order of 50,000 ounces of gold at the artificially inflated price of $2,000 / oz. - instead of at the "real" price of, say, $1,990 / oz., thus yielding an additional profit of 3% x $500,000 = $15,000. So that would have been the day's "haul?!" Peanuts!
Regards,
The nature of the fake trades these folks injected into the market were different from what you are positing. They would place large limit orders In the market indicating A sudden high demand for some particular underlying. The limit orders would not fill, But other market participants would see the enhanced demand for a long position, for example, and follow on with their own long orders. And then these guys would place market orders short the market, When these guys then canceled their long limit orders, the perceived demand would apparently disappear from the market. They then placed short bets and the followers of their trading would find themselves on the wrong side of the market. That is how spoofing works.
Thank you for your far-better description of what was (likely) taking place!
(I had known that my scenario was probably a gross oversimplification and maybe even distortion of the true circumstances.)
QUESTION: Does the act of placing a large limit order cost money? I.e., is there a fee associated with it? Would that cut into their (illegal) profits?
Regards,
Bookmark
It may not if it were the traders controlling the market.
.
Are they going to white-collar resort prison or to Federal “Pound Me In The Ass” prison?
No, any fees apply only upon execution (a fill) just like with your or my trade(s)
Of course, it’s inconceivable they do not have seats on the applicable exchange. That means they pay much lower fees per trade, but pay an annual fee for membership. The commodity exchs do not have this a “zero commission: thing that the stock exchanges do.
Scrutiny was likely applied to their acct due to the number of order cancellations.
Are/have you been a trader?
For many years, only for my own acct, not for a firm.
Not trading at present, though I keep my eyes on markets.
For many years, only for my own acct, not for a firm.
Not trading at present, though I keep my eyes on markets.
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