Prosecutors said Friday that three former members of JPMorgan Chase’s precious metals trading desk “ripped off the market” as part of a years-long criminal conspiracy to manipulate global silver and gold markets. gold.
The comments came at the start of a lawsuit reminiscent of the misconduct that ravaged metals markets between 2008 and 2016, and resulted in heavy penalties for several banks by US authorities, including a $920 million fine for JPMorgan in 2020.
Federal prosecutors have charged Michael Nowak, Jeffrey Ruffo and Gregg Smith with racketeering, wire fraud, impersonation and merchandise fraud. Spoofing, which was banned in the United States in 2010 by the Dodd-Frank Act, is the practice of rapidly placing and withdrawing buy and sell orders to create a false impression of demand.
“In order to make more money for themselves, they decided to cheat to get better prices,” said Assistant U.S. Attorney Lucy Jennings.
During Friday’s opening arguments, prosecutors described how the defendants allegedly used the anonymity of electronic futures trading on the Chicago Mercantile Exchange to deceive traders on the other side of their alleged fake trades for more than seven years. . Trader spoofs “represented 50-70% of visible gold and silver markets at any given time,” Jennings said.
But lawyers for the defendants said no such pattern existed and prosecutors had “chosen by rote” examples to try to prove spoofing had taken place. They said the difference between legal and illegal exchanges came down to the defendants’ intent and what they were thinking, which the prosecution could not possibly prove.
All three men have pleaded not guilty to the charges, which were filed in 2019. If convicted, they face up to 20 years in prison for each charge they are found guilty of. Nowak oversaw JPMorgan’s global precious metals trading desk, and Smith worked as a trader and executive director in New York. Ruffo worked in sales in New York.
Another defendant, Christopher Jordan, will be tried separately.
The case involves the trading of thousands of futures contracts on precious metals such as gold, silver and platinum. In the indictment, the DoJ alleges that the group of traders concocted illegal trading strategies, including impersonation, to gain advantage over algorithmic traders.
The prosecution claimed that Nowak and Smith flooded the market with huge volumes of trades – both buys and sells – that they never intended to execute in order to achieve the desired price. for Ruffo customers.
Two former JPMorgan traders have previously pleaded guilty to identity theft in the precious metals markets, while two former Bank of America traders were convicted last year of wire fraud in a similar case.
Among the charges against the defendants are violations of the Racketeer Influenced and Corrupt Organizations Act, or Rico, a federal law enacted in 1970 to prosecute organized crime.
Over the years, the DoJ has expanded the scope of the types of crimes prosecuted under Rico to include white collar crimes. More recently, it has been used to target banks and bankers.
Aitan Goelman, a partner at Zuckerman Spaeder and former director of the US Commodity Futures Trading Commission, said it was “unprecedented” for the DoJ to allege JPMorgan’s metals office was a racketeering business.
“I think this is a significant expansion of the department’s use of Rico,” Goelman said.
Samuel Buell, a professor at Duke University School of Law, said: “It’s not common to use Rico in these kinds of cases. Rico is more of a kind of umbrella device that has procedural advantages for prosecutors “that “make it easier to join charges and defendants in a single case.”
The use of the law in a financial case “sends the message that the DoJ is taking a hard line on white-collar defendants,” said John Zach, a partner at Boies Schiller Flexner and a former federal prosecutor for the Southern District of New York.