With help from at least two of the bank’s former traders who pleaded guilty, the government is looking to bring charges against people higher up the chain at the bank, two people familiar with the years-old inquiry said. Just last month, a managing director who oversaw global precious-metals trading was placed on leave along with another employee, other people said.
The traders who admitted guilt said the manipulation was routine, sanctioned by higher-ups and went on for years. “While at JPMorgan I was instructed by supervisors and more senior traders to trade in a certain fashion, namely to place orders that I intended to cancel before execution,” former trader John Edmonds said at a October 2018 hearing after pleading guilty to commodities fraud and conspiracy.
The JPMorgan investigation grew out of a multibank US crackdown on manipulation of commodities markets using techniques including spoofing, in which traders place orders without intending to execute them to try to move prices in their favour.
The Justice Department has brought criminal charges against 16 people, including traders who worked for Deutsche Bank AG and UBS Group AG. Seven pleaded guilty, one was convicted at trial and another was acquitted.
Deutsche Bank, HSBC Holdings Plc and UBS last year agreed to pay a total of about $50mn to settle civil claims by the Commodity Futures Trading Commission that the firms’ traders engaged in spoofing techniques to manipulate prices of precious-metals futures. Deutsche Bank agreed to pay $30mn, UBS $15mn and HSBC $1.6mn.
The banks didn’t admit or deny wrongdoing.
Peter Carr, a Justice Department spokesman, declined to comment. The bank disclosed the Justice Department inquiry in company filings earlier this year, saying it was cooperating with the Justice Department and other authorities.
Michael Nowak, the managing director who was previously named in a civil suit, was placed on leave in August along with Gregg Smith, according to the people familiar with the matter. Nowak didn’t respond to a request for comment, and Smith couldn’t be reached. The moves were reported earlier by Reuters.
JPMorgan officials believe the probe is limited to the bank’s trading desk, one of the people familiar with the matter said. Investigators are examining a paper trail related to the spoofing activities, another person said, in addition to drawing on testimony from former insiders.
One of those insiders, Christiaan Trunz, a former trader for Bear Stearns and JPMorgan, told a federal judge in Manhattan last month that spoofing trades of precious metals was rampant at the bank for nearly a decade and that he was taught how to do it from other traders at JPMorgan.
Trunz, who pleaded guilty on August 20 to two federal fraud charges, said he manipulated futures markets for gold, silver, platinum and palladium from offices in New York, London and Singapore from 2007 to 2016.
“It is understood that spoofing was a strategy that we used to trade precious metals futures,” Trunz said.
Trunz was echoing descriptions offered by Edmonds, another trader, who several months earlier pleaded guilty for transactions involving silver futures.
He said the conspiracy ran from 2009 to 2015 and involved hundreds of trades that he made personally. Edmonds said he was taught how to rig the market by veterans and supervisors.
“I was instructed that if a client wished to sell futures I should simultaneously place both bids and offers with the intent of cancelling the bids prior to execution,” Edmonds said during his plea hearing.
Edmonds said the purpose was to falsely transmit liquidity and price information in order to deceive other market participants about the supply and demand so they would trade against the orders that JPMorgan wanted to execute.
“We created market activity which artificially drove the sale price up and induced other market participants to purchase at an inflated price,” he said. Edmonds entered into a cooperation agreement with the CFTC in July.
After Edmonds pleaded guilty, JPMorgan was hit with a proposed class action lawsuit by investors that also names Nowak and another onetime managing director, Robert Gottlieb. Gottlieb didn’t respond to a request for comment.
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