WASHINGTON (Reuters) - The Department of Justice charged two current and one former JPMorgan Chase & Co (JPM.N) executives on Monday with alleged racketeering and manipulating prices of metals such as gold, silver, platinum and palladium between 2008 and 2016.
The charges came from an “ongoing” investigation into alleged fraudulent trading practices at JPMorgan that generated “millions of dollars in profit” for the bank and “tens of millions of dollars of losses” for its customers, said Brian Benczkowski, an assistant attorney general.
The three men – global precious metals desk head Michael Nowak, precious metals trader Gregg F. Smith, and former trader Christopher Jordan, who left JPMorgan in 2009 – were charged with a racketeering conspiracy and other federal crimes, the Department of Justice said in a statement.
The cases relate to spoofing, which involves placing bids to buy or offers to sell contracts with the intent to cancel them before execution, allowing spoofers to influence prices to their benefit.
There has been a surge in spoofing-related prosecutions in the United States in recent years. Two former JPMorgan metals traders, Christiaan Trunz and John Edmonds, already pled guilty to similar charges as part of the same investigation.
A spokesman for JPMorgan declined to comment. One of the largest gold traders in the world, the bank said in an August regulatory filing it was “responding to and cooperating with” investigations by various authorities, including the Department of Justice, relating to trading practices in the metals markets.
Nowak’s attorneys, David Meister and Jocelyn Strauber of Skadden, Arps, Slate, Meagher & Flom LLP, said Nowak “has done nothing wrong” and expect him to be fully exonerated. Smith and Jordan did not respond to requests for comment.
Separately, the U.S. Commodity Futures Trading Commission said on Monday it has charged Nowak and Smith for spoofing and manipulating prices in the precious metals futures market.
In a statement and in the indictment, prosecutors described how the trio executed “thousands” of unlawful trading sequences that included “layering” deceptive orders at different prices in rapid succession. Prosecutors also described attempts to influence market prices toward specific price points to trigger or avoid triggering options.
An option is a financial instrument that gives buyers the right to buy or sell an underlying asset at an agreed price and at a fixed time. Its value is tied to the value of the underlying asset.
While previous spoofing prosecutions have led to guilty pleas, in a similar case a former metals trader at the Swiss bank, UBS Group (UBSG.S), was acquitted by a jury last year, highlighting the difficulties in making a case that canceling orders is a criminal act given that many market orders go unfilled.
Reuters reported on Sept. 12 that Nowak and Smith had been placed on leave from JPMorgan in connection with the ongoing investigation.
“This is, in our view, a very strong case, and as strong a case as we’ve seen in this area,” said Benczkowski. “We believe that there were millions of dollars in profit, at least to the bank, and tens of millions of dollars of losses (to customers)
The case was filed with the U.S. District Court in Chicago, and was unsealed on Monday, the Department of Justice said.
Reporting by Susan Heavey, Lawrence Delevingne, Koh Gui Qing and Jonathan Stempel; Editing by Chris Reese and Andrea Ricci