By John McDonald
Between 2008 and 2016, three JPMorgan traders may have manipulated prices of gold, silver, platinum, and palladium futures according to the FBI.
The three individuals, two of whom are still employed by JPMorgan and one of whom has since departed the company, stand accused of “engaging in a complex scheme to trade precious metals in a way that negatively affected the natural balance of supply and demand,” William F. Sweeney, FBI assistant director in charge of the New York field office, said in a statement.
The FBI believes the three men placed trade orders they planned to cancel before executing them in order to trick other traders into buying and selling futures contracts at prices and times that would be beneficial to those with inside knowledge.
Making bids or offerings with the preexisting intent to cancel is known as spoofing. This practice is considered a “disruptive trade practice” and is illegal because it creates a situation where the laws of scarcity, supply, and demand do not apply since certain individuals have more information than the rest of the market.
The three traders who stand accused are Gregg Smith, an executive director at JPMorgan, Michael Nowak, a managing director and head of JPMorgan global precious metals desk, and Christopher Jordan, who is no longer employed at JPMorgan.
Although JPMorgan has declined to comment on the case, both Smith and Nowak remain employed at this time. JPMorgan has said previously that the bank will “respond and cooperate with these investigations.”
Lawyers for Nowak and Jordan both issued statements in the wake of the allegations going public stating that their clients have done nothing wrong and are innocent.
Nowak and Smith also face civil enforcement action from the U.S. Commodity Futures Trading Commission. These actions may be used to impose financial penalties or to suspend, deny, revoke, or restrict trading privileges.
Some are temporary and used when individuals are facing charges that have not yet been proven, while others are permanent. Traders who violate these actions may be held in contempt of court.
Smith is of particular interest in this case because U.S. prosecutors say he and a former Bear Stearns colleague “taught” others at JPMorgan to use a particular type of spoofing, called the “iceberg technique,” to manipulate precious metals futures in the wake of the 2008 financial crisis.
JPMorgan Chase & Co. acquired Bear Stearns at that time. Traders are accused of layering multiple orders for precious metals at various prices over one another in quick succession to make the spoofing harder to detect.
Smith’s colleague has already pled guilty and is reportedly cooperating with authorities in the investigation, which has spanned nearly a decade and is very much like “a criminal enterprise operating inside the United States’ biggest bank,” the FBI said.
Other former JPMorgan traders involved in the investigation have called the practice “routine, sanctioned by higher-ups,” and as having gone on for years.
Smith’s former colleague admitted last month in a federal court that he had manipulated gold, silver, platinum, and palladium prices from 2007 to 2016 “from offices in New York, London, and Singapore.”