By John McDonald
JPMorgan Chase employees are facing criminal charges over alleged racketeering and conspiracy to manipulate the precious metals market while defrauding consumers, and it appears federal prosecutors are not done adding names to the list of defendants. The Justice Department has agreed to place a stay on two civil proceedings against the company until the criminal case is concluded.
The criminal case in question involves a multiyear, international conspiracy among certain JPMorgan Chase employees who allegedly worked with eight other unnamed co-conspirators in company offices in New York, London, and Singapore to artificially inflate and depress gold prices. The tactic, called spoofing, involved placing large volumes of orders to buy or sell gold, then canceling the orders before they were executed.
Spoofing works when other investors see the planned purchase or sale of an asset and then respond accordingly by buying or selling themselves. Conducted on a grand enough scale, the spoofers can manipulate the markets and then buy low or sell high as they wish.
At present, there are 14 criminal indictments against three current or former JPMorgan Chase employees, including the global head of base and precious metals trading. However, federal prosecutors disclosed last week they plan to request a superseding indictment that will add “at least one additional defendant within the next 30 days.”
The addition of another individual to the list of defendants could affect the outcome of the civil suits, so the Justice Department opted for the stay. However, both plaintiffs oppose the delay in resolution of their cases, which have already dragged on for years.
The first civil suit was filed in 2015 and accuses JPMorgan Chase of manipulating silver futures. The plaintiff, hedge fund manager Daniel Shak and two other commodity traders, allege the manipulation cost them $30 million in losses.
Federal prosecutors say their indictment “contains allegations regarding a…communication between alleged co-conspirators that appears to relate to spoofing in connection with plaintiff Daniel Shak and other ‘locals’ on the trading floor.” Given that the communication revolved around Shak and those “locals,” the outcome of the criminal case could directly affect the outcome of the civil suit.
The second civil suit is a consolidated class action against JPMorgan Chase and the precious metals traders associated with the firm and with the spoofing. It deals with activities between January 1, 2009, and December 1, 2015, and so directly overlaps with the federal prosecutors’ activities and investigative timeline.
Both plaintiffs in the civil cases say they plan to oppose the motion to stay. JPMorgan Chase had no comment on the matter.
Should You Be Worried About Spoofing?
While the alleged activities of these traders are alarming, the U.S. Justice Department says it is better equipped than ever to identify spoofing before it costs investors valuable capital. The department’s fraud division collects and analyzes trade data internally for analysis using an ever-evolving and more advanced set of data collection and analytic techniques.
As a result, more past spoofing activities have been identified, and it becomes increasingly likely that the gold markets and precious metals markets will become immune to the tactic thanks to improving technology and advanced protective resources.