JPMorgan Chase accused of criminal metals dealsPublished by MAC on 2019-09-20
One of the world's most profitable banks has been charged with placing fraudulent orders electronically and by phone calls to floor brokers in trading pits.
By this method, claims the US government, they were able to "generate millions of dollars in trading profits for themselves and JPMorgan and cause millions in losses for counter-parties".
See also: US may finally hammer mining criminals
JPMorgan’s Metals Desk Was a Criminal Enterprise, U.S. Says
By Tom Schoenberg and David Voreacos
16 September 2019
U.S. invokes racketeering law in charging three metals traders
RICO statute is rarely used in cases involving big banks
U.S. prosecutors took an unusually aggressive turn in their investigation of price fixing at JPMorgan Chase & Co., describing its precious metals trading desk as a criminal enterprise operating inside the bank for nearly a decade.
The prosecutors charged the head of JPMorgan’s global precious metals trading operation and two others on Monday, accusing them of “conspiracy to conduct the affairs of an enterprise involved in interstate or foreign commerce through a pattern of racketeering activity.”
That’s a reference to the Racketeer Influenced and Corrupt Organizations Act, or RICO, a law often used against organized crime rings. The U.S. has rarely invoked RICO law in big bank cases. Its use suggests that JPMorgan may face deeper legal jeopardy, going beyond the several individuals who have already been prosecuted.
Former prosecutors agreed the move was bold, with at least one questioning whether the Justice Department was overreaching. Others said the use of RICO was merited given the complexity and duration of the manipulation, echoing the U.S. official who announced the charges Monday morning.
“Based on the fact that it was conduct that was widespread on the desk, it was engaged in in thousands of episodes over an eight-year period -- that it is precisely the kind of conduct that the RICO statute is meant to punish,” Assistant Attorney General Brian Benczkowski told journalists.
“We’re going to follow the facts wherever they lead, whether it’s across desks here or at any other bank or upwards into the financial institution,” he added.
Peter Carr, a Justice Department spokesman, said the RICO law has been invoked in cases involving small trading operations and in corporate-conduct cases. But he and several former prosecutors said they couldn’t recall another use of the law to prosecute traders at a big bank.
This case differs from previous market-rigging cases in other ways, too, including the number of bank personnel who have been implicated by the government. JPMorgan pleaded guilty in a 2015 investigation of price fixing in currency markets, a matter in which one of the bank’s traders was charged. In the metals-manipulation matter, more than a dozen people participated in the scheme, prosecutors said. Two of them have pleaded guilty and are cooperating with authorities.
The head of the bank’s global precious metals desk, Michael Nowak, 45, and two others ripped off market participants and even clients as they illegally moved prices for gold, silver, platinum and palladium, the Justice Department said Monday. Nowak was placed on leave last month, a person familiar with the matter has said. The other traders charged were Gregg Smith, 55 and Christopher Jordan, 47.
JPMorgan declined to comment. Smith and Jordan didn’t respond to requests for comment. Nowak has done nothing wrong and “it’s truly regrettable that the DOJ decided to go forward” with a prosecution of him, said his attorneys, David Meister and Jocelyn Strauber of Skadden, Arps, Slate, Meagher & Flom LLP.
The indictments, which come after the government lost two manipulation cases in court, are a good indication that prosecutors are “undeterred and are becoming more, not less, aggressive” in cracking down on market manipulation, said Benjamin Singer, a former head of the Justice Department’s securities fraud unit who is now at O’Melveny & Myers LLP in Washington.
Ex-prosecutor Justin Weddle said the Justice Department was doubling down on already-aggressive efforts to crack down on spoofing, the practice of making buy and sell orders for precious metals futures contracts with the intent to cancel those orders before execution.
Market spoofing was criminalized in 2011, he said, noting that many of the trades and text messages described in this indictment predate that. “It is not obvious to me how the RICO charges satisfied the Department’s internal guidelines saying that the Criminal Division will not approve ‘imaginative’ prosecutions under RICO, which are far afield from the congressional purpose of the RICO statute,” said Weddle, of Weddle Law Plc.
Prosecutors said the three men charged on Monday placed fraudulent orders electronically and by phone calls to floor brokers in trading pits. They were able to generate millions of dollars in trading profits for themselves and JPMorgan and cause millions in losses for counter-parties, prosecutors said.
The practice began before JPMorgan’s May 2008 purchase of Bear Stearns and grew even larger after that acquisition, the U.S. said. Jordan also engaged in manipulation while with Credit Suisse Group AG for about six months in 2010, prosecutors said. Credit Suisse declined to comment.
The banks weren’t identified in the filings, but their descriptions match those of JPMorgan, Bear Stearns and Credit Suisse.
Jordan and Smith also lied to law enforcement investigators and bank compliance officers for years, according to the indictment. In 2010, Jordan intentionally lied to an investigator for the Commodity Futures Trading Commission about manipulation of silver prices, while Smith lied three years later to a CME Group investigator about his trading practices, it said.
Nowak and Jordan also lied on annual statements certifying that they were in compliance with JPMorgan’s code of conduct in 2008 and 2009, while Smith lied in 2009 and 2010, they said.
Smith is expected to make an initial appearance Monday in federal court in New York, and Nowak and Jordan will appear in federal court in New Jersey. The case was brought in federal court in Chicago.
The JPMorgan investigation grew out of a multibank U.S. 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 favor. The Justice Department had already 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.
With assistance by Neil Weinberg, Greg Farrell, Michelle Davis, and Patrick Winters