Two former precious metals traders at JPMorgan Chase & Co. (JPMorgan) have been sentenced to prison for engaging in fraud, attempted price manipulation, and spoofing in a market manipulation scheme that lasted over eight years. Both defendants were involved in tens of thousands of unlawful trading sequences, which resulted in over $10m in losses to market participants.
According to court documents, Gregg Smith – a former executive director and trader on JPMorgan’s precious metals desk in New York, and Michael Nowak – a former managing director who ran JPMorgan’s global precious metals desk, engaged in a long-running fraud scheme between approximately May 2008 and August 2016. Along with other traders on the company’s precious metals desk, both Smith and Nowak took part in widespread spoofing, market manipulation, and fraud scheme.
“The defendants used their positions as some of the most powerful traders in the worldwide precious metals markets to engage in an egregious effort to manipulate prices for their benefit,” said Acting Assistant Attorney General Nicole M. Argentieri of the Justice Department’s Criminal Division.
Precious metals futures
Smith and Nowak placed deceptive orders to inject false and misleading information about the true supply and demand for precious metals futures contracts into the markets. They placed orders which they intended to cancel before execution in order to drive prices on orders they intended to execute on the opposite side of the market.
In total, both defendants engaged in tens of thousands of faulty trading sequences for gold, silver, platinum, and palladium futures contracts through the New York Mercantile Exchange Inc. and Commodity Exchange Inc. – commodities exchanges operated by CME Group Inc.
“The defendants used their positions as some of the most powerful traders in the worldwide precious metals markets to engage in an egregious effort to manipulate prices for their benefit.”
Nicole M Argentieri, Acting Assistant Attorney General, US Justice Department Criminal Division
Gregg Smith, 59, of New York, was sentenced to two years in prison and a $50,000 fine. Michael Nowak, 49, of New Jersey, was sentenced to one year and one day in prison and a $35,000 fine.
“This case reaffirms the Department’s steadfast commitment to hold accountable those who engage in fraud and manipulation that undermines the investing public’s trust in the integrity of our commodities markets,” Argentieri added.
Equity and commodities markets
“In order to maintain economic security, investors in equity and commodities markets must have confidence that exchanges are operated in a transparent and equitable manner, and that investments are free from manipulation and fraud,” said Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division.
“Today’s outcome should serve as a reminder that the FBI remains highly focused on combatting bad actors conducting sophisticated fraud schemes targeting the securities and commodities markets.”
Record spoofing fine
In September 2020, JPMorgan admitted to committing wire fraud in connection with:
- unlawful trading in the markets for precious metals futures contracts; and
- unlawful trading in the markets for US Treasury futures contracts and in the secondary (cash) market for US Treasury notes and bonds.
The company then entered into a three-year deferred prosecution agreement and has paid more than $920m in a criminal monetary penalty, criminal disgorgement, and victim compensation, with parallel actions by the CFTC and the SEC. The fine was a record imposed for spoofing.