JPMorgan Gold Desk Ripped Off Market for Years, Jurors Told

7.11.22 - Did JPMorgan manipulate markets?

Gold last traded at $1,734 an ounce. Silver at $19.15 an ounce.

NEWS SUMMARY: Gold softened Monday on a higher US dollar and lower oil prices. Stocks started the week on a downward slide.

Bloomberg--The precious-metals business at JPMorgan Chase & Co. operated for years as a corrupt group of traders and sales staff who manipulated gold and silver markets for the benefit of the bank and its prized clients, a federal prosecutor told jurors in Chicago.

'This case is about a criminal conspiracy inside one of Wall Street’s largest banks,' said Lucy Jennings, a prosecutor with the Justice Department’s fraud section. 'To make more money for themselves, they decided to cheat.' ....

The trial of three former JPMorgan employees, including the veteran head of precious metals, Michael Nowak, is the most ambitious effort yet in a years long US crackdown on market manipulation and spoofing. Unlike past cases of alleged trading fraud, the trio is accused of a racketeering conspiracy under the 1970 Racketeer Influenced and Corrupt Organizations Act -- a criminal law more commonly used against the Mafia rather than global banks.

Spoofing, banned by law in 2010, involves huge orders that traders cancel before they can be executed in a bid to push prices in the direction they want to make their genuine trades profitable. While canceling orders isn’t illegal, it is unlawful as part of a strategy intended to dupe others....

'Somebody got ripped off.' She added, 'We will prove that all three defendants knew from day one that this trading was wrong and did it anyways.'

Lawyers for Nowak and Smith offered jurors a much different view, saying prosecutors had misrepresented how and why orders are made in the precious-metals market, and insisted that the defendants had never intended to deceive anyone.

They said the government had cherry-picked trading data to create the false impression that the traders were spoofing when they were actually placing real, executable, open-market orders.

'The government’s simple narrative doesn’t tell the full story -- far from it,' David Meister, Nowak’s attorney, said in his opening statement.

Jonathan Cogan, Smith’s attorney, said gold and other precious metals were traded in a marketplace where computer-generated algorithms can buy and sell commodities in one-millionth of a second.

To compete with the so-called 'algos,' and to execute trades on behalf of JPMorgan clients, Smith routinely had buy and sell orders at the same time, Cogan said. While some orders were only active for seconds, that’s 'an eternity' in such a fast-moving market, he said.

According to Meister, evidence presented at the trial will show that the vast majority of all market orders are canceled, and the typical lifespan of an order is just a couple of seconds."