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US charges three JPMorgan precious metals traders with market manipulation

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US charges three JPMorgan precious metals traders with market manipulation

Pittsburgh — One former and two current precious metals traders from JPMorgan Chase & Co. have been charged in an indictment unsealed Monday for their alleged participation in a racketeering conspiracy and other federal crimes in connection with the manipulation of the markets for precious metals futures contracts, the US Department of Justice said.

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The DOJ alleges the fraudulent trading activities spanned over eight years between May 2008 and August 2016, and involved thousands of unlawful trading sequences.

Charged in the indictment unsealed Monday are Gregg Smith, an executive director and trader on JP Morgan's precious metals desk in New York; Michael Nowak, a managing director who ran the bank's precious metals desk; and Christopher Jordan, a former executive director and trader on JP Morgan's precious metals desk in New York.

"The defendants and others allegedly engaged in a massive, multiyear scheme to manipulate the market for precious metals futures contracts and defraud market participants," Assistant US Attorney General Brian Benczkowski said in a statement announcing the charges. "These charges should leave no doubt that the department is committed to prosecuting those who undermine the investing public's trust in the integrity of our commodities markets."

The DOJ alleges the three men engaged in a complex scheme to trade precious metals in a way that negatively affected the natural balance of supply-and-demand. Not only did their alleged behavior affect the markets for precious metals, but also correlated markets and the clients of the bank they represented, the DOJ said.

"The indictment alleges that the defendants engaged in widespread spoofing, market manipulation and fraud...through the placement of orders they intended to cancel before execution (Deceptive Orders) in an effort to create liquidity and drive prices toward orders they wanted to execute on the opposite side of the market," the DOJ said. "In thousands of sequences, the defendants and their co-conspirators allegedly placed Deceptive Orders for gold, silver, platinum and palladium futures contracts traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by CME Group Inc."

In a call with reporters Monday, Benczkowski said the investigation into the alleged fraudulent trading activity is ongoing and JPMorgan has been involved in discussions with the DOJ.

"I don't think one should look at the charges announced today as the end of the investigation," James McDonald, director of the US Commodity Futures Trading Commission said during the call.

Each of the three defendants was charged with one count of conspiracy to conduct the affairs of an enterprise involved in interstate or foreign commerce through a pattern of racketeering activity (more commonly referred to as RICO conspiracy); one count of conspiracy to commit wire fraud affecting a financial institution, bank fraud, commodities fraud, price manipulation and spoofing; one count of bank fraud and one count of wire fraud affecting a financial institution. In addition, Smith and Nowak were each charged with one count of attempted price manipulation, one count of commodities fraud and one count of spoofing, the DOJ said.

Benczkowski and McDonald told reporters Monday that their offices relied heavily on data analysis in bringing these charges.

"We will be expanding the use of data analysis to look at other markets for potential fraud," Benczkowski said.

Two other former JPMorgan precious metals traders, John Edmonds and Christian Truz, previously pleaded guilty for their involvement in the scheme and are cooperating with the government, Benczkowski said.

-- Justine Coyne, justine.coyne@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com