JPMorgan to Pay $920M for Manipulative Trading of Metals Futures, Treasuries

JPMorgan Chase & Co. admitted wrongdoing and agreed to pay more than $920 million to resolve U.S. authorities' claims of market manipulation in the bank's trading of metals futures and Treasury securities over an eight-year period, the largest sanction ever tied to the illegal practice known as spoofing.

The New York-based lender will pay the biggest monetary penalty ever imposed by the CFTC, including a $436.4 million fine, $311.7 million in restitution and more than $172 million in disgorgement, according to a statement from the Commodity Futures Trading Commission.

The CFTC said its order will recognize and offset restitution and disgorgement payments made to the Department of Justice and Securities and Exchange Commission.

The accord ends a criminal investigation of the bank that has led to a half dozen employees being charged for allegedly rigging the price of gold and silver futures for more than eight years. Two have entered guilty pleas, and four others are awaiting trial.

'Spoofing' Crackdown

The JPMorgan penalty far exceeds fines levied against banks, and is the toughest sanction imposed in the Justice Department's years-long crackdown on spoofing. The bank entered into a deferred prosecution agreement with the Justice Department as part of the settlement, according to the CFTC.

A JPMorgan spokesman had no immediate comment.

Spoofing typically involves flooding derivatives markets with orders that traders don't intend to execute to trick others into moving prices in a desired direction.

The practice has become a focus for prosecutors and regulators in recent years after lawmakers specifically prohibited it in 2010. While submitting and canceling orders isn't illegal, it is unlawful as part of a strategy intended to dupe other traders.

More than two dozen individuals and firms have been sanctioned by the Justice Department or the CFTC, including day traders operating out of their bedrooms, sophisticated high-frequency trading shops and big banks such as Bank of America Corp. and Deutsche Bank AG.

The Justice Department took a much more aggressive tack with JPMorgan by alleging that the bank hosted an eight-year market manipulation conspiracy with its precious metals desk as a criminal racketeering operation.

While other suspected market cheats have been charged with specific spoofing and manipulation offenses, the Justice Department accused JPMorgan metals traders under the 1970 Racketeer Influenced and Corrupt Organizations Act — a criminal law more commonly applied to Mafia cases than global bank probes.

RICO allows for prosecutors to charge multiple criminal acts involving a group of people in the same case as long as they were part of the same enterprise.

Eight-Year Conspiracy

The Justice Department said the conspiracy on the JPMorgan metals desk ran from March 2008 to August 2016. The two former metals traders for the bank who have pleaded guilty to fraud charges are cooperating with authorities.

The highest-level individual charged is Michael Nowak, a veteran gold trader who remained active as the global head of JPMorgan's precious metals desk until he was indicted under seal in August 2019 along with two others. A former JPMorgan salesman who worked with hedge fund clients was later added to the case.

In 2015, JPMorgan pleaded guilty to felony antitrust charges along with several other global banks that paid penalties and admitted to conspiring to rig the price of U.S. dollars and euros.

The bank agreed to pay $550 million, but it and other global lenders in the accord felt little lasting hit from markets or customers, undercutting investor fears that a guilty plea would devastate their business.

Shortly after Nowak and other traders were charged under RICO, JPMorgan learned it was the focus of a separate but related criminal investigation into trading of Treasury securities and futures, according to a person familiar with the matter.

"The conduct of the individuals referenced in today's resolutions is unacceptable and they are no longer with the firm," said Daniel Pinto, co-President of JPMorgan Chase and CEO of the Corporate & Investment Bank. "We appreciate that the considerable resources we've dedicated to internal controls was recognized by the DOJ, including enhancements to compliance policies, surveillance systems and training programs."

[Editor's note: After Bloomberg posted this report, JPMorgan issued a statement from Co-President Daniel Pinto: "The conduct of the individuals referenced in today's resolutions is unacceptable, and they are no longer with the firm. We appreciate that the considerable resources we've dedicated to internal controls was recognized by the DOJ, including enhancements to compliance policies, surveillance systems and training programs."]