JPMorgan’s Gold ‘Boss’ Led Plot to Spoof Prices, Jury Told
July 30, 2022
(Bloomberg) — Michael Nowak was “the boss” of a plot at JPMorgan Chase & Co. to manipulate gold and silver prices and worked with the top trader and salesman on the bank’s precious metals desk to “spoof” markets with bogus buy and sell orders, a federal prosecutor told jurors in Chicago.
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“For years, executives at one of the world’s largest banks conspired to manipulate the markets for precious metals,” Matthew Sullivan, an attorney in the US Department of Justice, said Thursday during closing arguments in the trial of Nowak, Gregg Smith and Jeffrey Ruffo. “All three worked together toward the same goal: earning profits for the precious-metals desk by spoofing.”
Prosecutors are wrapping up the biggest criminal case by the US in its crackdown on market manipulation following the global financial crisis. Nowak and Smith are charged with racketeering conspiracy as well as conspiring to commit price manipulation, wire fraud, commodities fraud and spoofing from 2008 to 2016. Ruffo is charged with racketeering and conspiracy. They face years in prison if convicted.
Over the past three weeks, government witnesses described how Nowak, who ran the desk, and Smith, its chief gold trader, routinely placed huge buy and sell orders they never intended to execute. It was part of their strategy to push prices in the direction that would profit the bank, said two former JPMorgan traders who agreed to cooperate after pleading guilty. Ruffo encouraged the practice to benefit his hedge fund clients, they said.
JPMorgan, one of the most influential banks in the precious-metals market, already has paid $920 million to settle Justice Department spoofing allegations against it.
‘Power and Influence’
“The defendants had power and influence, and together they abused their positions and rigged the precious metals markets for their own gain,” Sullivan said. “They did it by spoofing, which put simply is a lie to make money by tricking other people in the market.”
Defense lawyers have argued during the trial that all the alleged spoof orders were legitimate. They say there are other explanations for entering large orders to buy and sell futures contracts at the same time on behalf of clients or to provide market pricing, and weren’t bogus spoof trades intended to fool rivals.
Smith’s lawyer, Matthew Menchel, in his closing argument Thursday, told jurors they can’t rely on the three former traders who testified against the defendants as government witnesses, calling them admitted liars who were only parroting the claims of prosecutors to gain lenient sentences.
The government is the one that “gets to decide and judge whether the witnesses testified truthfully,” which means prosecutors had “tremendous power over these individuals,” including “forcing a narrative down someone else’s throat,” Menchel said.
Lawyers for Nowak and Ruffo will make their closing arguments on Friday.
Sullivan described Nowak as “the boss” of the operation as managing director of the precious-metals business, overseeing JPMorgan’s trading and vaults around the world. The prosecutor cited several examples of Nowak’s trading records showing he placed big buy or sell orders that were quickly canceled after he executed smaller orders on the opposite side of the market.
Two junior members of the JPMorgan team, Christian Trunz and John Edmonds, testified for the government that this pattern was part of a trading strategy they learned from Nowak and Smith and was a routine way they all operated for years.
“Mr. Trunz and Mr. Edmonds gave you an insider’s account of the criminal activity that took place while they worked side by side with the defendants on the desk, watching and learning from them,” Sullivan told the jury. “They described what they saw and what they heard on the desk.”
Read More: JPMorgan Trader Spoofed So Fast Colleagues Urged Ice on Fingers
Nowak lied to regulators about his trading because he knew his spoofing was wrong, and encouraged Trunz to do the same by not cooperating with prosecutors after Edmonds had agreed to plead guilty, Sullivan said.
“The heat was on,” Sullivan said. “The conspiracy’s secrets were now in the open.”
Trunz had described an encounter with Nowak, who he considered a close friend and mentor, in which the executive “pressured Mr. Trunz” to stick with the false narrative that all their orders were placed with the intent to trade, Sullivan said. Nowak told him, “You’re not going to turn around and plea now, are you?” according to Trunz, who said he interpreted that as a directive to lie.
To rebut witness claims that Smith’s spoofing was obvious by the amount of clicking he did with his computer mouse, Menchel said all of it was above board and in the open. He said Smith demonstrated how he traded to both the bank’s compliance team and the Chicago Mercantile Exchange, when he was under investigation.
“This was not something he was hiding,” Menchel said. “He was open and notorious about his clicking. The idea that this is somehow indicative of spoofing was a narrative made up for this case that has no basis in reality.”
The government also presented trading records for Smith, who was relied upon to handle most of the big buy and sell orders from JPMorgan clients Ruffo dealt with, including Moore Capital Management and Tudor Capital Corp. Trunz had described Smith as an expert spoofer, and that Ruffo encouraged him to use the tactic to keep his clients happy.
“They did this to get better prices for Jeff Ruffo’s big hedge fund clients,” Sullivan said. “Better prices meant more money for the desk and for themselves.”
‘Orders Were Real’
Smith’s lawyer, in his closing arguments, told jurors there was enough reasonable doubt to acquit his client.
“There’s a lot of charges that were brought against Mr. Smith, but fundamentally it all comes down to the same question: what was in his mind at the time he placed these orders,” Menchel said. “If he intended to transact on them, he was perfectly happy to get filled on both sides. That means his orders were real. And that means there’s no spoofing, there’s no market manipulation, there’s no deception or fraud, there’s no RICO conspiracy.”
The defense lawyer also cautioned jurors that they shouldn’t feel compelled to compromise on the 13 charges against his client. “This is all or nothing,” Menchel said. “If he was entering those orders in good faith or with bona fide intent to transact, he’s not guilty of anything in this case.”
Read More: JPMorgan Gold Trader Says Boss Coached Him on Spoofing Lie
The case is US v. Smith et al, 19-cr-00669, US District Court, Northern District of Illinois (Chicago)
(Updates with defense argument from Smith’s lawyer.)