July 8 (R) – Three former employees of JPMorgan Chase & Co (JPM.N) worked together to defraud other traders in the precious metals futures market, a US prosecutor told a jury during opening statements in a closely watched criminal trial in Chicago on Friday.
Former head of the bank’s global precious metals division Michael Nowak, precious metals trader Gregg Smith and salesman Jeffrey Ruffo face racketeering and conspiracy charges in the US Department of Justice’s most aggressive case yet, targeting the manipulative trading tactic known as spoofing.
Prosecutor Lucy Jennings told jurors each played a role in the plan to create phantom supply or demand by placing buy or sell orders and then quickly canceling them.
“Definitely someone got ripped off,” she said.
She said a JPMorgan witness would testify that the deals violated bank guidelines.
“The defendants knew from day one that this type of trafficking was wrong and they did it anyway,” she said.
Attorneys for the defendants were due to make opening statements Friday afternoon.
The three men are accused of using the tactic to manipulate futures on metals such as gold, silver, platinum and palladium between 2008 and 2016.
Spoofing was outlawed in 2010 when Congress passed the Dodd-Frank Act in the wake of the financial crisis. Since then, prosecutors have argued that previous cases constituted fraud.
The Blackmail Statute, a federal law enacted in 1970 to take down the mafia, is rarely used to prosecute corporate crime. It allows prosecutors to charge a group of people, including those indirectly involved in alleged wrongdoing, on the basis that they were involved in a “criminal enterprise”.
Better Markets, a Washington nonprofit that advocates for stronger financial regulation, called the case a “potential gamechanger” because the blackmail law would allow prosecutors to seek harsh sentences if the defendants are convicted.
In addition to racketeering and conspiracy, Nowak faces 13 other charges, including fraud, spoofing and attempted market manipulation, and Smith faces 11 other charges.
Christopher Jordan, a dealer who left JPMorgan in 2009, has also been charged and will face a separate trial.
The jury trial is expected to last about five weeks. Prosecutors are expected to subpoena three former dealers, all of whom have separately pleaded guilty to related charges, as cooperating witnesses. According to court records, alleged victims of the system can also comment.
Commodity tampering, and spoofing in particular, has become a major focus of the Justice Department, which has launched several other cases in recent years, including against NatWest and former traders at Deutsche Bank and UBS.
JPMorgan also agreed to pay more than $920 million in 2020 and admitted wrongdoing to speak with the Justice Department and the Commodity Futures Trading Commission about the conduct of the traders, who have pleaded guilty or are facing trial , to settle.
Reporting by Jody Godoy; Edited by Michelle Price, David Gregorio and Jonathan Oatis
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