(Bloomberg) — The former head of the JPMorgan Chase & Co. precious-metals business and his top gold trader were convicted in Chicago on charges they manipulated markets for years, handing the US government a win in its long crackdown on bogus “spoofing” orders.
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Michael Nowak and Gregg Smith were found guilty Wednesday by a federal jury after a three-week trial and more than eight days of deliberations. Prosecutors presented evidence that included detailed trading records, chat logs and testimony by former co-workers who “pulled back the curtain” on how Nowak and Smith moved precious-metals prices up and down for profit from 2008 to 2016.
A third defendant, Jeffrey Ruffo, who was a salesman on the bank’s precious-metals desk, was acquitted of charges he participated in the conspiracy.
The case was the biggest yet in a crackdown by the US Justice Department. Nowak, the managing director in charge of the desk, and Smith, its top trader, were convicted of fraud, spoofing, market manipulation. The government alleged the precious-metals business at JPMorgan was run as a criminal enterprise, though the jury acquitted all three men of a separate racketeering charge.
“They had the power to move the market, the power to manipulate the worldwide price of gold,” prosecutor Avi Perry said during closing arguments.
US District Court Judge Edmond Chang said Nowak and Smith will be sentenced next year. Each faces decades in prison, though it may be far less. Two Deutsche Bank AG traders convicted of spoofing in 2020 were each sentenced to a year in prison.
Read More: JPMorgan Trader Spoofed So Fast Colleagues Urged Ice on Fingers
“While we are gratified that the jury acquitted Mr. Nowak of racketeering and conspiracy, we are extremely disappointed by the jury’s verdict on the whole, and will continue to seek to vindicate his rights in court,” his lawyer, David Meister, said in an email.
An attorney for Smith didn’t respond to messages seeking comment.
Ruffo’s lawyer, Guy Petrillo, said in an email, “Mr. Ruffo, his family and we always believed in Jeff’s innocence and are grateful that these unfortunate charges are now behind him.”
JPMorgan, the largest US bank, agreed in 2020 to pay $920 million to settle Justice Department spoofing allegations against it, by far the biggest fine by any financial institution accused of market manipulation since the financial crisis.
With Wednesday’s verdict, the Justice Department has secured convictions of 10 former traders at Wall Street financial institutions, including JPMorgan, Merrill Lynch & Co., Deutsche Bank AG, The Bank of Nova Scotia, and Morgan Stanley, Assistant Attorney General Kenneth A. Polite Jr. said in a statement.
“Today’s conviction demonstrates that no matter how complex or long-running a scheme is, the FBI is committed to bringing those involved in crimes like this to justice,” Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division said in a statement.
The criminal case against some of the biggest players in the precious-metals markets was closely watched. Spoofing became illegal with the passage of the Dodd-Frank Act in 2010.
“It’s something that’s been on the minds of many people that were involved in the precious-metals markets in that point in time, and I would say this verdict closes a chapter,” said Phil Streible, the chief market strategist at Blue Line Futures. “This kind of thing had been going on for at least 15 years or more with people waiting for justice, and I never thought it would ever get closed.”
Read More: From Profits to Pay, JPMorgan’s Gold Secrets Spill Out in Court
Dennis Kelleher, co-founder and Chief executive officer at Better Markets, an organization advocating stricter financial regulation, said the verdict “should signal to Wall Street’s biggest financial firms and executives that they are not above the law.”
The star witnesses at the criminal trial were former co-workers who said they participated in the spoofing activity over years. Traders John Edmonds and Christian Trunz testified about market manipulation by all three defendants at JPMorgan, while trader Corey Flaum described similar behavior when he worked with Smith and Ruffo at Bear Stearns, before it was acquired by JPMorgan in 2008.
The JPMorgan case wasn’t a complete victory for prosecutors.
All three defendants were acquitted of violating the Racketeer Influenced and Corrupt Organizations Act, a law more commonly used against gangs or mafias. Jurors didn’t agree with claims by prosecutors that the JPMorgan precious-metals desk was run as a criminal enterprise. No witnesses or chat logs presented during the trial showed the defendants openly discussing their intent to spoof.
Racketeering charges also are part of the federal government’s case against Bill Hwang, whose Archegos Capital Management collapsed last year and cost banks billions.
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 comment from DOJ)
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