Recently, the "gold and silver manipulation case" of JPMorgan Chase, which shocked the world, has made important progress.
After three weeks of trial and eight days of deliberations, a Federal Jury in Chicago convicted Michael Nowak, former head of JPMorgan's global precious metals division, and precious metals trader Gregg Smith for cheating and telecommunications fraud, and convicted him of using misleading orders to manipulate prices.
U.S. District Court Judge Edmond Chang said Nowak and Smith will be sentenced next year, and each could face decades in prison.
He was once the most capable person in the gold market
According to the U.S. Department of Justice, the jury convicted Nowak and Smith on multiple charges including price manipulation, deception, wire fraud and more.
Among them, Smith was convicted of one count of attempted price manipulation, one count of deception, one count of commodity fraud and eight counts of wire fraud affecting financial institutions, for a total of 11 counts; Nowak was convicted of one count of attempted price manipulation, one count of deception, one count of commodity fraud and ten counts of wire fraud affecting financial institutions, for a total of 13 counts. In addition, Jeffrey Ruffo, a former executive director of JPMorgan Chase and head of hedge fund sales, was acquitted.
According to media reports, Nowak used to be the most capable person in the gold market, "owning some of the largest hedge fund clients" and often dominating the order flow for precious metals futures.
In his closing statement, prosecutor Avi Perry said, "They have the ability to drive the market, they have the ability to manipulate the global gold price." ”
U.S. District Court Judge Edmond Chang said Nowak and Smith will be sentenced next year, and each could face decades in prison.
The use of deception is very profitable
Prosecutors provided evidence, including detailed transaction records, chat logs and testimony from former colleagues who "uncovered" how Nowak and Smith manipulated precious metal prices in order to make a profit between 2008 and 2016.
According to the documents, Nowak and Smith used spoofing to enter into a large number of gold, silver, platinum, palladium, Treasury and Treasury futures contracts through a large number of traders on the precious metals and Treasury bond trading platform, and cancelled these orders before the transaction was executed.
The filing shows smith has executed about 38,000 stratified manipulated trades over the years; Nowak, who specializes in options trading, tried stratified trading in September 2009 and has since made about 3600 manipulative trades. In addition, Ruffo, the salesman, needs to tell Smith where he should enter the market and then go and place orders from at least two hedge fund clients.
FBI investigator Marc Troiano quoted JPMorgan internal data in court, saying employee compensation was tied to performance.
From 2008 to 2016, Nowak made a cumulative profit of $186 million for the company, Smith about $117 million, and Ruffo $70.3 million, according to the data. From 2008 to 2016, Nowak's personal compensation was $23.79 million, and Smith and Ruffo's personal compensation was $9.9 million and $10.5 million, respectively.
According to industry insiders, "pretense" is a financial term that refers to a kind of behavior of false quotations and then withdrawing orders in stock market or futures market transactions: that is, placing orders first, and then canceling orders, thereby affecting stock prices. "Scammers" influence the market by pretending to be intent on buying or selling at a specific price, creating the illusion of demand, and trying to lure other traders into trading. Through this "deception" behavior, the "pretender" can buy or sell at a new price and thus make a profit.
It is reported that fraudulent trading once prevailed on Wall Street and even persisted after it was banned. Assistant U.S. Attorney Lucy Jennings said in a court argument last month that so-called "swindler trades" account for 50 to 70 percent of the visible gold and silver market at a given time.
JPMorgan chases have paid record fines
It is worth mentioning that in September 2020, JPMorgan Chase had admitted to transaction fraud and paid a record fine of $920 million.
In September 2020, JPMorgan admitted to committing fraud in the following areas: First, illegal trading in the precious metals futures contract market; Illegal transactions in the U.S. market, including U.S. Treasury futures contracts and the U.S. secondary (cash) market.
JPMorgan has since agreed to pay a record $920 million to settle an investigation by the U.S. Department of Justice, the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC) into its alleged manipulation of global metals and U.S. Treasury markets through "deception."
According to a statement released by the CFTC, this is the largest fine issued by the agency for swindling this market manipulation. The $920 million includes $436.4 million in fines, $311.7 million in damages, and more than $172 million in illegal gains.
Mainland law expressly prohibits it
The mainland explicitly prohibits market wrongdoing such as pretense and deception.
The Futures and Derivatives Law of the People's Republic of China, which came into effect on August 1 this year, clearly prohibits "frequent or large-scale declarations and withdrawal of declarations for the purpose of not trading".
Among them, Article 6 stipulates that futures trading and derivatives trading activities shall comply with laws, administrative regulations and relevant national provisions, follow the principles of openness, fairness and justice, and prohibit fraud, market manipulation and insider trading.
Article 12 stipulates that no unit or individual may manipulate the futures market or the derivatives market. It is forbidden to manipulate the futures market by influencing or intending to affect the futures trading price or futures trading volume by the following means, including "frequent or large-scale declarations and withdrawal of declarations without the purpose of transactions".
Article 20 stipulates that if a trader entrusts a futures business institution to conduct a transaction, he may issue trading instructions in writing, by telephone, at a self-service terminal, on the Internet, etc. Trading instructions should be clear, specific and comprehensive.
Article 21 stipulates that where a transaction is carried out programmatically through the automatic generation or issuance of trading instructions through computer programs, it shall comply with the provisions of the Futures Supervision and Administration Agency under the State Council and report to the futures trading venue, and shall not affect the safety of the futures trading venue system or the normal trading order.
Editor: Song Zhaoqing, Wang Yin
