(Kitco News) Two of three former JPMorgan Chase & Co employees have been convicted by a federal jury in Chicago after years of being accused of manipulating the price of gold. The jury found that the traders used spoofing to manipulate prices.
After a three-week trial and eight-day deliberation, the jury returned a guilty verdict for former top JPMorgan gold trader Gregg Smith and former head of the bank’s precious metals division Michael Nowak. The conviction included charges of price manipulation, spoofing and wire fraud. Smith was convicted of 11 counts, and Nowak was convicted of 13 counts.
Jeffrey Ruffo, the bank’s former hedge fund manager, was acquitted. All three defendants pleaded not guilty.
Prosecutors in the case charged the three with manipulating and manipulating gold prices for eight years between 2008 and 2016.
“They had the power to move the market, the power to manipulate the world price of gold,” Bloomberg quoted prosecutor Avi Perry as saying during closing arguments.
Spoofing is a tactic used to manipulate the gold market by placing bids and canceling them before execution, while simultaneously placing orders on the opposite side. The misleading orders confuse the market’s supply and demand dynamics, resulting in gold price changes. Spoofing has been banned since 2010 after Congress passed the Dodd-Frank Act in the wake of the financial crisis.
“Defendants placed orders they intended to cancel before execution in order to inflate the prices of orders they intended to execute on the opposite side of the market. The defendants engaged in thousands of deceptive trading sequences for gold, silver, platinum and palladium futures contracts traded through the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), operated by the Commodity exchanges operated by CME Group Inc.,” according to the press release issued by the Department of Justice.
However, all three defendants were acquitted of conspiracy and racketeering charges.
The case was more difficult to prove due to a lack of chat evidence between traders, which would indicate intent. Prosecutors instead relied on trade charts and order patterns. In previous spoofing cases, prosecutors encountered chat messages with traders bragging about market manipulation.
This was one of the Justice Department’s most aggressive indictments to date, addressing spoofing in the gold futures market.
“Today’s jury verdict shows that those who attempt to manipulate our public financial markets will be held accountable and brought to justice,” said Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division. “With this ruling, the Department has secured convictions for 10 former traders at Wall Street financial institutions, including JPMorgan, Bank of America/Merrill Lynch, Deutsche Bank, The Bank of Nova Scotia and Morgan Stanley.”
Nowak and Smith will be sentenced next year, US District Court Judge Edmond Chang said.
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