JPMorgan is set to pay nearly $1 billion to settle with US authorities investigating whether the bank manipulated the metals and Treasury markets, Bloomberg reported on Wednesday.
The sum would set a record for spoofing-related settlements and could be announced as soon as this week, sources familiar with the matter told Bloomberg. The payment would be in line with other market-manipulation sanctions but surpass previous spoofing fines.
The payment would resolve investigations by the Justice Department, the Commodity Futures Trading Commission, and the Securities and Exchange Commission, according to the report. The agencies have been looking into whether traders on JPMorgan’s metals-futures and Treasury desks interfered with the respective markets.
Spoofing is a form of market manipulation that typically involves traders making many orders they have no intention of executing; that can mislead market participants to steer prices in a certain direction. Though the underlying act of making several trades isn’t illegal, regulators outlawed the strategic use of such trades in 2010 through the Dodd-Frank Act.
One source told Bloomberg that the settlement wasn’t likely to restrict JPMorgan’s business practices and that the bank would admit wrongdoing.
In criminal charges against JPMorgan filed last year, the Justice Department alleged that employees on the bank’s precious-metals desk turned the venture into an enterprise that frequently conducted illegal market activity.
A penalty of that size would be a record for spoofing, which is when sophisticated traders flood markets with orders that they have no intention of actually executing. The practice was banned after the 2008 financial crisis and regulators have made it a priority to stamp out.
The case was revealed in September 2019 when a 14-count criminal indictment against three current or former JPMorgan employees, including the global head of base and precious metals trading, was unsealed.
The indictment alleges the traders, along with eight unnamed co-conspirators who worked at JPMorgan offices in New York, London and Singapore, participated in a racketeering conspiracy in connection with a multiyear scheme to manipulate the precious metals markets and defraud customers.
Named in the indictment were Michael Nowak, a former managing director who also headed the firm’s global precious metals desk, along with Gregg Smith and Christopher Jordan, who both held the title of executive director and were traders on the firm’s precious metals desk.
They each were charged with one count of conspiracy under the Racketeer Influenced and Corrupt Organizations Act, or RICO, which historically has been used in mafia prosecutions, as well as other federal crimes in connection with manipulating precious metals futures markets.
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