J.P. Morgan Chase & Co is set to cough up close to $1.4 billion (US$1 billion) to shut down regulatory and government agency probes into market manipulation allegations on its precious metals and treasuries trading desk.
As first reported by Bloomberg, the settlement - which could come as soon as this week - would squash investigations by the US Justice Department, the Commodity Futures Trading Commission and the Securities and Exchange Commission into whether traders rigged markets.
This would be a record penalty for spoofing, an illegal form of market manipulation in which a trader places large orders to either buy or sell an asset, with no intention of executing the trade.
This creates artificial demand for the asset, which the trader then profits off by placing smaller orders for the asset and profiting on the increase in price brought about by the large phony order.
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The practice was made illegal in the US in 2010, following the financial crisis.
The settlement rumours come after two precious metals traders and one former trader in the New York office of the bank were charged over their alleged participation in the manipulation scandal in September 2019.
The conduct, the US Department of Justice alleged, spanned over eight years and involved thousands of unlawful trades for precious metals futures contracts.
Those charged included Michael Nowak, a former managing director at J.P. Morgan who ran the banks global precious metals desk, as well as Gregg Smith, an executive director and traded on the desk, and Christopher Jordan, also an executive director and trader on the desk.
"The defendants and others allegedly engaged in a massive, multi-year scheme to manipulate the market for precious metals futures contracts and defraud market participants," Assistant Attorney General Brian Benczkowski said at the time.
"These charges should leave no doubt that the department is committed to prosecuting those who undermine the investing public's trust in the integrity of our commodities markets."
FBI assistant director in charge William Sweeney said the conduct negatively impacted the bank's clients as well as the bank itself.
"Smith, Nowak, Jordan, and their co-conspirators allegedly engaged in a complex scheme to trade precious metals in a way that negatively affected the natural balance of supply-and-demand," he said
"Not only did their alleged behavior affect the markets for precious metals, but also correlated markets and the clients of the bank they represented.
"For as long as we continue to see this type of illegal activity in the marketplace, we'll remain dedicated to investigating and bringing to justice those who perpetrate these crimes."
Each of the defendants were charged with "one count of conspiracy to conduct the affairs of an enterprise involved in interstate or foreign commerce through a pattern of racketeering activity", as well as "one count of conspiracy to commit wire fraud affecting a financial institution, bank fraud, commodities fraud, price manipulation and spoofing; one count of bank fraud and one count of wire fraud affecting a financial institution".
Nowak and Smith were also charged with one count of attempted price manipulation, one count of commodities fraud, and one count of spoofing.
The agency also identified two former traders, John Edmonds and Christian Trunz, as being co-conspirators in the case.
Edmonds worked at the bank from 2004 to 2017 and was a trader and vice president on its precious metals desk. In October 2018, Edmonds pleaded guilty to charges of commodities fraud, wire fraud, price manipulation and spoofing.
Trunz was also a former precious metals trader and executive director at J.P. Morgan, working with the bank from 2007 to 2019, leaving as an executive director. In August 2019, Trunz pleaded guilty to charges of conspiracy to engage in spoofing and one count of spoofing.
Earlier this year, four of the individuals involved in the case, including Jordan, Nowak and Smith, moved to dismiss the charges on the grounds that their misconduct did not constitute fraud.