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Manipulative trading at J.P. Morgan costs it over $1bn

J.P. Morgan will be forced to cough up more than $1.3 billion (US$920 million) after entering into an agreement with the US Department of Justice, the US Commodity Futures Trading Commission and the US Securities and Exchange Commission.

The agreements with the three government agencies resolve investigations into historical manipulative trading practices by the global banking and financial services giant in the precious metals and US treasuries markets, spanning more than eight years and thousands of unlawful trades.

"The conduct of the individuals referenced in today's resolutions is unacceptable and they are no longer with the firm," J.P. Morgan Chase and chief executive of its corporate and investment bank Daniel Pinto said.

"We appreciate that the considerable resources we've dedicated to internal controls was recognised by the DOJ, including enhancements to compliance policies, surveillance systems and training programs."

The settlement will see J.P. Morgan Chase & Co, and its subsidiaries J.P. Morgan Chase Bank and J.P. Morgan Securities, enter into a deferred prosecution agreement (DPA) with the DOJ. This will see it pay approximately US$920 million for the misconduct, including a civil monetary penalty of around US$436 million, as well as restitution (around US$312 million) and disgorgement (approximately US$172 million) which will be credited to payments made by the department under the DPA.

The SEC also announced a separate settlement with the bank in connection to a related proceeding regarding manipulative trading activity in the secondary cash market for US treasury notes and bonds.

Under the resolution, J.P. Morgan Securities will pay $10 million in disgorgement and a $25 million civil monetary penalty.

According to the Commodities Futures Trading Commission (CFTC), the penalty is the largest ever imposed in any spoofing case, including the highest restitution, disgorgement, and civil monetary penalties.

"Spoofing is illegal—pure and simple," CFTC chair Heath Tarbert said.

"This record-setting enforcement action demonstrates the CFTC's commitment to being tough on those who intentionally break our rules, no matter who they are.

"Attempts to manipulate our markets won't be tolerated. The CFTC will take all steps necessary to investigate and prosecute illegal activities that could ultimately undermine the integrity of the American free enterprise system."

The Justice Department's criminal division acting assistant attorney general Brian Rabbitt said the record-breaking penalty demonstrates the seriousness of the bank's misconduct.

"For over eight years, traders on J.P. Morgan's precious metals and US Treasuries desks engaged in separate schemes to defraud other market participants that involved thousands of instances of unlawful trading meant to enhance profits and avoid losses," he said.

"Today's resolution — which includes a significant criminal monetary penalty, compensation for victims, and requires J.P. Morgan to disgorge its unlawful gains — reflects the nature and seriousness of the bank's offenses and represents a milestone in the department's ongoing efforts to ensure the integrity of public markets critical to our financial system."

According to admissions and court documents, numerous traders and personal on J.P. Morgan's precious metals trading desk in New York, London and Singapore engaged in a scheme to buy and sell precious metals futures contracts, including gold, silver, platinum and palladium.

Between March 2008 and August 2016, traders placed tens of thousands of orders to buy and sell the futures with the intent to cancel those orders before execution, and attempted to profit by deceiving other market participants by injecting false and misleading information concerning the supply and demand for these precious metals futures contracts.

The court also heard that on certain occasions, traders on the desk engaged in activity that was intended to deliberately trigger barrier options held by the bank to avoid losses.

Two of the traders on the precious metals desk, both based in New York, pleaded guilty to spoofing-related charges. John Edmonds has not yet received a sentencing date, while Christian Trunz is scheduled to be sentenced on 28 January 2021.

The DOJ also obtained a superseding indictment on 15 November 2019 against three former J.P. Morgan traders: Gregg Smith, Michael Nowak, and Christopher Jordan, as well as one former salesperson, Jeffrey Ruffo.

The regulators continue to pursue civil litigation against these former J.P. Morgan employees.

Read more: SECCommodity Futures Trading CommissionJ.P. Morgan SecuritiesUS Department of JusticeBrian RabbittChristian TrunzChristopher JordanDaniel PintoGregg SmithHeath TarbertJ.P. Morgan Chase BankJeffrey RuffoJohn EdmondsMichael Nowak
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