Two US regulators, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), along with the US Department of Justice (DoJ) have levied fines totalling $920.2 million on JP Morgan over spoofing activities conducted by former traders in precious metals futures and US Treasury cash markets.
The authorities say the activities of John Edmonds and Christian Trunz, who have both agreed to cooperate with the CFTC, and Michael Nowak and Gregg Smith, against whom action continues, spanned more than eight years and “hundreds of thousands” of spoof orders. The fines are collectively the largest levied by CFTC and other US authorities in a spoofing case.
As well fining the bank for the former traders’ actions, it was also sanctioned for failing to uncover the activity. CFTC says, “…despite numerous red flags, including internal surveillance alerts, inquiries from CME and the CFTC, and internal allegations of misconduct from a JPM trader, [the bank] failed to provide supervision to its employees sufficient to enable [it] to identify, adequately investigate, and put a stop to the misconduct.”
The Commission also notes that in spite of “significant” cooperation in the later stages of the investigation the bank responded to certain CFTC information requests in the early stages in a manner that resulted in the CFTC’s Division of Enforcement “being misled”.
As part of the overall fine, the SEC has fined the bank a total of $35 million for its activities in US Treasury markets between April 2015 and January 2016. JPM also entered into a deferred prosecution agreement (DPA) with the DoJ over its activities.
“Spoofing is illegal – pure and simple,” says CFTC chairman Heath Tarbert. “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.”
Division of Enforcement director James McDonald, adds, “This action sends the important message that if you engage in manipulative and deceptive trade practices you will be caught, punished, and forced to give up your ill-gotten gains. The CFTC is committed to working with our law enforcement and regulatory partners to eradicate this unlawful activity and to hold those responsible fully accountable.”
Meanwhile, Stephanie Avakian, director of the SEC’s Division of Enforcement, says, “JP Morgan Securities undermined the integrity of our markets with this scheme. Their manipulative trading of Treasury cash securities created a false appearance of activity in the market and induced other market participants to trade at more favourable prices than JP Morgan Securities would have otherwise been able to obtain.”
And not to miss out on the event, the DoJ also issued statements with acting assistant attorney general Brian Rabbitt of the its Criminal Division, saying, “For over eight years, traders on JP 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. Today’s resolution – which includes a significant criminal monetary penalty, compensation for victims, and requires JP 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.
US attorney John Durham of the District of Connecticut, adds, “JP Morgan engaged in two separate years-long market manipulation schemes. Not only will the company pay a substantial financial penalty and return money to victims, but this agreement requires JP Morgan to self-report violations of the federal anti-fraud laws and cooperate in any future criminal investigations. I thank the FBI for its dedication in investigating these deceptive trading practices and other sophisticated financial crimes.”
And last, but not least, assistant director in charge William Sweeney of the FBI’s New York field office, says, “For nearly a decade, a significant number of JP Morgan traders and sales personnel openly disregarded US laws that serve to protect against illegal activity in the marketplace. Today’s deferred prosecution agreement, in which JP Morgan Chase and Co. agreed to pay nearly one billion dollars in penalties and victim compensation, is a stark reminder to others that allegations of this nature will be aggressively investigated and pursued.”