The practice has become a focus for prosecutors and regulators in recent years after lawmakers specifically prohibited it in While submitting and canceling orders isn't illegal, it is unlawful as part of a strategy intended to dupe other traders.
More than two dozen individuals and firms have been sanctioned by the Justice Department or the CFTC, including day traders operating out of their bedrooms, sophisticated high-frequency trading shops, and big banks such as Bank of America Corp.
The Justice Department took a much more aggressive tack with JPMorgan by alleging that the bank hosted an eight-year market manipulation conspiracy with its precious metals desk as a criminal racketeering operation. Although other suspected market cheats have been charged with specific spoofing and manipulation offenses, the Justice Department accused JPMorgan metals traders under the Racketeer Influenced and Corrupt Organizations Act — a criminal law more commonly applied to organized crime cases than global bank probes.
Spoofing typically involves flooding derivatives markets with orders that traders don't intend to execute to trick others into moving prices in a desired direction.
The practice has become a focus for prosecutors and regulators in recent years after lawmakers specifically prohibited it in While submitting and canceling orders isn't illegal, it is unlawful as part of a strategy intended to dupe other traders. More than two dozen individuals and firms have been sanctioned by the Justice Department or the CFTC, including day traders operating out of their bedrooms, sophisticated high-frequency trading shops and big banks such as Bank of America Corp.
The Justice Department took a much more aggressive tack on the JPMorgan matter, alleging several individuals from its trading desk had engaged in a racketeering conspiracy to manipulate precious metals futures prices. While other suspected market cheats have been charged with specific spoofing and manipulation offenses, the Justice Department accused JPMorgan metals traders under the Racketeer Influenced and Corrupt Organizations Act -- a criminal law more commonly applied to Mafia cases than global bank probes.
While the individuals remain charged under the RICO law, Tuesday's resolution didn't accuse the bank of racketeering conspiracy. The highest-level individual charged is Michael Nowak, a veteran gold trader who was indicted under seal in August along with two others. A former JPMorgan salesman who worked with hedge fund clients was later added to the case. JPMorgan has faced charges before.
In , the bank pleaded guilty to felony antitrust charges along with several other global banks that paid penalties and admitted to conspiring to rig the price of US dollars and euros.
The Justice Department said it took the previous plea into account in determining penalties. Reuters has reported that around , the agency began using techniques it originally developed to spot healthcare fraud schemes to identify suspicious trading patterns, including by scanning activity on exchanges. The agency has already charged six JPMorgan traders for manipulating metals futures between and Morgan traders. The bank for years denied the allegations, and in succeeded in getting the plaintiffs's claims dismissed by a judge.
Kovel then appealed that decision, and got the case reopened in As the case was pending in November , a guilty plea in a criminal case related to spoofing trades by John Edmonds, a former precious metals trader at J. Morgan, drew the attention of Kovel. In his plea in Connecticut federal court, Edmonds admitted that he, along with other "unnamed co-conspirators" at the bank, manipulated the prices of gold, silver, platinum and palladium futures contracts from to Edmonds said he learned how to make bogus trade orders from senior traders at the bank — and that he used the strategy hundreds of times with the knowledge and consent of supervisors.
As part of his guilty plea, Edmonds agreed to cooperate with prosecutors in investigations. Morgan had with the criminal conduct admitted by Edmonds. Kovel then sought permission from the judge in his suit to reopen depositions he had taken as part of the case from of two former J.
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