J.P. Morgan Chase has tacitly resolved a longstanding lawsuit accusing the bank of manipulating the precious metals markets with "spoofing" transactions.
CNBC has learned that the bank will pay $ 920 million to resolve a government investigation into similar alleged conduct in the precious metals and treasury futures markets.
A penalty of this size would be a record for spoofing, that is, placing an order to buy or sell with no intention of actually executing the transaction.
The goal of spoofing is to move market prices in such a way that the trader's pre-existing positions in the market benefit financially.
Spoofing was banned under the Dodd-Frank Financial Reform Act after the 2008 financial crisis. In recent years, regulators and prosecutors have acted against suspected spoofing, fines or criminal charges in several cases.
J.P. Morgan, who refused to comment on this article, has long refused to engage in spoofing.
The spoofing lawsuit filed against JP Morgan in Manhattan District Court, which court documents said were settled this summer, was filed in 2015 by Daniel Shak, the colorful hedge fund operator and high-stakes poker player, and two metal dealers, Mark Grumet and Thomas Wacker.
Details of the settlement were not disclosed in court records.
David Kovel, lawyer for Shak, Grumet and Wacker, declined to comment on the settlement.
The three plaintiffs accused J. P. Morgan of manipulating the silver futures market from 2010 to 2011 through spoofing deals.
The three stated that through the actions of J.P. Morgan losing tens of millions of dollars.
The bank denied the allegations for years and in 2016 succeeded in dismissing the plaintiffs' claims from a judge. Kovel then appealed this decision and reopened the case in 2017.
With the case pending in November 2018, Kovel made an admission of guilt in a criminal case related to spoofing deals by John Edmonds, a former precious metals dealer at J.P. Morgan, attentive.
In his pleading in Connecticut federal court, Edmonds admitted that he, along with other "nameless co-conspirators" at the bank, manipulated the prices of gold, silver, platinum and palladium futures contracts from 2009-2015.
Edmonds said he learned how to place bogus trade orders from experienced traders at the bank – and that he has used the strategy hundreds of times with the knowledge and approval of regulators. As part of his admission of guilt, Edmonds agreed to cooperate with prosecutors in an investigation.
Kovel told CNBC at the time that he was impressed by how much his lawsuit against J. P. Morgan was in common with Edmonds-approved criminal conduct.
In his lawsuit, Kovel then asked the judge for permission to reinstate the testimony he had made in the case of two former JP Morgan dealers, including Edmonds, and Michael Nowak, who was still the bank's global director at the time open trading in bases and precious metals.
Shortly after Kovel filed that request, the Justice Department asked the judge in the civil lawsuit to postpone the case as the criminal investigation against J.P. Morgan's precious metal switches were continued. Prosecutors said that if the debris were reopened, it could disrupt their probe.
This residency was granted on November 30, and several extensions were granted in the following months. The settlement of the civil case this summer came before Kovel again questioned the former dealers in reopened depots.
In September 2019, federal prosecutors accused Nowak and two other former JP Morgan precious metals traders Gregg Smith and Christopher Jordan of engaging in a conspiracy related to a multi-year program to manipulate markets and defraud customers, as well as other crimes leading to alleged spoofing ..
Two months later, a substitute charge was filed in the criminal case in which another defendant, ex-J.P. Jeffrey Ruffo, Morgan's chief executive officer, who worked at the company's precious metals counter selling hedge funds.
All four defendants pleaded not guilty. The trial in this case is due to begin in federal court in Chicago next April.
Although Shak's lawsuit has been settled, J.P. Morgan still faces a class action lawsuit for alleged spoofing in the precious metals markets.
The trial in this lawsuit, which is pending in federal court in Manhattan, has been suspended until at least May 31, at the request of the federal prosecutor to avoid interference in the upcoming criminal case in Chicago.