The former head of JPMorgan Chase Co. precious-metals business and his top gold trader were convicted by a federal jury in Chicago on charges they manipulated markets for years, giving the US government a win in its long crackdown on bogus spoofing orders.
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Michael Nowak and Gregg Smith were found guilty on Wednesday after a three-week trial. Jeffrey Ruffo, a salesman on the desk, was acquitted. Prosecutors presented evidence that included detailed trading records, chat logs and testimony by former co-workers who pulled back the curtain on how Nowak and Smith moved precious-metals prices up and down for profit.
The case was the biggest of the case by the US Justice Department, which alleged that the precious-metals business at JPMorgan was run as a criminal enterprise. Nowak, the managing director of the desk, and Smith, the top trader, were convicted of fraud, spoofing, market manipulation. Ruffo, a salesman, had been accused of participating in the conspiracy.
The power of the market was in their possession, and they had the power to manipulate the world's price of gold, prosecutor Avi Perry said during closing arguments.
JPMorgan, the largest US bank, agreed in 2020 to pay $920 million to settle Justice Department spoofing allegations against it, by far the biggest fine by any financial institution accused of market manipulation since the financial crisis.
The former co-workers who said they had participated in the spoofing activity over the years were among the star witnesses at the criminal trial. Trader Corey Flaum described similar behavior when he worked with Smith and Ruffo at Bear Stearns before JPMorgan acquired the company in 2008, while traders John Edmonds and Christian Trunz testified about market manipulation by all three defendants at JPMorgan.
All three defendants were acquitted of violating the Racketeer Influenced and Corrupt Organizations Act. The prosecutors alleged that the desk was run as a criminal enterprise by invoking a law more commonly used against gangs or mafias. The former precious-metals traders at Deutsche Bank AG and Bank of America Corp. have been convicted of spoofing-related crimes.
Racketeering charges are part of the federal government's case against Bill Hwang, whose Archegos Capital Management collapsed last year and cost banks billions.
The case is US v. Smith et al, 19 -- cr 00669, US District Court, Northern District of Illinois Chicago None Facebook Is Still Making Billions as Zuckerberg hits the Panic Button