Updated: Apr 15
All about Metal Market Manipulation
On Wednesday, a US court found two former JP Morgan Chase & Co. traders guilty of manipulating the global metal markets. The traders, Gregg Smith and Michael Nowak, were convicted of spoofing, an illegal practice where traders place orders with the intention of canceling them to manipulate the market. The verdict was a win for the US government, which has been cracking down on financial crimes in the wake of the 2008 financial crisis.
What is spoofing?
Spoofing is a practice used by traders to manipulate the market by placing large orders and then canceling them before they can be executed. This creates the illusion of demand or supply, which can push prices up or down. Spoofing was made illegal in 2010 when the Dodd-Frank Act was passed, which reformed the financial regulatory system in the US after the financial crisis.
The case against Smith and Nowak began in 2018 when they were arrested and charged with manipulating the precious metals futures market. They were accused of placing large orders for gold, silver, platinum, and palladium futures contracts with no intention of executing them. This created the impression of high demand, which drove up the prices of the metals. The traders then canceled their orders and placed opposite orders, which allowed them to profit from the price movements.
In addition to spoofing, Smith and Nowak were also accused of commodities fraud, attempted price manipulation, and fraud involving telecommunications. The case was seen as a test of the government's ability to prosecute spoofing cases, which are difficult to prove. The verdict sends a strong message to other traders that spoofing will not be tolerated.
Reaction to the verdict
David Meister, Nowak's lawyer, said in a statement that he was "extremely disappointed" by the verdict. Meister noted that the jury acquitted Nowak of racketeering and conspiracy, but found him guilty of the spoofing charges. Meister plans to appeal the verdict.
The case is part of a wider crackdown on financial crimes by the US government. In recent years, regulators have increased their efforts to combat market manipulation and other financial crimes. The Justice Department has also created a specialized unit to investigate and prosecute spoofing cases.
Implications for the financial industry
The conviction of Smith and Nowak has implications for the financial industry, particularly for traders who engage in spoofing. The verdict sends a clear message that the US government is serious about prosecuting financial crimes and that spoofing will not be tolerated.
The case is also a reminder of the importance of compliance for financial institutions. Banks and other financial firms are required to have robust compliance programs in place to prevent market manipulation and other financial crimes. The JP Morgan case highlights the need for financial institutions to take their compliance obligations seriously.
The conviction of two former JP Morgan traders for spoofing is a significant victory for the US government and a warning to traders who engage in market manipulation. The case highlights the importance of compliance for financial institutions and sends a clear message that financial crimes will not be tolerated. The verdict is likely to lead to increased scrutiny of the financial industry and further crackdowns on market manipulation.