It was not that long ago that a veritable army of trolls would emerge upon our merest mention that precious metal markets (like all other markets) are manipulated, whether by commercial or central banks, or by random assorted hangers on.
Today, we can table that particular debate in perpetuity, after US District Judge Edmond Chang sentenced the former head of JPMorgan’s precious-metals desk and his top trader to prison for spoofing, fraud and market manipulation.
Michael Nowak, whom we first highlighted back in 2019…
JPM's gold spoofing strategy was adopted by Michael Nowak, who was JPMorgan’s global head of precious metals trading when he was put on leave last month: DOJ.
And that's why Jamie Dimon is richer than you
— zerohedge (@zerohedge) September 16, 2019
… and most recently profiled last year, and who once upon a time was not only an LBMA board member but also ran gold and silver trading at JPMorgan, as well as his top trader Gregg Smith were sentenced Tuesday in Chicago with Nowak receiving a term of one year and one day while Smith was given two years, the stiffest sentence yet in a recent government crackdown on questionable trading practices.
As we reported at the time, both men were convicted at a trial last year. Smith, 59, was described as “the most prolific spoofer that the government has prosecuted to date” while Nowak, 49, has been called “the boss” behind the scheme.
In imposing sentence, the judge said Smith and Nowak clearly knew what they were doing was wrong.
“This is a serious offense that you committed,” Chang said to Nowak. “What happened here was the equivalent of putting out lies — and many lies — into the market. Market integrity is a crucial component to the financial markets. These lies moved the market. It’s not like they had zero impact.”
Smith and Nowak “used their positions as some of the most powerful traders in the worldwide precious metals markets to engage in an egregious effort to manipulate prices for their benefit,” Acting US Assistant Attorney General Nicole M.
Argentieri said in a statement, adding the Justice Department was committed to holding “accountable those who engage in fraud and manipulation that undermines the investing public’s trust in the integrity of our commodities markets.”
As Bloomberg reports, the stiff (for a banker) prison sentences were intended to “send a message” that market manipulation will be punished, the judge said. “I’m trying to deter all forms of financial fraud in the market,” he said, clearly unaware of this thing called the Federal Reserve.
Chang ordered Nowak to start his sentence on Oct. 23 and Smith on Jan. 15. Lawyers for both men said they planned to appeal their convictions.
Prosecutors had initially sought sentences of six years for Smith and five years for Nowak, but on Tuesday said they were revising those down to around two years. Both men’s lawyers argued that they should be spared jail because neither gained personally from the spoofing. Of course, both main made millions in bonuses which would never have been paid had they not generated huge gains for Jamie Dimon’s criminal enterprise.
The JPMorgan case was part of a crackdown by federal prosecutors on illegal spoofing, where traders place bogus orders to move prices up or down and then quickly cancel them before they can be executed. Smith and Nowak used the technique to manipulate gold and silver prices from 2008 to 2016, or the entire duration of the period in which we said – and showed – that gold manipulation was rampant, for which were frequently mocked and ridiculed.
Convictions for Smith, Nowak and a third trader who was found guilty in November, Christopher Jordan, capped a string of wins by prosecutors in spoofing cases targeting some of Wall Street’s biggest banks, including Bank of America, Deutsche Bank AG and Morgan Stanley. Two former Deutsche Bank and two former Bank of America traders previously each received one-year sentences.
JPMorgan, the largest US bank and the biggest US financial criminal enterprise by far, agreed in 2020 to pay $920 million to settle the Justice Department’s allegations against it — the biggest fine by any financial institution accused of market manipulation since the 2008 global financial crisis.
Prosecutors also charged several members of the team Nowak led at JPMorgan. Three of them pleaded guilty and testified against Nowak and Smith. The witnesses described how Nowak and Smith routinely placed huge buy and sell orders they never intended to execute — part of their strategy to push prices in the direction that would profit the bank.
Christiaan Trunz, a former Smith protege and one of the traders who pleaded guilty and cooperated, told jurors that he learned to spoof by watching Nowak and Smith for years. When Trunz came under scrutiny for his own spoof trades, he said Nowak coached him to lie to compliance officials and later counseled him against pleading guilty as prosecutors were preparing criminal charges against top executives on the trading desk.
Trunz testified that Smith was so fast at placing and canceling bogus orders that his colleagues would joke that he needed to put ice on his fingers to cool them down.
“This was an open strategy on the desk,” said Trunz, who sat next to Smith and watched him click his computer mouse rapidly to place and cancel trades. “It wasn’t hidden.”