NEW YORK (BLOOMBERG) – JPMorgan Chase & Co admitted wrongdoing and agreed to pay more than US$920 million (S$1.26 billion) to resolve US authorities’ claims of market manipulation involving two of the bank’s trading desks, the largest sanction ever tied to the illegal practice known as spoofing.
Over eight years, 15 traders at the biggest US bank caused losses of more than US$300 million to other participants in precious metals and Treasury markets, according to court filings on Tuesday (Sept 30). JPMorgan admitted responsibility for the traders’ actions. The US Justice Department filed two counts of wire fraud against the bank’s parent company but agreed to defer prosecution related to the charges, under a three-year deal that requires the bank to report its remediation and compliance efforts to the government.
The settlement included fresh details about spoofing on the bank’s Treasuries desk, which was occurring at the same time as previously alleged market manipulation on the bank’s precious metals desk. Five traders on the Treasuries desk manipulated prices of US Treasury contracts, as well as trading in notes and bonds in the secondary market, over eight years, according to the settlement, causing US$106 million in losses. None of those traders have been charged publicly.
Members of that group openly discussed their illegal strategies via chats, with one trader writing on six occasions that he was “spoofing” the market, according to the government’s statement of facts. Another Treasuries trader, in a November 2012 chat, described his success in moving the market by tricking high-frequency traders: “a little razzle dazzle to juke the algos…”
The accord also ends the criminal investigation of the bank that led to a half dozen employees being charged for allegedly rigging the price of gold and silver futures from 2008 to 2016. Two have entered guilty pleas, and three traders and a former JPMorgan salesman are awaiting trial. In all, according to the settlement deal, 10 JPMorgan traders caused losses of US$206 million to other parties in the market.
JPMorgan will pay the biggest monetary penalty ever imposed by the Commodity Futures Trading Commission, including a US$436.4 million fine, US$311.7 million in restitution and more than US$172 million in disgorgement, according to a CFTC statement. The CFTC said its order will recognize and offset restitution and disgorgement payments made to the Department of Justice and Securities and Exchange Commission. The Justice Department resolution requires that more than US$300 million of the penalty be set aside to cover potential victims who could apply for relief through the government.
“For nearly a decade, a significant number of JPMorgan traders and sales personnel openly disregarded US laws that serve to protect against illegal activity in the marketplace,” said Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office.
JPMorgan, in a statement, said it doesn’t expect any disruption of service to clients as a result of the resolutions.
“The conduct of the individuals referenced in today’s resolutions is unacceptable and they are no longer with the firm,” said Daniel Pinto, a co-president of JPMorgan. “We appreciate that the considerable resources we’ve dedicated to internal controls was recognized by the DOJ, including enhancements to compliance policies, surveillance systems and training programs.”
Under the settlement, the bank is required to cooperate with the government’s ongoing investigations and prosecutions. That includes making current and former employees available for interviews or testimony.
JPMorgan put at least four members of the Treasuries operation on leave starting earlier this year. The departures were related to the investigation, according to a person familiar with the matter. The settlement didn’t identify the five Treasuries traders, and it’s unclear whether the government will pursue any legal action against any of the traders referenced in the settlement.