Ex-JPMorgan dealers’ “fake” deals were genuine, the defense says when the trial opens

July 8 (Reuters) – The closely monitored trial of three former JPMorgan Chase & Co (JPM.N) employees began Friday, with prosecutors saying they “ripped off” the futures market for precious metals with false orders and defense attorneys saying the orders were genuine.

The bank̵[ads1]7;s former global chief of staff for precious metals Michael Nowak, precious metals trader Gregg Smith and salesman Jeffrey Ruffo are charged with extortion and conspiracy in the US Department of Justice’s most aggressive case to date against the manipulative trading tactics known as spoofing.

Spoofing involves placing false sales or purchase orders and then canceling them with the goal of moving the price.

Prosecutor Lucy Jennings told jurors that each of them played a role in the scheme, which involved creating phantom supply or demand by placing buy or sell orders they had never intended to fill, and then profiting from trades in the other direction.

“Anyway, someone was cheated,” she said.

There is no doubt that orders were placed and then canceled, said Jonathan Cogan, Smith’s attorney.

“But they are wrong about what was on his mind when he did it,” he said, referring to prosecutors.

Smith and Nowak were completely willing to have their orders fulfilled, and the government cannot show that they intended to cancel the orders from the beginning, their lawyers said.

Ruffo was not a trader, and there is no evidence that he understood that the traders he worked with used illegal tactics, said his lawyer Guy Petrillo.

The three men are accused of using tactics to manipulate futures on metals such as gold, silver, platinum and palladium between 2008 and 2016.

Spoofing was banned in 2010 when Congress passed the Dodd-Frank Act following the financial crisis. Since then, the prosecution has claimed that previous cases constituted fraud.

The Accounting Act, a federal law passed in 1970 to bring down the mafia, is rarely used to prosecute corporate crime. It allows the prosecution to target a group of individuals, including those indirectly involved in the alleged offense, on the basis that they participated in a “criminal activity”.

Better Markets, a non-profit organization in Washington that advocates stronger financial regulation, called the case a “potential game changer” because the racketeering statutes would allow prosecutors to seek harsh sentences if the defendants are convicted.

In addition to extortion and conspiracy, Nowak faces 13 other charges, including fraud, forgery and attempted market manipulation, and Smith faces 11 additional charges.

Christopher Jordan, a trader who left JPMorgan in 2009, is also charged and will be tried separately.

The trial is expected to take around five weeks. The prosecutor is expected to call three former traders as cooperating witnesses, all of whom have individually pleaded guilty to related charges. Alleged victims of the scheme can also take a stand, according to court documents.

Manipulation of goods and especially spoofing has become a main focus for the Ministry of Justice, which has brought several other cases in recent years, including against NatWest and former traders in Deutsche Bank and UBS.

In 2020, JPMorgan also agreed to pay more than $ 920 million and pleaded guilty to settling with the Department of Justice and the Commodity Futures Trading Commission over the conduct of traders who have pleaded guilty or are facing trial.

The trial is scheduled to resume on Monday.

Reporting by Jody Godoy; Edited by Michelle Price, David Gregorio and Jonathan Oatis

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