Former JPMorgan gold trader sentenced in ongoing spoofing crackdown

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This sentence follows the recent two-year prison term given to JPMorgan’s former top gold trader, Gregg Smith, marking the most severe sentence yet in the US government’s efforts to curb dubious trading practices. Michael Nowak, the desk’s ex-boss, was handed a one-year sentence. Two other individuals involved in the case managed to avoid imprisonment after pleading guilty and cooperating with authorities.

These cases involving JPMorgan have been the apex of federal crackdowns on major Wall Street banks such as Bank of America Corp (NYSE:BAC)., Deutsche Bank AG (NYSE:DB), and Morgan Stanley for spoofing—a form of market manipulation. In 2020, JPMorgan agreed to a $920 million settlement following allegations brought by the Justice Department. This was the largest fine imposed on any financial institution for market manipulation since the Global Financial Crisis.

Spoofing involves placing large buy or sell orders with no intention of executing them. These orders are quickly canceled but not before they create a false impression of market demand, influencing prices. This practice was declared illegal after the adoption of the Dodd Frank Act in 2010.

Jordan worked at JPMorgan’s precious-metals desk for about three years and briefly for Credit Suisse AG in 2010. Prosecutors alleged that it was during his tenure at JPMorgan that Jordan placed orders for precious metals without intending to execute them.

The crux of the case was a 2018 meeting between Jordan and an FBI agent. Prosecutors claimed that Jordan confessed to fraudulent trading during this meeting, a claim contested by Jordan’s defense attorneys who insisted their client never specifically admitted to spoofing or fraud or any other illegal activity. This claim was supported by the FBI agent, Jonathan Luca, during his testimony.

Smith, who was described as the most active spoofer on JPMorgan’s global trading desk, was known for his rapid-fire placement and cancellation of orders. This behavior even led to jokes among colleagues about him needing to cool his fingers with ice.

Last year, federal jurors in Chicago convicted Smith and Nowak after determining they had used deceptive trade orders to influence precious-metals prices for profit from 2008 to 2016. In earlier trials, two former precious-metals traders each from Deutsche Bank and Bank of America were also found guilty of spoofing and were each sentenced to one year in prison.

During Jordan’s trial in December, his defense argued that he had traded “according to the rules as he understood them,” cautioning jurors against applying current standards to his trading activities from 2008 to 2010. The case is known as US v. Smith et al, 19-cr-00669, in the US District Court for the Northern District of Illinois in Chicago.

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