The former head of the JPMorgan Chase precious-metals business and his top gold trader were convicted by a federal jury in Chicago on charges they manipulated markets for years, handing the U.S. government a win in its long crackdown on bogus "spoofing" orders.
Michael Nowak and Gregg Smith were found guilty on Wednesday after a three-week trial. A salesman on the desk, Jeffrey Ruffo, was acquitted. Prosecutors presented evidence that included detailed trading records, chat logs and testimony by former co-workers who "pulled back the curtain" on how Nowak and Smith moved precious-metals prices up and down for profit.
The case was the biggest yet by the Justice Department, which alleged the precious-metals business at JPMorgan was run as a criminal enterprise. Nowak, the managing director in charge of the desk, and Smith, its top trader, were convicted of fraud, spoofing and market manipulation. Ruffo, a salesman, had been accused of participating in the conspiracy.
"They had the power to move the market, the power to manipulate the worldwide price of gold," prosecutor Avi Perry said during closing arguments.
JPMorgan, the largest U.S. bank, agreed in 2020 to pay $920 million to settle Justice Department spoofing allegations against it, by far the biggest fine by any financial institution accused of market manipulation since the financial crisis.
The star witnesses at the criminal trial were former co-workers who said they participated in the spoofing activity over years. Traders John Edmonds and Christian Trunz testified about market manipulation by all three defendants at JPMorgan, while trader Corey Flaum described similar behavior when he worked with Smith and Ruffo at Bear Stearns, before it was acquired by JPMorgan in 2008.
All three defendants were acquitted of violating the Racketeer Influenced and Corrupt Organizations Act. By invoking a law more commonly used against gangs or mafias, prosecutors alleged the desk was run as a criminal enterprise. Previous convictions of former precious-metals traders at Deutsche Bank and Bank of America's Merrill Lynch unit involved only spoofing-related crimes.
Racketeering charges also are part of the federal government's case against Bill Hwang, whose Archegos Capital Management collapsed last year and cost banks billions.
