JPMorgan Chase & Co. is poised to pay the largest-ever monetary fine to the Commodity Futures Trading Commission to resolve claims that it had improperly manipulated trading surrounding precious metals and Treasury securities over eight years.
“For eight years, a group of traders at JPMorgan systematically ‘spoofed’ precious metals and Treasury futures markets by entering hundreds of thousands of orders with the intent to cancel them before execution,” Commissioner Dan Berkovitz wrote Tuesday. “The Commission’s Order finds that JPMorgan manipulated these markets and failed to diligently supervise its traders.”
The Justice Department charged the bank’s parent company with two counts of wire fraud, but the company negotiated a three-year deal to increase its accountability through remediation and compliance reports to the government.
JPMorgan admitted that for eight years, 15 of the bank’s traders participated in a practice known as “spoofing,” in which traders place orders to buy specific securities without the intention to execute the transaction. Even though the orders are never executed, they still generate the appearance of demand for the underlying security, which can raise the security’s price.
Spoofing was banned after the financial crisis of 2008, and addressing the practice has been a priority for regulators.
Bloomberg reported that those traders were responsible for more than $300 million dollars in losses to other participants in the metals and Treasury markets, according to Tuesday court filings.
As part of the resolution, JPMorgan will pay $920 million to the CFTC in fines, restitutions, and disgorgement — the legal repayment of “ill-gotten gains.”
Allegations first surfaced more than a year ago, but the deal covers eight years of market manipulation and involves five now-former traders who executed “thousands of deceptive trades.” Those traders have not been criminally charged, but two current employees have entered guilty pleas while four employees are facing trial.
“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.”
