JPMorgan will pay $60 million to resolve spoofing case

JPMorgan Chase is set to pay $60 million to resolve probes from the Commodity Futures Trading Commission (CFTC) and other regulators over its role in the manipulation of precious metals futures and options.

Last year, the New York-based bank paid almost $1 billion to settle class-action litigation of illegal trading in US Treasury markets through a trading tactic known as ‘spoofing’.

JPMorgan also found itself facing similar accusations, after some of its spot traders used phony trade orders to manipulate precious metals futures traded on the Commodity Exchange (COMEX).

Though the tactic has long been used by some traders, regulators began clamping down on it only a few years ago. Specifically, the Dodd-Frank Act gives the CFTC the explicit authority to crack down on the practice.

JPMorgan, which did not admit wrongdoing in agreeing to the settlement, denied the allegations for years, and in 2016 succeeded in getting the plaintiffs’ claims dismissed by a judge. However, traders in precious metals futures and options then appealed that decision, and got the case reopened in 2017.

A former J.P. Morgan Chase trader charged with participating in a “spoofing” scheme to maximize profits on the precious metals market pled guilty in a US federal court in 2020.

From around 2009 through 2015, John Edmonds conspired with other gold, silver, platinum and palladium traders to place hundreds of buy or sell orders that he intended to cancel and not to execute at the time he placed the orders, a practice known as spoofing.

Edmonds, 38, who pleaded guilty to two counts of conspiracy to commit wire fraud, agreed to meet with investigators and has been cooperating against unnamed co-conspirators, court records show.

The documents submitted to the court also paint a fairly concise picture of his overall tenure at the world’s biggest investment bank, outlining his interaction and contact with more experienced members of his trading team. In particular, the documents cite his supervision and interaction with more senior traders at the bank, which resulted in him being taught how to spoof from J.P. Morgan’s veteran traders.

Regulators and exchanges have stepped up their policing of spoofing in recent years. However, the people and firms they previously focused on were rather small-time avid gamers in markets. Earlier in 2019, regulators ordered Citigroup to pay a $25 million fine to settle charges as it had spoofed the Treasury futures market.