JPMorgan is set to pay US$1B in record spoofing penalty
Ben Bain, Tom Schoenberg and Matt Robinson, 23 September 2020
JPMorgan Chase & Co. is poised to pay close to US$1 billion to resolve market manipulation investigations by U.S. authorities into its trading of metals futures and Treasury securities, according to three people with knowledge of the matter.
The potential record for a settlement involving alleged spoofing could be announced as soon as this week, said the people who asked not to be named because the details haven’t yet been finalized. The accord would end probes by the Justice Department, the Commodity Futures Trading Commission and the Securities and Exchange Commission into whether traders on JPMorgan’s precious metals and treasuries desks rigged markets, two of the people said.
A penalty approaching US$1 billion would far exceed previous spoofing-related fines. It would also be on par with sanctions in many prior manipulation cases, including some brought several years ago against banks for allegedly rigging benchmark interest rates and foreign exchange markets.
Spoofing typically involves flooding derivatives markets with orders that traders don’t intend to execute to trick others into moving prices in a desired direction. The practice has become a focus for prosecutors and regulators in recent years after lawmakers specifically prohibited it in 2010. While submitting and then canceling orders isn’t illegal, it is unlawful as part of a strategy intended to dupe other traders.
It couldn’t be determined whether New York-based JPMorgan will face additional Justice Department penalties in court. Previous spoofing cases have been resolved without banks or trading firms pleading guilty to criminal charges. However, when prosecutors filed cases last year against individual JPMorgan traders they painted a grave picture of its precious metals desk, saying it operated as an illicit enterprise within the bank for almost a decade.
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The New York-based lender will pay the biggest monetary penalty ever imposed by the CFTC, including a $436.4 million fine, $311.7 million in restitution and more than $172 million in disgorgement, according to a statement from the Commodity Futures Trading Commission.