JPMorgan Chase To Pay Record $1 Billion Fine In ‘Spoofing’ Case Related To Trading Practices

JPMorgan Chase & Co. (JPM) is preparing to cough up almost $1 billion in fines to resolve a probe by U.S. authorities into the bank’s trading practices. JPMorgan was accused of market manipulation in its trading of metals futures and Treasury securities, Bloomberg reported.

The case involves “spoofing” – a disruptive algorithmic trading activity used by traders to manipulate markets. In one example, traders flooded derivatives markets with orders they had no intention of executing to dupe other traders into pushing prices in a preferred direction. (Spoofing was outlawed by the Dodd-Frank Act of 2010.)

The payment by JPMorgan would resolve investigations by the Justice Department, the Commodity Futures Trading Commission and the Securities and Exchange Commission.

The settlement, however, is not expected to force JPMorgan to change its business practices – although the bank will apparently admit to wrongdoing.

A fine of $1 billion would surpass penalties handed out in prior “spoofing” cases, Bloomberg noted. Most prior cases were resolved without the participants pleading guilty to criminal charges.

JPMorgan has been in trouble before.

Five years ago, the bank pleaded guilty to antitrust charges related to the manipulation of currencies. JPMorgan paid a $550 million fine to the Justice Department in that case.

Last year, JPMorgan was hit with criminal charges against some of its employees on the trading desk, including the former chief of the precious metals desk, Michael Nowak. In that case, the Justice Department alleged the precious metals desk operated as a criminal enterprise for eight years.

Nowak and three defendants have pleaded not guilty while two other former traders pleaded guilty to conspiracy charges and are cooperating with investigators.

In yet another case, JPMorgan was the target of a criminal in quiry regarding the bank’s trading of Treasury securities and futures.

Last week, a former JPMorgan trader received eight months in prison for his participation in a foreign-exchange bid-rigging scheme. Akshay Aiyer was found guilty in November 2019 of conspiring with traders at other banks to manipulate prices of African, European and Middle Eastern currencies.

Aiyer was also sentenced to two years of supervised release and slapped with a $150,000 fine.

But prosecutors had wanted Aiyer to be sentenced to as long as 46 months in prison.

“They [Aiyer and other traders] rigged bids to customers and coordinated their trading in the interdealer market to push price in their favor, and to the disadvantage of others in the market,” prosecutors said in a sentencing memorandum. “Each time they implemented their agreement, they positioned themselves to steal from pension funds, college savings funds, foundations, mutual funds and retirement accounts.”