JPMorgan Chase to Pay $920 Million Settlement for Market Manipulation

The United States CFTC, SEC, and DOJ finally close years of bank's 'spoofing' probe


JPMorgan Chase & Co., the largest bank in the United States, will be paying $920 million in a settlement after admitting wrongdoing in several market manipulations of trades of futures involving precious metals and treasury bonds.

The US Commodity Futures Trading Commission, in a statement Tuesday issued an order filing and settling charges against JPMorgan Chase & Company and its subsidiaries, JPMorgan Chase Bank, N.A., and J.P. Morgan Securities LLC for manipulative and deceptive conduct that spanned at least eight years.

The order finds that JPMorgan’s illegal trading significantly benefited the bank and harmed other market participants.

The New York-headquartered bank is required to pay a total of $920.2 million—the largest amount of monetary relief ever imposed by the CFTC—including the highest restitution ($311,737,008), disgorgement ($172,034,790), and civil monetary penalty ($436,431,811) amounts in any spoofing case.

The case involved hundreds of thousands of fake orders in precious metals and U.S. Treasury futures contracts on the Commodity Exchange, Inc., the New York Mercantile Exchange, and the Chicago Board of Trade around 2008 to 2016. This case is brought in connection with the Division of Enforcement’s Spoofing Task Force.

The bank has been accused of a manipulative practice called “spoofing” where traders would place orders on one side of the market which they never intended to execute, to create a false impression of buying or selling interest that would raise or depress prices, according to a Reuters report.

“Spoofing is illegal—pure and simple,” said CFTC Chairman Heath Tarbert.

“This record-setting enforcement action demonstrates the CFTC’s commitment to being tough on those who intentionally break our rules, no matter who they are. Attempts to manipulate our markets won’t be tolerated. The CFTC will take all steps necessary to investigate and prosecute illegal activities that could ultimately undermine the integrity of the American free enterprise system,” Tarbert said.

“This action sends the important message that if you engage in manipulative and deceptive trade practices you will be caught, punished, and forced to give up your ill-gotten gains,” added CFTC Division of Enforcement Director James McDonald.

“The CFTC is committed to working with our law enforcement and regulatory partners to eradicate this unlawful activity and to hold those responsible fully accountable,” he said.

What were the findings of the SEC on the JPMorgan case?

The US Securities and Exchange Commission on September 29 issued an order filing and settling charges against JPMorgan imposing both disgorgement and a civil monetary penalty. The CFTC order, meanwhile, will recognize and offset any restitution and disgorgement payments made to the DOJ and the SEC.

The US SEC said in a separate press statement that J.P. Morgan Securities admitted the findings in the SEC’s order and agreed to pay disgorgement of $10 million and a civil penalty of $25 million to settle the action.

The US Department of Justice’s Fraud Section and the United States Attorney’s Office for the District of Connecticut on Tuesday also announced the entry of a Deferred Prosecution Agreement with JPMorgan Chase & Co., deferring criminal prosecution of the bank on charges of wire fraud.

Under the terms of the DPA, JPMC & Co. has agreed, among other things, to pay a criminal fine, disgorgement, and restitution.

According to the SEC’s order, between April 2015 and January 2016, certain traders on J.P. Morgan Securities’ Treasuries trading desk employed manipulative trading strategies involving Treasury cash securities.

The SEC order finds that the traders placed bona fide orders to buy or sell a particular Treasury security, while nearly simultaneously placing non-bonafide orders, which the traders did not intend to execute, for the same series of Treasury security on the opposite side of the market.

The order also finds that the non-bonafide orders were intended to create a false appearance of buying or selling interest, which would induce other market participants to trade against the bona fide orders at prices that were more favorable to J.P. Morgan Securities than J.P. Morgan Securities otherwise, would have been able to obtain.

According to the order, after the traders secured beneficially priced executions for the bona fide orders, they promptly canceled the non-bonafide orders.

“J.P. Morgan Securities undermined the integrity of our markets with this scheme,” said Stephanie Avakian, Director of the SEC’s Division of Enforcement.

“Their manipulative trading of Treasury cash securities created a false appearance of activity in the market and induced other market participants to trade at more favorable prices than J.P. Morgan Securities would have otherwise been able to obtain,” Avakian said.

The recent agreement, meanwhile, also takes into account JPMorgan’s cooperation with the probe and steps it has already taken such as hiring hundreds of new compliance officers, the Justice Department said.

Bank has parted ways with employees involved in the scheme

JPMorgan Chase has since removed all employees involved in market manipulations of trades of futures involving precious metals and treasury bonds.

“The conduct of the individuals referenced in today’s resolutions is unacceptable and they are no longer with the firm,” said Daniel Pinto, co-President of JPMorgan Chase and CEO of the Corporate & Investment Bank.

“We appreciate that the considerable resources we’ve dedicated to internal controls were recognized by the DOJ, including enhancements to compliance policies, surveillance systems, and training programs,” Pinto said in a statement.

The firm also does not expect any disruption of service to clients as a result of the recent settlement which fully resolved investigations by the DOJ, CFTC, and SEC.

In Tuesday’s afternoon trading, however, shares of JPMorgan fell 0.9% to $95.33 after the news of the settlement.

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JM Agreda is a freelance journalist for more than 12 years writing for numerous international publications, research journals, and news websites. He mainly covers business, tech, transportation, and political news for Businessner.