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JPMorgan traders are in hot water for manipulating the gold market

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(Kitco News) - Jurors were told that JP Morgan has been ripping off the gold and silver markets for years.

Lucy Jennings, a prosecutor with the Justice Department's fraud section, said, "This case is about a criminal conspiracy inside one of Wall Street's largest banks," adding, "To make more money for themselves, they decided to cheat."

Three former JPM employees are in the firing line, including veteran head of precious metals, Michael Nowak, gold trader Gregg Smith and Jeffrey Ruffo, an executive director who specialized in hedge fund sales. They are all charged with racketeering conspiracy as well as conspiring to commit price manipulation, wire fraud, commodities fraud and spoofing from 2008 to 2016.

Spoofing was banned by law in 2010. It involves vast orders that traders cancel before they can be executed in a bid to push prices in the direction they want to make their actual trades profitable.

Smith, a lead gold trader, was said to have executed 38,000 layering sequences over the years, or about 20 a day, prosecutors said in filings. Nowak himself primarily traded options, but he would dip into the futures market to hedge those positions. He tried his hand at layering in September 2009, according to filings, and went on to use the technique some 3,600 times. Ruffo is alleged to have told Smith where he needed the market in order to fulfill orders involving at least two of his hedge fund clients. Moore Capital Management and Tudor Investment Corporation, according to court filings.

This is not the only high-profile case in recent times. Two former precious-metals traders at BofA's Merrill Lynch were found guilty of spoofing by a jury in Chicago last year. In 2020, two Deutsche Bank AG traders were convicted. In September 2019, JPMorgan admitted wrongdoing and agreed to pay more than $920 million to resolve US claims of market manipulation in both precious metals and Treasuries.

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