JPMorgan dominates gold market as jury deliberates spoofing charges
(Kitco News) - After a three-week trial, a jury continues to deliberate on the most significant court case impacting the precious metals market in history.
Michael Nowak, the head of JPMorgan Chase's precious metals desk, and gold trader Gregg Smith and Jeffrey Ruffo, an executive director specializing in hedge fund sales, have been accused of manipulating and rigging gold and silver prices for eight years between 2008 and 2016.
Nowak and Smith face charges of racketeering conspiracy as well as conspiring to commit price manipulation, wire fraud, commodities fraud and spoofing; Ruffo has been charged with racketeering and conspiracy. All three men face years in prison if they are found guilty.
"For years, executives at one of the world's largest banks conspired to manipulate the markets for precious metals," said Matthew Sullivan, an attorney in the US Department of Justice, during his closing arguments Thursday. "All three worked together toward the same goal: earning profits for the precious-metals desk by spoofing."
However, the defense team argued in their closing statement Friday that Nowak's spoofing orders were legitimate and were executed about 25% of the time, "making him the worst spoofer in the world."
David Meister, Nowak's defense attorney, said in his closing arguments that the government prosecutors relied on lousy evidence and dubious witnesses to support their theory that Nowak was a master crook.
"Mike is not a criminal mastermind from the government's narrative," Meister said.
Spoofing is a type of manipulative trading where bids and offers are placed in the market and canceled before they can be filled. There is never any intention to fill these orders. The trades are made to provide a false sense of size on one side of the market or the other.
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As the jury now deliberates, the three-week trial provided extraordinary insight into the world's biggest gold bullion bank.
JPMorgan doesn't break down its revenues in its earnings filings; however, documents presented to the court during the trial showed just how profitable the precious metals and commodity markets are for the investment bank.
According to Bloomberg, which has been covering the trial, JPMorgan saw annual profits related to trading precious metals markets of between $109 million and $234 million a year between 2008 and 2018. The bank also averaged $30 million a year trading and transporting physical bullion.
The precious metal market continues to be a profitable venue for the bank. In 2020 JPMorgan saw record revenues of $1 billion trading gold and silver. The precious metals market saw unprecedented demand as the global economy grind to a halt during the COVID-19 pandemic.
The trial also showed just to prominent JPMorgan is in the precious metals market as it is a key player among a handful of bullion banks. It stores billions of dollars worth of gold and silver in key markets like London, New York and Singapore. The Bank
According to the trial, in 2010, 40% of all gold transactions were cleared by JPMorgan.
The trial also showed just how much the three traders made related to trading gold and silver. According to data provided to the court, Nowak, who led the trading desk, made $23.7 million between 2008 and 2016. Smith made $9.9 million over the eight-year period. And Ruffo made $10.5 million.
According to Bloomberg, some members of the jury "gasped" when they heard how much the three made.