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JPMorgan Chase & Co.’s former precious-metals desk head and his top gold trader asked to be spared prison sentences for spoofing.
Desk head Michael Nowak and trader Gregg Smith were both convicted in August of market manipulation by a federal jury in Chicago. Prosecutors last month recommended that Nowak be given five years in prison and Smith, six years.
Witnesses at trial described how Smith and Nowak engaged in spoofing by using huge buy and sell orders that they never intended to execute. The orders, which they quickly canceled, were intended to push prices in the direction they wanted to benefit the bank or its customers.
In a Monday court filing, the two men argued the government failed to prove the economic harm from their conduct and noted the jury acquitted both of racketeering conspiracy charges.
“There is no evidence that Mike gained anything personally, and the government never once challenged the indisputable truth that any theoretical profit to JPMorgan from Mike’s trades was immaterial to his options portfolio,” which averaged more than $30 million a year, Nowak’s lawyers said in a sentencing memo.
“The Government has failed to carry its burden of proving estimate of loss,” Smith’s lawyers said in a separate sentencing memo.
In its filing last month, the government said significant sentences are warranted because the two men had spoofed for years and knew what they were doing was prohibited.
Prosecutors presented evidence that included detailed trading records, chat logs and testimony by former co-workers who “pulled back the curtain” on how Nowak and Smith moved precious-metals prices up and down for profit from 2008 to 2016.
Both men “abused their senior positions on the desk to normalize their market manipulation and indoctrinate younger traders,” prosecutors said. Nowak coached one young trader “to lie to JPMorgan’s Compliance Department after” he’d been flagged for spoofing, and Nowak later pressured him “not to plead guilty and cooperate with the government’s investigation,” the government said.
In some earlier spoofing cases in Chicago, two former precious-metals traders from Deutsche Bank AG got one-year sentences in 2021, as did two former traders at Bank of America Corp.’s Merrill Lynch unit earlier this month.
The case is US v. Smith et al, 19-cr-00669, US District Court, Northern District of Illinois (Chicago).
(By Steve Stroth)
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