Company traders manipulated trades to tweak supply and demand and mess with market prices, regulators found.
In the largest enforcement action in CFTC history, the agency has issued an order filing and settling charges against JPMorgan Chase & Company and its subsidiaries and certain traders in connection with manipulative and deceptive conduct that spanned at least eight years. According to the Commission, the fraudulent activities involved hundreds of thousands of spoof 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 (In the Matter of JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., and J.P. Morgan Securities LLC, CFTC Docket No. 20-69, September 29, 2020).
In a parallel matter, the Department of Justice announced a deferred prosecution agreement against the company on charges of wire fraud. The company and its affiliates engaged in fraudulent and manipulative trading practices in connection with the purchase and sale of precious metals futures contracts, according to the DOJ. Under the terms of the agreement, JPMC agreed, among other things, to pay a criminal fine, disgorgement, and restitution.
In another matter, the company settled SEC charges imposing both disgorgement and a civil monetary penalty. The CFTC order will offset any restitution and disgorgement payments made to the DOJ and the SEC.
"Spoofing is illegal—pure and simple. 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," said CFTC Chairman Heath Tarbert.
"J.P. Morgan Securities undermined the integrity of our markets with this scheme," said SEC Enforcement Director Stephanie Avakian.
Spoofing. According to the CFTC, from at least 2008 through 2016, JPMorgan, through numerous traders, placed hundreds of thousands of orders to buy or sell certain gold, silver, platinum, palladium, Treasury note, and Treasury bond futures contracts with the intent to cancel those orders before execution. Through these "spoof" orders, the traders intentionally sent false signals to deceive market participants into executing against other orders they wanted filled, the regulator said. The traders acted with the intent to manipulate market prices, according to the CFTC; this was an attempt to profit by injecting misleading information about genuine supply and demand for precious metals futures contracts, according to the Commission. Subsidiaries failed to investigate and stop the misconduct, despite numerous red flags, and failed to supervise to its traders, the agency stated.
The CFTC also noted that the companies misled the agency’s Division of Enforcement during its investigation but recognized later cooperation. The companies reassessed and enhanced their market conduct compliance program and internal controls, the Commission explained.
SEC settlement. To settle the SEC’s charges, J.P. Morgan admitted the Commission’s findings and agreed to pay disgorgement and a civil penalty. The company was also ordered to cease and desist from future violations of the antifraud provisions of the Securities Act.
CFTC comments. While agreeing with the ultimate conclusion, CFTC commissioners took issue with aspects of the SEC’s enforcement activities. CFTC Commissioner Dan Berkovitz noted that SEC regulations provide for automatic disqualification for certain Commodity Exchange Act violations and that the "SEC-created process has complicated the CFTC’s ability to settle its own enforcement cases without resource-intensive litigation." Further, CFTC Commissioners Dawn Stump and Rostin Behnam said "[a]lthough they may have been well-intentioned, these SEC rules (which were not mandated by statute) have put the CFTC in a difficult position in cases such as this one."
JPMorgan is required to pay a total of $920.2 million, including the highest restitution ($311,737,008), disgorgement ($172,034,790), and civil monetary penalty ($436,431,811) amounts in any CFTC spoofing case.
The matter is CFTC Docket No. 20-69.
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