JPMorgan’s Top Metals Trader in the Crosshairs for Illegal Manipulation

Michael Nowak, the global head of trading for both base and precious metals at JPMorgan Chase, has been charged by the US Justice department for his role in an illegal market manipulation operation. Executive Directors Gregg Smith and Christopher Jordan were also indicted.

The three are the latest targets in a widening DOJ criminal probe.

Nowak and Smith and Jordan are the third, fourth and fifth persons to be charged in the criminal price rigging scheme at  JPMorgan. They may not be the last. The bank is the most infamous amongst precious metals investors who have been crying foul over obvious price manipulation for years. 

Christian Trunz and John Edmonds, who worked for Nowak, have already pleaded guilty and agreed to cooperate with the investigation. They have outlined an operation that spanned nearly a decade and “thousands” of fraudulent trades. They have said their training in the dark arts of rigging prices and cheating clients was provided by more senior bank executives.

They were likely referring to Nowak, who is the highest placed executive set to face the music thus far.

Should Nowak also plead guilty and provide evidence against his superiors, things will get even more interesting. It would signal the matter isn’t going to be handled in the usual way, i.e. with some lower level staffer taking the fall – and regulators pretending the problem has been addressed.

Traders at Bank of America and Deutsche Bank have also pleaded guilty to spoofing. Evidence shows them working together with their peers at other bullion banks, including JPMorgan, to cheat their respective clients.

The picture emerging is not one of traders at competing banks striving to serve clients well and win business, though that is what naive clients expected. Instead, bankers placed bets against their customers. Then they used their weight in the markets and called in favors with friends at other banks to assure they won those bets.

Thus far the federal regulator tasked with enforcing fair commodities markets, the CFTC, has been quiet about its complete failure to crack down on the widespread and long-running fraud operation. The banks implicated continue to trade in the metals markets, which begs the question about whether any amount of fraud would be sufficient for their privileges to be revoked.

These and other schemes may have worked to push prices down, something long suspected by frustrated gold bugs.

The bullion banks are infamous for their massive short positions in gold and silver. Whether all those shorts are simply a natural by-product of selling contracts to any and all retail speculators, or whether they are piled up as part of a deliberate price suppression effort sanctioned by the Fed, is not certain.

Either way, the bullion banks’ incentive, generally speaking, is to profit from betting prices will fall. And the trading desk at JPMorgan has an incredible track record of profitable trades. In 2016 the bank did not have a single trading day in which they lost money. Now we know more about how the bank achieved such remarkable results.

The Justice Department and federal regulators, if the CFTC ever decides to lift a finger, might end up being the least of the bullion banks’ worries. Class-action attorneys and the victims they represent are readying civil lawsuits.

They should be able to provide proof to juries that traders at multiple banks spent years operating a large and well-coordinated racket, under the supervision and direction of very senior executives. The potential liability for bullion banks will be huge.