Michael Nowak was once the most powerful person in the gold market.

The former JPMorgan Chase & Co. managing director ran the bank’s precious metals business for more than a decade, making hundreds of millions of dollars in profit trading everything from silver to palladium. Now, he and two of his former colleagues face a federal jury in Chicago on criminal charges for thousands of so-called spoofing trades, which prosecutors say were used for years to generate illicit gains for JPMorgan and its top clients.

The trial, slated to kick off Thursday, threatens to lay bare the inner workings of the prestigious bank that has long dominated the market for gold. The government says Nowak’s business operated as a criminal enterprise, manipulating prices from 2008 to 2016 by placing thousands of trade orders that were never intended to be executed. If convicted, the three men are among the biggest players yet to face prison for price manipulation.

“These are big hitters,” said Robin Bhar, a former metals strategist at Societe Generale SA who spent more than three decades in the industry. “Coming to court gives it a lot more transparency in what is a very opaque market.”

The trial comes after years of a US government crackdown on price manipulation that saw JPMorgan pay $920 million to settle spoofing claims two years ago. With $330 billion of notional value in precious metals derivative contracts at the end of March, the New York-based bank accounts for 67% of the positions put through US banks. It holds three times as much as the next-biggest player, Citigroup Inc., data show.

Nowak, who was also a board member of the body that runs the London gold market, faces 15 counts including commodities fraud, conspiracy to engage in racketeering and price manipulation, and spoofing -- planting fake orders into the market to steer others into buying or selling at prices that favor the bank. Trader Gregg Smith faces 13 counts, while Jeffrey Ruffo, a salesman, faces two counts. A fourth defendant, trader Christopher Jordan, is scheduled to be tried separately on Nov. 28.

All four have pleaded not guilty and face decades in prison if convicted on all charges.

Nowak’s lawyer declined to comment, as did federal prosecutors. Attorneys for Smith and Ruffo didn’t respond to requests for comment.

Nowak was arrested in September 2019, sending a shock wave through the metals and proprietary trading world. Industry insiders told Bloomberg in 2020 that Nowak, an introverted and brainy young father with a house in the Manhattan suburbs, had a clean reputation. He was released on $250,000 bond.

His arrest was part of a raft of prosecutions brought by the Justice Department since spoofing was defined and made illegal by the Dodd-Frank act in 2010. The government has extracted more than $1 billion in fines for banks and filed criminal charges against dozens of individuals, using trading records and internal bank chat logs as evidence.

US Crackdown
In 2021, two Bank of America Corp. precious-metals traders were convicted in Chicago. A year earlier, a jury found two from Deutsche Bank AG guilty, while others reached plea agreements and cooperated with authorities. The most infamous spoofer was Navinder Singh Sarao, a British day trader accused of contributing to the 2010 Flash Crash in US stock markets.

While cases have involved alleged crimes such as commodities fraud or conspiracy, prosecutors have upped the ante with the JPMorgan defendants. They’ve added charges under the Racketeer Influenced and Corrupt Organizations Act, a law more commonly used against gangs or the mafia.

The government claims members of the precious metals desk worked together to use unlawful trading practices to maximize the bank’s profit and minimize its losses on trades in gold and silver. More recently, RICO statutes were used in criminal charges against Bill Hwang, whose Archegos Capital Management collapsed last year, costing banks billions.

“It’s the closest thing we have to a nuclear option in a financial context,” said Eugene Soltes, a professor at Harvard Business School who has written about white-collar crime.

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