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Date: 08-22-2023
Case Style:
Case Number: 1:19-CR-69
Judge: Edmond E. Chang
Court: United States District Court for the Northern District of Illinois (Cook County)
Plaintiff's Attorney: United States Attorney’s Office in Chicgo
Defendant's Attorney: Jonathan David Cogan, Matthew Ivan Menchel, Sean Stephen Buckley, Alexa Rae Perlman, Pro Hac Vice, Christopher Stone Cogburn, Pro Hac Vice, Jean Nicole Ripley, Pro Hac Vice, Kobre & Kim LLP, New York, NY, Leanne A. Bortner, Pro Hac Vice, Kobre & Kim LLP, Washington, DC, for Defendant Gregg Smith.
Chad Eric Silverman, Pro Hac Vice, David Meister, Pro Hac Vice, Jocelyn Emily Strauber, Pro Hac Vice, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, William Elliott Ridgway, Skadden, Arps, Slate, Meagher & Flom, Chicago, IL, for Defendant Michael Nowak.
Description: Chicago, Illinois criminal defense lawyers represented Defendants charged with fraud, attempted price manipulation, and spoofing as part of a market manipulation scheme that spanned over eight years, involved tens of thousands of unlawful trading sequences, and resulted in over $10 million in losses to market participants.
This prosecution arose out of an alleged commodities-spoofing conspiracy perpetrated by precious-metals traders. The superseding indictment charges a conspiracy to commit racketeering activity, as well as substantive counts of fraud, spoofing, and attempted price manipulation. R. 52 (for convenience's sake, the superseding indictment will be referred to as the indictment from now on).
• Gregg Smith was a "precious-metals trader at Bank B from May 2007 until its acquisition by Bank A in May 2008." Id. ¶ 18(a). For the rest of the relevant time, Smith was "an
Executive Director and trader at the Precious Metals Desk at Bank A." Id.
• During the relevant time, Michael Nowak was a "Managing Director and trader on the Precious Metals Desk at Bank A." Id. ¶ 18(b).
• Jeffrey Ruffo was "a salesperson at Bank B from May 2007 until its acquisition by Bank A in May 2008." Id. ¶ 18(c). For the rest of the time, Ruffo was "an Executive Director and salesperson on the Precious Metals Desk at Bank A." Id. Ruffo specialized in hedge fund sales and his clients included Hedge Funds E and F. Id. Ruffo left Bank A in August 2017. Id.
• Christopher Jordan worked at Bank A from March 2006 until December 2009. Id. ¶ 18(d). At the time of his departure, Jordan was an Executive Director. Id. After leaving Bank A, Jordan joined Bank C as a precious-metals trader and worked there from March 2010 to August 2010. Id. Then, from June 2011 to October 2011, "Jordan traded precious-metals futures contracts as an employee of Company D." Id.
The alleged purposes of the conspiracy were to illegally maximize profits and minimize losses (for themselves and Bank A), as well as to conceal the crimes. Id. ¶ 24. The alleged scheme involved two kinds of financial derivatives: futures and barrier-options. A brief background on these financial instruments is helpful here.
Citations to the record are "R." followed by the docket entry number and, if needed, a page or paragraph number.
One aspect of the dismissal motion has already been denied, specifically, the request to strike surplusage. The Court denied that aspect of the motion in deciding the government's motion to disqualify Nowak's proposed expert witness. R. 270.
“The defendants used their positions as some of the most powerful traders in the worldwide precious metals markets to engage in an egregious effort to manipulate prices for their benefit,” said Acting Assistant Attorney General Nicole M. Argentieri of the Justice Department’s Criminal Division. “This case reaffirms the Department’s steadfast commitment to hold accountable those who engage in fraud and manipulation that undermines the investing public’s trust in the integrity of our commodities markets.”
According to court documents, between approximately May 2008 and August 2016, Smith and Nowak, along with other traders on the JPMorgan precious metals desk, engaged in a widespread spoofing, market manipulation, and fraud scheme. Smith was an executive director and trader on JPMorgan’s precious metals desk in New York, and Nowak was a managing director and ran JPMorgan’s global precious metals desk. As part of their market manipulation scheme, Smith and Nowak placed orders for precious metals futures contracts that they intended to cancel before execution to drive prices on orders they intended to execute on the opposite side of the market. Smith and Nowak engaged in tens of thousands of deceptive trading sequences for gold, silver, platinum, and palladium futures contracts traded through the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by CME Group Inc. These deceptive orders were intended to inject false and misleading information about the genuine supply and demand for precious metals futures contracts into the markets.
“As today’s sentencing demonstrates, the FBI and its partners remain committed to investigating and bringing to justice anyone who attempts to manipulate our financial markets for their own selfish gain,” said Assistant Director Luis Quesada of the FBI’s Criminal Investigative Division. “In order to maintain economic security, investors in equity and commodities markets must have confidence that exchanges are operated in a transparent and equitable manner, and that investments are free from manipulation and fraud. Today’s outcome should serve as a reminder that the FBI remains highly focused on combatting bad actors conducting sophisticated fraud schemes targeting the securities and commodities markets.”
In September 2020, JPMorgan admitted to committing wire fraud in connection with: (1) unlawful trading in the markets for precious metals futures contracts; and (2) unlawful trading in the markets for U.S. Treasury futures contracts and in the secondary (cash) market for U.S. Treasury notes and bonds. JPMorgan entered into a three-year deferred prosecution agreement through which it paid more than $920 million in a criminal monetary penalty, criminal disgorgement, and victim compensation, with parallel resolutions by the Commodity Futures Trading Commission (CFTC) and the Securities Exchange Commission announced on the same day.
The FBI New York Field Office investigated the case. The CFTC’s Division of Enforcement provided valuable assistance.
Market Integrity & Major Frauds Unit Chief Avi Perry and Trial Attorneys Matthew F. Sullivan, Lucy B. Jennings, and Christopher Fenton of the Criminal Division’s Fraud Section prosecuted the case.
A futures contract is an agreement to buy or to sell a commodity at a fixed price on a future date. Futures are traded on markets designated and regulated by the Commodity Futures Trading Commission (CFTC). CME Group Inc. is a commodities marketplace comprising several exchanges, including the Commodity Exchange, Inc. (better known as COMEX) and the New York Mercantile Exchange, Inc. (NYMEX). Sup. Indict. ¶ 11. COMEX and NYMEX use the "Globex" electronic trading system, which allows market participants to trade in futures contracts from anywhere in the world. Id. ¶ 12. Commodities traders can place an order on Globex to either buy or sell futures contracts at a particular price. Id. ¶ 13. An order is "filled" or "executed" when the offer is accepted by a buyer or seller in the marketplace. Id.
Outcome: Gregg Smith, 59, of Scarsdale, New York, was sentenced to two years in prison and a $50,000 fine. Michael Nowak, 49, of Montclair, New Jersey, was sentenced to one year and one day in prison and a $35,000 fine.
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Defendant's Experts:
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