Traders manipulated gold selling price brazenly, courtroom hears

At Bear Stearns, just before the lender was obtained by JPMorgan Chase & Co. in 2008, manipulating the gold futures sector with bogus spoof orders was “common practice,” especially for its prime trader, Gregg Smith, a former colleague explained to jurors in Chicago.

“It was very widespread” on the valuable-metals trading desk, claimed Corey Flaum, a gold and silver trader who was later on fired for spoofing and arrived at a felony plea agreement to cooperate with prosecutors. “It was completed out in the open,” Flaum mentioned Monday. “Nobody ever explained boo about executing it. No just one ever reported it was legal or unlawful. It was common apply.”

Smith, who grew to become JPMorgan’s leading gold trader just after the merger, is on trial with two many others on the desk: Jeffrey Ruffo, a salesman who dealt with orders by the bank’s largest hedge fund consumers, and Michael Nowak, the longtime head of the JPMorgan important-metals enterprise. They are accused of working a felony company by manipulating prices from 2008 to 2016. 

Flaum described how Smith made use of “spoof” trades – huge orders that are promptly cancelled before they can be executed – several instances a 7 days to press treasured metals up or down so he could make trades for the lender and its shoppers far more worthwhile. Flaum, who joined Bear Stearns in 2006 and sat following to Smith in their New York place of work, said he uncovered to spoof on the bank’s valuable-metals desk and was not informed that the follow was erroneous or illegal until eventually 2011.

“It was a thing I observed,” Flaum explained. “Nobody from the taking care of director on the desk to their outstanding to persons in compliance ever came out and stated something about it.” The former trader reported the treasured-metals desk routinely spoofed due to the fact the procedure normally labored, which was rewarding for the lender and saved clients happy by making sure greater pricing on their orders.

‘Excessive clicking’

Flaum mentioned he could explain to when Smith was spoofing the current market because he’d listen to Smith’s “excessive clicking” as he quickly cancelled orders inside of seconds of placing them. That contrasted with typical trading that was “more slow and methodical,” Flaum informed the jury.

Flaum explained he still left Bear Stearns in May 2008 to just take a similar precious-metals buying and selling career at Lender of Nova Scotia, the place he labored until he was fired for spoofing in July 2016. Flaum pleaded guilty to attempted price tag manipulation in 2019 and agreed to cooperate with prosecutors. He has nonetheless to be sentenced.

He’s the 2nd former gold trader to testify on behalf of the federal government in a trial that started with its first witness on July 8. Very last 7 days, John Edmonds invested 4 days on the stand describing how Nowak, Smith and Ruffo were associated in spoofing precious-metals markets at the JPMorgan desk for almost a 10 years. 

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Edmonds has pleaded responsible to felony charges and is cooperating with authorities. During cross evaluation, defense legal professionals sought to undermine his credibility by citing a number of lies he advised to authorities.

Attorneys for Smith and Nowak have argued that all their orders have been legit and could have been executed by anyone in the market place in advance of they had been cancelled. Ruffo’s legal professionals emphasised that he by no means positioned any orders mainly because he was a salesman. 

On Monday, jurors also heard testimony from Brian Wika of the CME Team Inc., which owns the futures exchanges in which the US alleges 1000’s of spoof trades took spot. Wika guide an investigation into Smith’s investing activity following a 2012 grievance from Alex Gerko, founder of quantitative trading business XTX Markets Ltd. The CME concluded in a report that Smith effectively put gold spoof orders more than 3 000 moments in July 2013 by itself. 

Wika denied they experienced cherry-picked examples of the defendant’s trading that ended up demonstrated to the jury, saying there was “a big pattern of spoofing exercise by Gregg Smith.”

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