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Bloomberg

Inside the JPMorgan Trading Desk the U.S. Called a Crime Ring

(Bloomberg) — Billionaires have Davos. For filmmakers, there’s Sundance. For the people who mine and trade and ship everything from iron ore to platinum, there’s London Metal Exchange Week. It’s a blur of symposiums and drinks, with a reliably lavish lunch thrown by JPMorgan Chase & Co. On a balmy October day in 2018, hundreds of guests crossed a courtyard in the shadow of the Bank of England to a medieval guild hall for champagne and sashimi courtesy of the bank and its top metals trader, Mike Nowak.Nowak had plenty to celebrate. His global trading desk at JPMorgan was the powerhouse in futures contracts for gold, silver, platinum and palladium that account for tens of trillions of dollars in transactions annually. In his mid-40s, Nowak had run the precious metals desk for more than a decade. He had a young family, a house outside Manhattan and a seven-bedroom vacation home a few blocks from the beach in New Jersey.But that world was unraveling. Unbeknown to Nowak, one of his former employees was turning on him.That same day, the sun was barely up in Brooklyn when a trader named John Edmonds set off for a meeting with federal prosecutors. Edmonds, who’d worked for years on Nowak’s desk, took a four-hour car trip to Hartford, Connecticut, where he told authorities that Nowak’s crew wasn’t just buying and selling precious metals, but systematically cheating to help themselves and their top clients. Edmonds admitted to fraudulent trades that day in a sealed guilty plea. Soon, others from the precious metals desk provided accounts, setting off events leading to criminal charges against Nowak and four others from the bank.Testimony by Edmonds and others also underpins a U.S. Justice Department criminal investigation into the bank itself that people familiar with the matter say will be resolved in coming days. They said the bank is expected to pay around $1 billion to settle with the Justice Department and U.S. Commodity Futures Trading Commission. Among the alleged misdeeds is so-called spoofing, or planting fake orders into the market to steer others into buying or selling at prices that favor the bank. In authorities’ years-long crackdown on spoofing — which has included the conviction of two former Deutsche Bank metals traders in Chicago late last week — the expected JPMorgan penalty would be several times the size of previous settlements.Read More: JPMorgan Is Set to Pay $1 Billion in Record Spoofing PenaltyNowak and three others have pleaded not guilty and are seeking to have the charges against them dismissed. Lawyers for Nowak and Edmonds declined to comment. JPMorgan, which has said it’s cooperating with the investigation, declined to comment through a spokesman. The Justice Department and CFTC also declined to comment.In charging Nowak and others, prosecutors are testing an unusual application of a law formulated to battle mobsters, the Racketeer Influenced and Corrupt Organizations Act. Prosecutors say Nowak’s trading desk was a criminal racketeering operation within the confines of America’s biggest bank. Traders on Nowak’s desk engaged in spoofing as a core business practice, doing it more than 50,000 times over nearly a decade, they said.  The Justice Department has famously used the RICO statute to bring down mafia bosses and drug gangs. It has used other statutes to extract penalties and guilty pleas from big banks accused of market manipulation. But it’s been decades since the government has attempted to apply the anti-racketeering law to members of a major bank’s trading desk, placing Nowak and others in crosshairs once trained on the likes of the Latin Kings and the Gambino crime family.This account is based on court filings, public records and interviews with more than a dozen current traders, former traders and others familiar with the situation who asked not to be identified speaking about an ongoing legal matter.Bear Stearns MarriageThe troubles at Nowak’s operation started in the depths of the financial crisis, arriving in the form of a novel trading strategy from a knot of new colleagues.Nowak had just completed a swift climb at JPMorgan. He’d joined the bank straight from Duke University in 1996 and traded natural gas options for a few years. Then he made his way to the precious metals desk. It was an influential spot. JPMorgan owns and stores tens of billions of dollars of gold and silver in its vaults. It’s also one of the top traders in markets where investors and speculators exchange tens of billions of dollars in futures contracts daily — sending price signals that are picked up by gold funds, pawn shops and Indian jewelry bazaars. Nowak rose to the top of…