British regulator reviews JPMorgan metals trading amid U.S. probe: sources

© Reuters. British regulator reviews JPMorgan metals trading amid U.S. probe: sources

By Lawrence Delevingne and Peter Hobson

NEW YORK/LONDON (Reuters) - Britain's financial services regulator is examining allegations of precious metals market manipulation by JPMorgan Chase (NYSE:JPM) & Co traders following criminal charges by U.S. authorities, according to two people familiar with the matter.

The UK Financial Conduct Authority (FCA) is one of the various authorities that JPMorgan has previously said were investigating its metals trading, according to one of the people, who declined to be named due to the sensitivity of the matter. The watchdog has requested documents and other information from JPMorgan, the source said.

The exact scope of the FCA scrutiny or whether it will result in any charges was unclear.

The U.S. Department of Justice (DOJ) has charged five current and former JPMorgan metals traders, who worked in New York, London and Singapore, with alleged price manipulation between 2007 and 2016. Two of them have been charged in parallel by the Commodity Futures Trading Commission (CFTC). The joint investigation is ongoing, a DOJ official has said.

One of the traders was charged in 2018, and four this year. Two have pleaded guilty to manipulating prices. The lawyers for the three most recently charged, in September, said their clients would contest the allegations against them.

JPMorgan said in an Aug. 6 regulatory filing that it was "responding to and cooperating" with various investigations relating to trading practices in the metals markets.

The FCA, DOJ and CFTC all declined to comment.

The second person familiar with the matter is London-based metals trader Andrew Maguire, who has long complained about alleged metals market manipulation on both sides of the Atlantic.

He told Reuters he met FCA officials in August, along with British lawmaker Jeremy Lefroy, to discuss possible metals market manipulation in London. He said he was told by the officials that they were looking into JPMorgan's metal trading, and that they had contacted the DOJ and CFTC to learn more.

Lefroy confirmed that the meeting with the FCA took place and said he and Maguire were assured that the FCA was following the U.S. investigation closely for any possible implications in Britain and would follow up on these if found.

New York and London are hubs for precious metals dealing, and large international banks are among the biggest traders, managing orders for themselves and clients.

U.S. prosecutors have said that the five charged JPMorgan traders had influenced metals prices by placing bids with the intent to cancel them before execution – a technique known as spoofing. By creating an illusion of demand, spoofers can move prices to benefit their market positions.

There has been a surge in spoofing-related prosecutions in recent years involving banks and dealers. These include Bank of America (NYSE:BAC) Corp's Merrill Lynch commodities unit, which was fined $25 million by U.S. authorities in July, and Morgan Stanley (NYSE:MS), which was fined $1.5 million in the United States last month.

The DOJ has taken an aggressive stance, most recently charging three of the five men in the JPMorgan case with a racketeering conspiracy, a technique more commonly associated with organized crime prosecutions. All contest the charges.

The U.S. charges against JPMorgan staff center on manipulation of U.S. exchanges. Trading can be conducted on these exchanges from locations outside the United States, including London, where some of the men charged by U.S. investigators have been based.

The London Bullion Market Association (LBMA), which sets trade standards for metals trading but is not a regulator, said it "takes very seriously all allegations of misconduct or criminal conduct which may prejudice or damage the integrity and efficient operation of the precious metals markets".

JPMorgan, like most other large international banks that trade gold, is an LBMA member.