By Peter Hobson, Lawrence Delevingne and Koh Gui Qing
LONDON/NEW YORK (Reuters) - Two JPMorgan Chase & Co (N:JPM) employees, including a top metals trading executive, have been placed on leave in response to a U.S. criminal investigation into the bank’s metals trading practices, according to a source familiar with the matter.
Michael Nowak and Gregg Smith are on leave, the source said on Thursday, making them the third and fourth JPMorgan employees to be connected to the criminal investigation that has resulted in guilty pleas from two former JPMorgan metals traders.
Nowak is a managing director and global head of base and precious metals trading in New York for the bank, according to his LinkedIn (NYSE:LNKD) profile. Smith’s title could not be learned.
Nowak was placed on leave around late August, the source said.
Neither Nowak nor Smith have been charged with a crime.
Attorneys for Nowak did not respond to a request for comment. A call to Smith’s number at the bank was answered by an employee at the metals desk who directed questions to the bank’s public relations department. Reuters could not learn the identity of his lawyer.
A spokesman for the Department of Justice declined to comment.
JPMorgan, one of the largest gold trading banks in the world, said in an August regulatory filing it is “responding to and cooperating with” investigations by various authorities, including the Department of Justice, relating to trading practices in the metals markets.
Spoofing involves placing bids to buy or offers to sell contracts with the intent to cancel them before execution. By creating an illusion of demand, spoofers can influence prices to benefit their market positions.
There has been a surge in spoofing-related prosecutions in recent years. Bank of America Corp’s (N:BAC) Merrill Lynch commodities unit, for example, paid $25 million in July to resolve actions by the U.S. Commodities Futures Trading Commission and Department of Justice for precious metals spoofing trades between 2008 and 2014.
The Department of Justice already secured guilty pleas from two former JPMorgan metals traders, Christiaan Trunz and John Edmonds. The announcement of their pleas, in August 2019 and October 2018, respectively, indicated that they had collaborated on spoofing with their supervisors, who were not named.
Trunz placed “thousands” of orders he did not plan to execute for gold, silver, platinum and palladium futures contracts between 2007 and 2016, and had learned to spoof from more senior traders, the Department of Justice said in August, adding that he was cooperating with “the ongoing investigation.”
Nowak and another former JPMorgan trader, Robert Gottlieb, are named as defendants in at least one other civil suit related to metals spoofing at JPMorgan. A December 2018 class action complaint, for example, said that Edmonds, Nowak, Gottlieb and others made hundreds of spoof orders or more as “part of a conspiracy” with the bank and other internal traders.
An attorney for Gottlieb did not respond to a request for comment. Koch Industries Inc, Gottlieb’s last known employer, did not immediately respond to a request for comment.
JPMorgan has also been sued separately by a group of investors, who said they lost money as a result of the bank spoofing its trades. In one of the lawsuits brought against the bank by Daniel Shak, a metals trader, Shak estimated he suffered immediate losses of around $25 million after he was forced to liquidate his position as a result of JPMorgan’s market manipulation, a court document showed.
The civil suits against JPMorgan have been stayed pending the Department of Justice probe.