Defense says as trial begins “scam” deals of ex-JP Morgan dealers were real

July 8 (Reuters) – The criminal trial of three ex-JPMorgan Chase & Co (JPM.N) Employees began work on Friday, with the attorney general saying they had “robbed” the precious metals futures market with bogus orders and defense lawyers said the orders were genuine.

Michael Novak, the former head of the bank’s global precious metals desk, precious metals trader Greg Smith, and sales representative Jeffrey Ruffo have been charged with extortion and conspiracy in the most aggressive US Department of Justice case to date targeting a manipulative trading tactic known as plagiarism.

Plagiarism involves placing and then canceling fake buy or sell orders with the aim of moving the price.

Attorney General Lucy Jennings told jurors that they each played a role in the scheme, which involved creating a fictitious bid or ask by placing buy or sell orders they never intended to fill, and then profit from trades in the other direction.

“Either way, someone stole,” she said.

Jonathan Coogan, Smith’s attorney, said there was no doubt that the applications were filed and then canceled.

“But they are wrong about what he had in mind when he did that,” he said, referring to prosecutors.

Lawyers for both Smith and Nowak said they were all too willing to carry out their orders, and the government could not prove that it intended to rescind the orders from the outset.

His attorney, Jay Petrillo, said Ruffo was not a merchant, and there is no evidence that he understood that the merchants he worked with were using illegal methods.

The three men are accused of using the tactic to manipulate futures contracts on metals such as gold, silver, platinum and palladium between 2008 and 2016.

Plagiarism was outlawed in 2010 when Congress passed the Dodd-Frank Act after the financial crisis. Since then, prosecutors have argued that the previous cases constituted fraud.

The Extortion Act, a federal law enacted in 1970 to crack down on the Mafia, is rarely used to prosecute corporate crimes. It allows prosecutors to charge a range of individuals, including those indirectly involved in alleged wrongdoing, on the grounds that they participated in a “criminal act.”

Better Markets, a Washington nonprofit that advocates for stronger financial regulation, called the case a “potential game-changer” because the extortion law would allow prosecutors to demand harsh sentences if defendants are found guilty.

In addition to extortion and conspiracy, Nowak faces 13 other charges, including fraud, deception and attempted market manipulation, and Smith faces 11 additional charges.

Christopher Jordan, the trader who left JPMorgan in 2009, has also been indicted and will be tried separately.

The trial is expected to take approximately five weeks. Prosecutors are expected to call three former dealers as cooperating witnesses, all of whom have separately pleaded guilty to the related charges. According to court documents, the alleged victims of the scheme may take a stand.

Commodity manipulation, especially plagiarism, has become a major focus of the Department of Justice, which has brought several other cases in recent years, including against NatWest and former traders at Deutsche Bank and UBS.

Also in 2020, JPMorgan agreed to pay more than $920 million and admitted wrongdoing to a settlement with the Department of Justice and the Commodity Futures Trading Commission over the conduct of traders who have pleaded guilty or face trial.

The trial is scheduled to resume on Monday.

(Reporting by Judy Godoy) Editing by Michael Price, David Gregorio and Jonathan Otis

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