JP Morgan puts traders on leave as Justice Department's criminal investigation continues

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J.P. Morgan has placed two precious metals traders on leave — including the global head of base and precious metals trading — as the Justice Department’s criminal investigation into the firm’s trading practices continues.

Michael Nowak, a managing director at J.P. Morgan who also heads the firm’s precious metals trading unit, was put on leave in August, and Gregg Smith, who has worked in the firm’s precious metals trading unit, was also put on leave by the firm, as first reported by Reuters and confirmed by CNBC.

Both Nowak and Smith have not been charged with a crime. CNBC left a LinkedIn message for Nowak and was unable to find contact information for Smith. A spokeswoman for J.P. Morgan declined to comment.

The timing of Nowak’s leave coincides with the second former precious metals trader at the firm pleading guilty to conspiracy and spoofing charges. On August 20, Christian Trunz, a former executive director at J.P. Morgan in London, resigned from the firm on the same day that federal prosecutors announced his plea deal.

Spoofing is a strategy that involves placing trade orders with the intent to cancel them before they can be executed. The goal is to affect the price of the commodity and benefit a preexisting trading position.

Trunz, who is cooperating with the ongoing investigation, admitted that from about July 2007 to August 2016 he placed thousands of spoofing orders in the precious metals futures markets. He also admits he “learned to spoof from more senior traders and spoofed with the knowledge and consent of his supervisors,” according to the Department of Justice.

In October, John Edmonds, 37, pleaded guilty in Connecticut federal court to working with other “unnamed co-conspirators” to manipulate the prices of gold, silver, platinum and palladium futures contracts between 2009 and 2015 while employed at J.P. Morgan.

Edmonds, like Trunz, also admitted learning the illegal trading tactics from senior traders at the bank and to using those tactics with the knowledge and consent of supervisors. He has also been cooperating with the Justice Department’s ongoing federal criminal investigation.

In July 2017, a panel of the COMEX Business Conduct Committee found that Smith had spoofed in the gold futures markets in July and August 2013. As part of the settlement, which Smith neither admitted or denied the panel’s findings, he was ordered to pay a $95,000 fine and was suspended for 10 business days from trading on the CME Group exchange.

J.P. Morgan first disclosed in a regulatory filing in February that various authorities, including the Department of Justice’s Criminal Division, were conducting investigations relating to trading practices in the precious metals markets.

The firm said it is cooperating with the investigations.

J.P. Morgan’s precious metal trading unit

Edmonds, Trunz, Smith and Nowak all previously worked together in the same trading unit at J.P. Morgan. All four also answered questions under oath for a separate civil case against J.P. Morgan that involves alleged manipulation of the precious metals markets.

The deposition of Edmonds offers a small glimpse into how the firm’s precious metals trading desk was organized and operated during the years 2011 and 2012.

Edmonds describes Trunz as being a junior precious metals trader, working alongside him in his early years at J.P. Morgan.

When he was a junior trading clerk, learning how to trade, Edmonds says he mostly worked with Nowak in an “apprenticeship-type role.”

Later, in the deposition, Edmonds says Nowak was his direct supervisor, with whom he would sometimes discuss trading strategies. Nowak was also the person responsible for overseeing the performance and risk of Edmonds’ portfolio.

Edmonds said as part of his role he would also enter trades for both Nowak and Smith into the firm’s in-house risk management system called Athena. Edmonds also said he entered trades for Stu Piller and Robert Gottlieb.

Piller, who left the firm in July 2017, was formerly a managing director and head of precious metals trading for Europe and Asia at J.P. Morgan, according to his LinkedIn profile.

Edmonds described Gottlieb, who is no longer employed at J.P. Morgan, as a mentor who helped guide and train him. Gottlieb was someone “I looked up to as a trader,” he said in his 2017 deposition.

Before his employment at J.P. Morgan, Gottlieb was hired as a managing director at Bear Stearns in 2006 and was tasked with growing the firm’s “metals department into a 24-hour global client-driven business with trading and sales specialists in New York and London,” within a year, according to a press release.

J.P. Morgan acquired Bear Stearns, along with many of its traders, following its collapse in June 2008.

Gottlieb and Piller did not respond to emails requesting comment. Both have not been charged with a crime.

Other legal woes related to allegations of manipulative trading practices in precious metals markets, including a proposed class action, weigh on J.P. Morgan.

However, both of those civil proceedings have been temporarily paused after federal prosecutors warned that allowing the cases to proceed would interfere with their investigation into the nation’s largest bank.

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