Former JPMorgan Chase & Co. gold and silver trader Christopher Jordan used a technique known as “spoofing” to gain an edge against high-speed computer algorithms because at the time, there were no rules against it, his lawyer told a federal court jury in Chicago.
“Chris traded according to the rules as he understood them, and he did so openly because he had nothing to hide,” defense attorney Parvin Moyne said during opening statements Thursday. “You have to be careful not to apply today’s standards” to Jordan’s trading from 2008 to 2010, she told jurors. Spoofing — placing orders with no intent to trade — became illegal in 2010.
Jordan is on trial for wire fraud affecting a financial institution, the last of four men who worked on the JPMorgan precious-metals desk to be prosecuted for deceptive buy and sell orders. Michael Nowak, who ran the operation, and Gregg Smith, the top gold trader, were convicted in August. Jeffrey Ruffo, a salesman who never placed any trade orders, was acquitted.
The prosecutions are part of a long crackdown on market manipulation since the 2008 financial crisis, including convictions of traders at banks including Deutsche Bank AG and Bank of America Corp.’s Merrill Lynch unit. JPMorgan, the largest US bank, agreed to pay $920 million in 2020 to settle Justice Department spoofing allegations. It was by far the biggest fine by any financial institution.
According to prosecutors, Jordan would place big orders that he quickly canceled to manipulate prices, a type of bait-and-switch technique that deceived and defrauded other market participants. It was a common practice on the JPMorgan precious-metals desk to get better prices and earn profits for the bank, according to witnesses who testified at the trial of Nowak, Smith and Ruffo.
“The defendant sent false signals to the market,” Matthew Sullivan, a US Attorney, told jurors in his opening statement. “The sole purposes of these large orders was to trick others. What they represent is fake because they send a fake signal to the market that the defendant actually wants to buy or sell.”
Sullivan told jurors they’ll see records of trades Jordan made and chats in which he discussed how they were placed.
Jordan also lied to the US Commodity Futures Trading Commission about what he was doing, according to Sullivan.
“The CFTC asked him if he was doing these bogus orders, and he told them no,” the prosecutor said.
Jordan’s lawyer disputed that claim. “The CFTC never asked Chris if he spoofed,” she said. “They never asked him whether he placed a bid or offer without the intent to execute it.”
At the time, there was no rule against a trader placing an order they didn’t intend to trade, she said.
Years later, in 2018, when an FBI agent showed up to interview him, Jordan told agents “he used the spoofing strategy,” Moyne said. “But make no mistake. He didn’t say he did anything wrong. He did not confess to wire fraud affecting a financial institution.”
Jonathan Luca, the FBI agent, testified Thursday that he interviewed Jordan twice for his investigation, which had identified the trader among 25 suspected of making market-manipulating orders. At a Starbucks in New Jersey, Luca said he showed him charts of the spoofing activity that the government had been monitoring.
“He said that he had placed orders on smaller iceberg orders on one side of the market and larger iceberg orders on the other side of the market that he intended to cancel,” though he never responded to the question of whether he’d spoofed, Luca said. “Jordan thought his issues of trading had been resolved after being deposed of the CFTC.”
Jordan’s compensation came up during Luca’s testimony. As part of the investigation, Luca said he got documents showing the trader earned $775,016 in 2008 and $350,000 in 2009 at JPMorgan. After Jordan was terminated from the bank, he joined Credit Suisse, where he made just $106,750 without completing a full year of employment there, Luca said.
Jordan is being tried separately from his former JPMorgan colleagues after a judge determined in April that certain Covid protocols would prevent the court from hosting a trial with more than three defendants.
(By Joe Deaux, with assistance from Tom Schoenberg)