Trial for ex-JPMorgan bankers could signal new tactic against white-collar crime

A rare courtroom trial for a team of former JPMorgan Chase bankers starting this week is being closely watched for potential ripple effects impacting the broader financial sector and its exposure to criminal liability. 

The trial, set to begin jury selection on Thursday in the U.S. District Court for the Northern District of Illinois, revolves around a precious metals trading scandal that stretched more than eight years, from 2008 to 2016. According to prosecutors, the JPMorgan traders “spoofed” precious metal commodity markets by placing and quickly canceling orders, effectively driving up prices.

And while JPMorgan has already paid a nearly $1 billion fine in connection to the scheme, the Department of Justice is still seeking criminal prosecutions for several individuals, including three former JPMorgan traders — Gregg Smith, Michael Nowak and Christopher Jordan — and one former salesperson, Jeffrey Ruffo. A handful of other former JPMorgan employees have already pleaded guilty to counts of fraud and conspiracy to engage in spoofing.

“At bottom, the gist of the alleged conspiracy was that the Defendants placed orders to buy and to sell precious-metals futures contracts, but did so with the intent to cancel those orders before execution,” wrote Judge Edmond E. Chang in a 2021 court filing, referring to a criminal indictment filed in 2019. “These orders were placed solely to move the metals’ market price in a desired direction by manipulating the commodity’s perceived supply and demand.”

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In that same court filing from 2021, Chang largely dismissed a motion from the trial’s defendants to drop the brunt of the government’s charges against them, including accusations of market manipulation, wire fraud, and conspiracy. Chang did, however, agree to throw out charges of bank fraud, writing that prosecutors had failed to build a strong enough case for it. 

Representatives for JPMorgan and Jordan declined to comment. Representatives for the other defendants did not respond before publication.

It remains extremely rare for white collar crime to culminate in a criminal trial in the United States, in part due to the difficulties prosecutors can face in connecting corporate misconduct to individual decision-making. 

“Large-scale compliance failures are seldom attributable to the acts of a single individual or individuals that can be isolated,” said Daniel Stipano, a partner at Davis Polk and former OCC enforcement attorney. “More often, they are the result of collective decision-making on the part of a large group of individuals over a long period of time. They can be very difficult cases to make.”

Notably, the DOJ is relying on the Racketeering Influenced and Corrupt Organizations Act to bring charges against the former bankers — a statute usually reserved for prosecuting organized crime on a far larger scale. 

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Some government accountability advocates have hailed the trial and the DOJ’s approach as a potential bellwether for future crackdowns on financial misconduct, particularly if the ex-bankers are convicted of wrongdoing by a jury. 

“Because DOJ has charged that JPMorgan’s trading desk was a ‘criminal enterprise’ and that those individuals were engaged in racketeering, their conviction could be a gamechanger that substantially increases the risk for financial lawbreakers,” Dennis Kelleher, president and CEO of the public advocacy nonprofit Better Markets, wrote in a blog post Tuesday. 

“The use of RICO, extraordinarily rare if not unprecedented in cases involving banks and finance, signals a potentially more aggressive approach to cases of financial market manipulation,” Kelleher wrote. “The use of RICO as a tool to combat financial crimes, with its significantly enhanced penalties, could result in more meaningful punishment and deterrence for would-be wrongdoers, something that is too often lacking when it comes to financial crimes.”

But other legal analysts point out that the outcomes of jury trials can be hard to predict.

“These can be hard cases, especially if it goes to a jury,” Stipano said. “The case must be presented in such a way that enables the jury to understand complex financial transactions, which can be challenging.”

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