JP Morgan hit with record $920 million penalty after admitting eight-year spoofing scheme

The US Department of Justice, CFTC, and SEC confirmed parallel actions against JP Morgan resulting in a record penalty for the years-long spoofing and manipulation activity.

US investment bank JP Morgan will pay a record $920 million after admitting its precious metals and US treasuries trading desks engaged in an unlawful spoofing scheme that spanned eight years.

JP Morgan reached parallel agreements with the US Department of Justice, Commodity Futures and Trading Commission (CFTC), and the Securities and Exchange Commission (SEC) resulting in the record penalty for the illegal trading activity.

An order from the CFTC stated that from 2008 through to 2016 numerous JP Morgan precious metals and treasuries traders, including heads of both desks, engaged in spoofing for hundreds of thousands of treasury notes, treasury bonds, and futures contracts.

JP Morgan significantly benefitted from the spoofing – which occurs when traders bid and offer with the intent to cancel before execution – and harmed other market participants as the scheme caused false signals and artificial prices in the market, the regulator said.

“Spoofing is illegal – pure and simple,” added CFTC chairman Heath Tarbert. “This record-setting enforcement action demonstrates the CFTC’s commitment to being tough on those who intentionally break our rules, no matter who they are. Attempts to manipulate our markets won’t be tolerated. The CFTC will take all steps necessary to investigate and prosecute illegal activities that could ultimately undermine the integrity of the American free enterprise system.”

JP Morgan also misled the CFTC’s division of enforcement’s spoofing task force in the early stages of its investigation, the watchdog stated, due to the bank’s response to requests for certain information. Although it noted JP Morgan’s cooperation in the later stages of its inquiry.

Elsewhere, US securities watchdog SEC stated that between April 2015 and January 2016, traders on the US treasuries trading desk engaged in similar manipulative trading strategies to create false buy and sell interests in the market. JP Morgan will pay disgorgement of $10 million and a penalty of $25 million related to settle the SEC’s action.

In response to the charges, JP Morgan said in a statement that it has entered into a three-year deferred prosecution agreement with the Department of Justice. The bank added it does not expect any disruption of service to clients due to the resolutions.

“The conduct of the individuals referenced in today’s resolutions is unacceptable and they are no longer with the firm,” said Daniel Pinto, co-president at JP Morgan and CEO of the corporate & investment bank, responding to the regulatory action. “We appreciate that the considerable resources we’ve dedicated to internal controls were recognised by the Department of Justice, including enhancements to compliance policies, surveillance systems, and training programs.”