JP Morgan Charged With Criminal RICO Violations: Suppressing The Silver Market

Jamie Dimon President and chief executive officer of JP Morgan Chase

Another JPMorgan Chase & Co. official was charged in the U.S. probe of the bank’s precious metals trading operation.

Jeffrey Ruffo, a former JPMorgan executive director on the metals desk in New York who specialized in hedge fund sales, was charged with fraud conspiracy and racketeering conspiracy, according to a superseding indictment made public Friday in federal court in Chicago.

The allegations are part of a broader investigation of market spoofingthat has now resulted in charges against six bank employees. Indictments against Michael Nowak — JPMorgan’s global head of precious metals trading — and Gregg Smith were made public in September and they have pleaded not guilty. Another defendant, Christopher Jordan, plans to plead not guilty, according to his lawyer. All three have been free on bond since their arrests.

Ruffo, 56, worked at the bank from about 2008 until August 2017, court records show. Prosecutors claim he worked with the other defendants to coordinate precious metals transactions to benefit big hedge fund clients, who were a key source of the bank’s revenue.

In one instance in January 2012, when a hedge fund client wanted to sell 93,200 ounces of gold, Ruffo alerted JPMorgan traders who then placed deceptive orders to buy gold futures in an attempt to push prices higher, according to the indictment. Ruffo will be arraigned in Chicago on Dec. 5, court documents show.

“Mr. Ruffo, throughout his career, acted conscientiously and in good faith,” his attorney, Guy Petrillo, said in an email. “He will vigorously contest these unfounded and regrettable charges.”

Debt Clock Silver 112019

US Debt Clock November 19, 2019

Long considered disreputable but rarely dangerous, spoofing has emerged in an era of computerized trading as a deeper threat to markets. The Justice Department has brought criminal charges against traders who worked at banks including Deutsche Bank AG and UBS Group AG. At least seven have pleaded guilty, one was convicted at trial and another was acquitted.

Earlier, two other former JPMorgan traders, John Edmonds and Christiaan Trunz, were charged with being part of the alleged conspiracy. Edmonds pleaded guilty. Trunz also pleaded guilty and is cooperating with prosecutors.

The case is U.S. v. Smith, 19-cr-669, U.S. District Court, Northern District of Illinois (Chicago).

Bloomberg

Indictment

Department of Justice
Office of Public Affairs

FOR IMMEDIATE RELEASE
Friday, November 15, 2019

Superseding Indictment Charges Former Precious Metals Salesman with Racketeering Conspiracy

Three Others Previously Charged in Connection with Manipulation of Markets for Precious Metal Futures Contracts

A former salesperson in the New York offices of a U.S. bank (Bank A) was charged in a superseding indictment filed yesterday and made public today for his alleged participation in a racketeering conspiracy in connection with the manipulation of the markets for precious metals futures contracts, which spanned over eight years and involved thousands of unlawful trading sequences, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office.

Jeffrey Ruffo, 56, of Morristown, New Jersey, was charged in a superseding indictment filed in the Northern District of Illinois with one count of conspiracy to conduct the affairs of an enterprise involved in interstate or foreign commerce through a pattern of racketeering activity (more commonly referred to as RICO conspiracy) and one count of conspiracy to commit wire fraud affecting a financial institution, bank fraud, commodities fraud, price manipulation and spoofing.

The superseding indictment follows the original indictment filed on Aug. 22, 2019, which charges Gregg Smith, 55, of Scarsdale, New York; Michael Nowak, 45, of Montclair, New Jersey; and Christopher Jordan, 47, of Mountainside, New Jersey, with one count of RICO conspiracy; one count of conspiracy to commit wire fraud affecting a financial institution, bank fraud, commodities fraud, price manipulation and spoofing; one count of bank fraud and one count of wire fraud affecting a financial institution.  Those original charges – as well as the original charges of one count of attempted price manipulation, one count of commodities fraud and one count of spoofing against Smith and Nowak – are incorporated into the superseding indictment.

The case is pending before U.S. District Judge Edmond E. Chang of the Northern District of Illinois.  The next status hearing in the case is scheduled for Dec. 5, 2019, at 10:45 a.m., during which Ruffo is expected to be arraigned.

The superseding indictment alleges that between approximately March 2008 and August 2016, Ruffo along with the other defendants and co-conspirators were members of Bank A’s global precious metals desk in New York, London and Singapore, with varying degrees of seniority and supervisory responsibility over others on the desk.  Ruffo, who joined Bank A in May 2008, worked there until August 2017.  During that time, he was an executive director and a salesperson on Bank A’s precious metals desk in New York, specializing in hedge fund sales.  Ruffo’s clients included hedge funds that were global investment management firms that invested in precious metals. As it relates to the RICO conspiracy, the defendants and their co-conspirators were allegedly members of an enterprise—namely, the precious metals desk at Bank A—and conducted the affairs of the desk through a pattern of racketeering activity, specifically, wire fraud affecting a financial institution and bank fraud.

The superseding indictment alleges that the defendants engaged in widespread spoofing, market manipulation and fraud while working on the precious metals desk at Bank A through the placement of orders they intended to cancel before execution (Deceptive Orders) in an effort to create liquidity and drive prices toward orders they wanted to execute on the opposite side of the market.

In thousands of sequences, the defendants and their co-conspirators allegedly placed Deceptive Orders for gold, silver, platinum and palladium futures contracts traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by CME Group Inc.  By placing Deceptive Orders, the defendants and their co-conspirators allegedly intended to inject false and misleading information about the genuine supply and demand for precious metals futures contracts into the markets, and to deceive other participants in those markets into believing something untrue, namely that the visible order book accurately reflected market-based forces of supply and demand.

This false and misleading information was intended to, and at times did, trick other market participants into reacting to the apparent change and imbalance in supply and demand by buying and selling precious metals futures contracts at quantities, prices and times that they otherwise likely would not have traded, the superseding indictment alleges.

As also alleged in the superseding indictment, the defendants and their co-conspirators defrauded Bank A’s clients who had bought or sold “barrier options” by trading precious metals futures contracts in a manner that attempted to push the price towards a price level at which Bank A would make money on the option (barrier-running), or away from a price level at which Bank A would lose money on the option (barrier-defending).

Namely, when barrier-running, the defendants and their co-conspirators would allegedly place orders for precious metals futures contracts in a way that was intended to deliberately trigger the barrier option held by Bank A.  Conversely, when barrier-defending, the defendants and their co-conspirators would allegedly place orders for precious metals futures contracts in a way that was intended to deliberately avoid triggering the barrier option held by clients of Bank A.

The superseding indictment alleges that one of the reasons the defendants and their co‑conspirators used Deceptive Orders in their trading was to service and benefit key clients, including Ruffo’s hedge fund clients, which were important sources of revenue and market intelligence for the precious metals desk at Bank A.  For example, as alleged in the superseding indictment, if a hedge fund client wished to purchase gold, Ruffo would receive the order and communicate it to Smith, who, with Ruffo’s knowledge and encouragement, would then place Deceptive Orders to sell gold futures contracts in order to artificially lower the price at which the hedge fund could buy (or the defendants and their co-conspirators could buy on the hedge fund’s behalf).  By passing along the lower price, the superseding indictment alleges, the defendants and their co-conspirators hoped to retain that hedge fund’s business for the precious metals desk at Bank A.

The charges in the superseding indictment are merely allegations, and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

This case is the result of an ongoing investigation by the FBI’s New York Field Office.  The Commodity Futures Trading Commission’s Division of Enforcement provided assistance in this case.  Trial Attorney Matthew F. Sullivan and Assistant Chief Avi Perry of the Criminal Division’s Fraud Section are prosecuting the case.

Individuals who believe that they may be a victim in this case should visit the Fraud Section’s Victim Witness website for more information at https://www.justice.gov/criminal-fraud/victim-witness-program.

DOJ

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