015: Market Manipulation Charges Against JP Morgan

Market Manipulation Charges Against JP Morgan

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Learning Objectives

Upon completion of this Case Study, participants will be able to:

  • Understand the concept of spoofing as it applies to market manipulation,
  • Describe how changes in enforcement policies can lead to consequences from events that occurred prior to such changes, 
  • Explain the importance cooperation may have in mitigating consequences, and  
  • Identify how the government slowly and deliberately pursues and executes investigations and prosecutions. 

State of the Industry

Trading on the U.S. markets relies upon the integrity of those markets. When people feel the markets cannot be trusted, they simply stop investing. Evidence of this plays out time and again as retail public investors shy away from the stock market after each material meltdown. The same concept applies to all trading markets, including the commodities exchanges. For that reason, agencies such as the Securities Exchanges Commission, Commodity Futures Trading Commission (“CFTC”) and the Department of Justice focus enforcement actions against rule violations, to ensure the continuous capital flow in commerce.     

U.S. regulators and investigators have an increasingly more powerful arsenal of tools at their disposal. Large hedge funds trading based on quantitative number crunching are not the only ones benefiting from big data. The government increasingly counts on analytics to make their cases, and this trend will only continue as more rogue traders and rule violators can expect to be brought to justice.             

Background and Analysis

JPMorgan, headquartered in New York City, provides multinational banking and financial services throughout the world. The bank has a storied history as one of America’s premier banks, ranked as the largest bank in the United States. It has the largest market capitalization of any bank in the world at over $500 billion, with total assets in excess of $3.213 trillion. It employs more than 250,000 people. 

The company has many operational arms besides just traditional lending. It provides investment banking services, wealth management advice and facilitates trading on numerous stock exchanges including the commodities stock exchange. Such a position poses a multitude of management challenges, particularly with respect to compliance.    

One of JP Morgan’s departments specializes in trading precious metals on behalf of clients—a very lucrative niche market, but also one prone to abuse. Such potential abuse involves one particular practice known as “spoofing.” The act of spoofing occurs when one trader fools other traders into trading under false beliefs. The tactic has long been used by some traders, with tacit approval from their supervisors.

From a period of at least 2009 through 2015, the precious metals department at JP Morgan engaged in spoofing, manipulating prices. They routinely placed orders and quickly cancelled them before the trades were executed, distorting the prices of those commodities.

John Edmonds, a relatively junior trader in the department with the title of vice president, spent 13 years at the firm. While there, several senior traders took him under their wings to show him the ropes. Edmonds gained tremendous experience from this tutelage including the regular use of the practice of spoofing to manipulate profits. 

News of potential problems for JP Morgan and these traders initially surfaced in November of 2018.  The government did not issue a barrage of subpoenas or conduct any raids telegraphing events about to come. The investigation instead stemmed from the government’s use of big data analysis; an increasingly important tool used by federal agents to uncover white-collar crime. Investigators presented Edmonds with the evidence and gave him a choice: plead guilty and cooperate or plead not guilty, go to trial and face a potential 30-year sentence. 

Edmunds cooperated with investigators and pleaded guilty to manipulating the U.S. markets. JP Morgan only learned about the investigation shortly before Edmonds’ guilty plea, according to officials at the bank. During this time, the government brought similar charges against traders at several other banks including Deutsche Bank and Bear Stearns. All told, prosecutors brought a total of 13 spoofing cases against 19 defendants. 

The next shoe in the JP Morgan case dropped in September 2019 when the government brought charges against three senior traders, claiming they participated in a racketeering conspiracy in connection with a multiyear scheme to manipulate the markets and defraud customers. Regulators at the CFTC simultaneously brought civil charges.

The government brought the charges under the Racketeer Influenced and Corrupt Organizations Act, or RICO, as well as other federal crimes. Legislators originally created RICO with the intent of going after mafia-led organized crime. Rudy Giuliani later famously began using it against white collar crime in the 1980s, since its powerful penalties enabled the government to wield a bigger hammer in bludgeoning defendants into guilty pleas. 

JPMorgan next faced the music, as the government investigation uncovered tens of thousands of episodes of unlawful trading in the markets for precious metals futures contracts, and thousands of episodes of unlawful trading in the markets for the U.S. Treasury futures contracts, meant to enhance profits and avoid losses.

JPMorgan entered into a deferred prosecution agreement (DPA) agreeing to pay more than $920 million in a criminal monetary penalty, criminal disgorgement, and victim compensation. The government claimed the penalties and fines recovered on the case reflected the nature and seriousness of the bank’s offenses. The fine represented a milestone in the department’s ongoing efforts to ensure the integrity of public markets critical to our financial system. 

In addition, the deferred-prosecution agreement also required JPMorgan to:

  1. self-report violations of the federal anti-fraud laws,
  2. enhance its compliance program,
  3. report to the government regarding remediation and implementation of their enhanced compliance program, and 
  4. fully cooperate in any future criminal investigations.

JPMorgan received credit for its cooperation with the department’s investigation and for the remedial measures taken by JPMorgan, JPMC, and JPMS, including suspending and ultimately terminating individuals involved in the offense conduct, adopting heightened internal controls, and substantially increasing the resources devoted to compliance. These enhancements included:

  1. hiring hundreds of new compliance officers, 
  2. improving the corporation’s anti-fraud and manipulation training and policies, 
  3. revising the trade and electronic communications surveillance programs, 
  4. implementing tools and processes to facilitate closer supervision of traders, taking into account employees’ commitment to compliance in promotion and compensation decisions, and 
  5. implementing independent quality assurance testing of non-escalated and escalated surveillance alerts.

JP Morgan reached a separate resolution with the CFTC with regard to trading U.S. Treasury notes and bonds. It agreed to pay $35 million in penalties and fines.


Despite working in the most valuable bank in the world, the people in this case violated laws that exposed them to multiple decades in prison. Those people may not have seen their actions as being “criminal.” For this reason, we recommend more training on white-collar crime. 

Since financial amounts influence the federal sentencing guidelines, defendants in fraud cases like spoofing face sentences measured in decades. When business professionals lack a full appreciation for the penalties associated with decisions they make on the job, they bring high levels of risk. If a business added training on white-collar crime and the associated penalties, they would learn how to view their actions from the lens of a prosecutor. Such compliance training would lower risk levels for businesses.

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