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JPMorgan Chase Facing Potential $1Billion Fine for Fraudulent Trading Practices

By Bram Berkowitz – Sep 23, 2020 at 5:38PM

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The settlement likely relates to "spoofing" charges the U.S. Justice Department brought against several colleagues on the bank's precious metals trading desk last year.

A prior investigation into fraudulent trading activity at JPMorgan Chase (JPM -0.07%) could come to a head this week and result in a $1 billion fine for America's largest bank, according to Bloomberg, which cited anonymous sources. 

The news source reported that the investigation refers back to an inquiry from the Justice Department, the Commodity Futures Trading Commission, and the Securities and Exchange Commission.

The three agencies were looking into whether traders on JPMorgan's precious metals and Treasury desks illegally exploited markets through a process known as "spoofing."

JPMorgan Chase location.

Image Source: JPMorgan Chase.

"Spoofing" is a method by which traders place options orders but then don't follow through with them. The goal is to make it appear that a stock or financial instrument may move in a certain direction to try and get the market to follow and ultimately move the price in a desired direction.

Last year, the Justice Department indicted multiple employees at JPMorgan Chase on racketeering charges, including Michael Nowak, the former head of the bank's precious metals desk. 

As stated in the press release, the employees engaged in "spoofing" by placing "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."

Following these charges on the individuals, JPMorgan discovered that U.S. regulators were probing the bank in a different investigation related to "spoofing," according to Bloomberg.

One of the sources Bloomberg spoke with said the pending settlement could result in JPMorgan acknowledging wrongdoing, but that any further punishment beyond the fine was not yet clear.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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