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JPMorgan Chase to Pay Record Fine For "Spoofing" Charges

By Bram Berkowitz – Sep 29, 2020 at 4:34PM

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The bank placed futures contract orders on certain precious metals and U.S. Treasuries that it never intended to execute.

JPMorgan Chase (JPM 0.19%) has set many records in its day, but its latest is not one it will be proud of.

America's largest bank will pay more than $920 million to the Commodity Futures Trading Commission (CFTC) after the agency found the bank guilty of "spoofing" in which JPMorgan Chase engaged in "manipulative" trading practices related to precious metals and U.S. Treasury future contracts.

The fine is the largest the CFTC has ever imposed for any spoofing case and was expected after media outlets earlier this week reported that JPMorgan could be facing such a punishment.

JPMorgan Chase branch office building.

Image source: JPMorgan Chase.

"Spoofing is illegal—pure and simple," CFTC Chairman Heath P. Tarbert said in a statement. "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."

Spoofing is when traders place options orders with no plans to ever execute 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.

According to the CFTC, between 2008 and 2016, traders on JPMorgan's precious metals and treasury desks, including those who led each desk, placed hundreds of thousands of futures contracts orders that they never planned to execute. 

"JPM traders acted with the intent to manipulate market prices and ultimately did cause artificial prices," the CFTC's press release said. 

The CFTC also said that JPMorgan Securities did not stop the trading practices even though there were many clear signs of the practice. The agency added that the bank "misled" regulators in the beginning stages of its inquiry into the matter.

In addition to the CFTC's order, JPMorgan also entered into a parallel three-year deferred prosecution with the U.S. Department of Justice on charges of wire fraud. The bank will also pay another $35 million to the Securities and Exchange Commission related to the fraudulent trading of U.S. Treasury securities . 

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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