(Bloomberg) — A former JPMorgan Chase & Co. precious-metals dealer mentioned his boss coached him to misinform compliance officers about price-manipulating orders and later endorsed him towards pleading responsible as prosecutors had been getting ready legal prices towards high executives on the buying and selling desk.
Christian Trunz, who spent greater than a decade at JPMorgan, instructed a Chicago jury that so-called spoof orders he’d positioned and rapidly canceled in platinum and palladium markets had sparked a four-month probe by financial institution officers. Trunz mentioned Michael Nowak, the managing director who ran the precious-metals enterprise, suggested him to mislead investigators about his intent to execute the trades.
“Mike made it clear to me that this was one thing that might get me fired,” Trunz, 37, mentioned Wednesday, though the bogus orders had been a buying and selling technique utilized by everybody on the desk and a technique he’d discovered after becoming a member of the precious-metals group out of faculty. “I needed to maintain my job,” he mentioned, so he determined to misinform financial institution investigators.
Earlier than Trunz was to satisfy with compliance officers, he mentioned Nowak urged him to say “each order you set into the market you supposed to commerce.” However that wasn’t true, Trunz mentioned, as a result of he and others at JPMorgan routinely positioned giant orders in gold and silver that they by no means supposed to execute to push costs up or down. “These trades had been the precise buying and selling sample we’d used for years.”
Trunz, who pleaded responsible in 2019 to spoofing conspiracy and is cooperating with prosecutors, is the third former dealer to testify on the fraud and racketeering trial of Nowak; Gregg Smith, JPMorgan’s high gold dealer; and hedge-fund salesman Jeffrey Ruffo. They’re accused of systematically manipulating precious-metals markets with spoof orders to assist themselves and massive hedge-fund purchasers for years.
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Nowak was as soon as probably the most highly effective particular person within the gold market. He ran the buying and selling desk for a financial institution with among the largest hedge-fund purchasers and sometimes dominated order circulation in precious-metals futures. Nowak, Smith and Ruffo are accused of working a legal enterprise, dealing with racketeering prices extra typically utilized by prosecutors towards members of the mafia or avenue gangs.
In response to Trunz, who was working in London for JPMorgan on the time, the recommendation Nowak gave him about telling investigators that he supposed to execute his palladium trades was “not an ask” however a refined message to lie. Trunz mentioned the expertise was unnerving as a result of his mentors, Nowak and Smith, had by no means instructed him spoofing wasn’t permitted.
“I used to be nervous, shocked,” Trunz mentioned. “It was a training second and it was, ‘OK. Received it.’” He added, “Mike, I believe he favored me. This was a approach for me to know how I used to be going to get by way of this four-month compliance assessment and be comparatively unscathed.”
After the assessment was full, Trunz mentioned he obtained a written warning, was positioned on probation and had his bonus docked. He saved his job, however doubtless would have misplaced it if he’d instructed the reality, he mentioned. In 2014, two years earlier than the probe, Trunz had earned about $240,000 in base pay and a bonus of $205,000, based on information offered in court docket. In 2016, his bonus was about $72,000.
Later, JPMorgan included his platinum and palladium trades for instance of banned market-manipulating exercise within the financial institution’s compliance handbook. Trunz mentioned he agreed to permit the usage of his trades within the handbook as a result of others wanted to understand it wasn’t permitted.
Learn Extra: Spoofing Is a Foolish Title for Severe Market Rigging
Whereas he cease spoofing in 2016, Trunz mentioned he turned a “nervous wreck” after he was stopped by FBI brokers within the Fort Lauderdale, Florida, airport in December 2018 on his approach again from his honeymoon to Puerto Rico. He mentioned he lied when he denied spoofing, telling the brokers the claims had been ridiculous, however turned more and more involved he might face prosecution.
Trunz mentioned he confided in Nowak, who inspired him to carry quick.
“You’re not going to show round and plead now, are you?” Nowak mentioned, based on Trunz.
“All of us have our causes for buying and selling the best way we did,” Nowak instructed him. However Trunz instructed jurors that wasn’t true. Everybody on the desk had the identical cause for spoofing, as a result of it was a part of their technique to maneuver costs within the course they needed, he mentioned.
“My impression on the time was that he was making an attempt to guard me, that no matter occurs, we’re going to win…to maintain me on board,” Trunz mentioned.
Throughout his testimony Tuesday and Wednesday, Trunz described a number of examples of his spoofing trades, and defined how they mimicked these by Smith, Nowak and others on the precious-metals desk at JPMorgan.
Trunz was employed in 2007 on the precious-metals desk at Bear Stearns Cos. in New York after graduating from school, shortly earlier than the agency was acquired by JPMorgan the next 12 months. He moved to the financial institution’s Singapore workplace in 2013 after which London in 2014, buying and selling valuable metals.
Throughout cross-examination on Wednesday, protection attorneys emphasised as they’ve for the reason that trial started nearly two weeks in the past, that there could also be different explanations for what Nowak, Smith and Ruffo had been doing.
“In all the years you labored with Mr. Smith, he by no means as soon as sat you down and in a single dialog mentioned that is the way you spoof?” requested Jonathan Cogan, Smith’s legal professional. “By no means mentioned I’m making an attempt to govern the market? By no means heard him say I’m going to tear individuals off?”
“No,” Trunz replied to every query.
The case is US v. Smith et al, 19-cr-00669, US District Court docket, Northern District of Illinois (Chicago)
(Updates so as to add questions from protection attorneys.)
