Ex-JPMorgan metals traders convicted of fraud, cleared of racketeering | Big Indy News
Connect with us

Business

Ex-JPMorgan metals traders convicted of fraud, cleared of racketeering

Published

on

Three former JPMorgan Chase traders were acquitted of racketeering and conspiracy charges in a landmark futures manipulation trial on Wednesday, although two were found guilty on other charges including fraud, a Department of Justice spokesperson said.

The bank’s former global precious metals desk head Michael Nowak, precious metals trader Gregg Smith and salesperson Jeffrey Ruffo had been charged by the Justice Department with racketeering and conspiracy in the agency’s most aggressive case to date targeting a manipulative futures trading tactic known as spoofing.

All three men, who had pleaded not guilty, were acquitted of racketeering and conspiracy. Nowak was convicted on 13 other charges including fraud, spoofing and attempted market manipulation, and Smith was convicted on 11 charges. Ruffo, who was only charged with racketeering and conspiracy, was acquitted of both.

Spoofing involves placing and then quickly canceling buy or sell orders to falsely create the impression of high demand or supply. The three defendants were accused of using the tactic to manipulate futures on metals such as gold, silver, platinum and palladium between 2008 and 2016.

“While we are gratified that the jury acquitted Mr. Nowak of racketeering and conspiracy, we are extremely disappointed by the jury’s verdict on the whole, and will continue to seek to vindicate his rights in court,” Nowak’s attorney David Meister said.

Attorneys for Smith and Ruffo did not immediately provide comment.

Attorneys for Nowak and Smith argued during the trial that their orders were not fraudulent. Ruffo was not a trader, and there is no evidence that he understood others were using illicit tactics, his attorney said during opening arguments.

Spoofing was outlawed in 2010 when Congress passed the Dodd-Frank Act after the financial crisis. Since then, prosecutors have argued that earlier instances constituted fraud.

The racketeering statute, a federal law enacted in 1970 to take down the mafia, is rarely used to prosecute corporate crime. It allows prosecutors to charge a group of individuals, including those indirectly involved in alleged wrongdoing, on the basis they participated in a “criminal enterprise.” It allows prosecutors to seek harsh sentences if the defendants are convicted.

“Today’s verdict highlights the difficulty of proving that traders and sales traders on a desk operated a ‘criminal enterprise’ or ‘engaged in a conspiracy’ to commit violations,” said Robert Frenchman, a partner at Mukasey Frenchman LLP in New York, who has worked on other spoofing cases.

Read the full article here

Business

Opec+ tipped to hold oil output levels steady

Published

on

Opec and its allies are expected to keep the group’s oil output targets unchanged when it meets this weekend, with one eye on the impact of European sanctions targeting Russia’s oil that come into force next week.

The Opec+ group, which includes Saudi Arabia and Russia as its two largest producers, could still decide to make a small production cut, according to people familiar with the group’s discussions, but are leaning towards rolling over production targets.

The group was due to meet at Opec’s headquarters on Sunday but this week changed course to hold the meeting online, in a sign many have interpreted as the group not planning any dramatic shifts in policy.

“It means that they’ve already taken a decision,” said Jorge León, a former Opec official now at energy consultants Rystad.

“Normally, if there’s no agreement ahead of the meeting then it makes sense to bring 23 ministers to the table.”

At Opec+’s last meeting in October, the first held face to face since the start of the coronavirus pandemic, the group agreed a cut to production quotas of 2mn barrels a day, but faced fierce pushback from the US and other consumer countries.

While Saudi Arabia argued Opec+ was reducing output because of concerns about a slowing world economy, the White House accused its longtime ally of effectively siding with Russia.

Russia has slashed gas supplies to Europe since its invasion of Ukraine, sparking off an energy-led cost of living crisis that has left many countries grappling with inflation.

The oil price reaction since the Opec+ cuts has been limited, however, with Brent crude, the international benchmark, trading at $87 a barrel on Friday — near where it was when it became clear in October Saudi Arabia was leading a push to lower production.

Oil prices had jumped immediately after Russia’s invasion of Ukraine and were trading at $120 a barrel as recently as June.

But they have cooled to roughly where they were trading at the beginning of the year, with Russian oil exports having only slipped slightly since the invasion and China’s zero-Covid policy crimping demand.

That may change in the coming weeks, however, as European sanctions barring seaborne imports of Russian crude come into effect on Monday, with restrictions on refined fuels to follow in February.

The G7 is also launching a so-called price cap that aims to keep Russian oil flowing to other countries like India and China — by granting waivers to sanctions targeting shipping Russian crude — but at a price point set by western powers. The EU agreed on Friday to set the price at $60 a barrel.

Russia has repeatedly said it will not deal with any country utilising the price cap, stoking concerns it could retaliate by severing oil pipeline flows to Europe that were exempt from sanctions.

Amrita Sen, at consultancy Energy Aspects said there were “huge unknowns”.

“It is prudent for Opec+ to hold steady rather than adding to the volatility.”

Officially the next Opec+ meeting after Sunday is not scheduled until June. But Sen said the cartel could take action later in December or early next year to boost or cut supply if required.

“We believe that if the market warrants it, they would meet at a short notice,” she said.

Read the full article here

Continue Reading

Business

Crypto broker Genesis owes Winklevoss exchange’s customers $900mn

Published

on

Digital asset trading group Genesis and its parent company Digital Currency Group owe customers of the Winklevoss twins’ crypto exchange $900mn as the collapse of FTX reverberates across the market.

New York crypto exchange Gemini, run by Tyler and Cameron Winklevoss, is trying to recover the funds after Genesis was wrongfooted by last month’s failure of Sam Bankman-Fried’s FTX crypto group, according to people familiar with the matter.

Gemini’s bid to recover the funds underscores how the crypto lending market, where investors lend out their coins in exchange for high rates of return, sits at the centre of the industry’s credit crunch.

Genesis is the main partner in Gemini’s “earn” programme, where retail investors lend out their coins in exchange for a fixed stream of returns. Gemini halted withdrawals from the scheme last month after Genesis said “unprecedented market turmoil” meant it did not have sufficient liquidity to make good on all of its redemption requests.

Gemini has now formed a creditors’ committee to recoup the funds from Genesis and its parent DCG, the people said. Gemini and Genesis declined to comment.

Genesis has been scrambling to raise funding and has hired investment banking boutique Moelis & Co to help it explore all possible options, according to the people familiar with the situation.

The creditor committee is in negotiations with both Genesis and DCG, the parent group of Genesis which is run by billionaire Barry Silbert, the people said. DCG was founded in 2015 and is one of the biggest investors in the crypto industry. It was valued at $10bn last year by investors including Singapore’s sovereign wealth fund GIC, Google’s venture arm CapitalG and SoftBank, and its subsidiaries include Genesis and investment manager Grayscale.

DCG itself owes money to its subsidiary Genesis; these intercompany loans have complicated the picture for creditors.

DCG has $2bn worth of outstanding debt, $1.7bn of which is owed to its own subsidiary Genesis through two loans. Over the summer, Genesis lost $1.1bn on a loan to collapsed hedge fund Three Arrows Capital. DCG took on Genesis’s liabilities in the process, subsequently owing $1.1bn to Genesis. Silbert told investors last week that DCG had separately borrowed $575mn from Genesis “on an arm’s length basis” to fund undisclosed investments and share buybacks from non-employee shareholders.

“Because of the way the liabilities are, they’re negotiating together,” said one person familiar with the matter about Genesis and DCG’s approach to creditors.

DCG declined to comment. The Financial Times revealed last week that some of DCG’s borrowing was used to fund its investments into another of its subsidiaries, Grayscale.

Read the full article here

Continue Reading

Business

Sam Bankman-Fried’s trading shop was given special treatment on FTX for years

Published

on

Alameda Research was allowed to exceed normal borrowing limits on the FTX exchange since its early days, Sam Bankman-Fried has said, in a concession that illustrates how the former billionaire’s trading shop enjoyed preferential treatment over clients years before the 2022 crypto crisis.

In an interview with the Financial Times, the 30-year-old described the outsized role Alameda played in launching the exchange in 2019 and how it had access to exceptionally high levels of borrowing from FTX from the beginning.

Bankman-Fried said that “when FTX was first started” Alameda “had fairly large limits” on its borrowing from the exchange but he “absolutely” wished he had subjected the trading firm to the same standards as other clients.

Asked if Alameda had continued to have larger limits than other clients, he said: “I think that may be true.” He did not specify how much larger Alameda’s limits were than those of other clients.

FTX and Alameda portrayed themselves publicly as distinct entities to avoid the perception of conflicts of interest between the exchange, which processed billions of dollars’ worth of client deals a month before its collapse, and Bankman-Fried’s proprietary trading firm.

Bankman-Fried’s comments shed light on longstanding special treatment for Alameda. The close links between the firms and the large amount of borrowing by Alameda from FTX played a key role in the spectacular collapse of the exchange, once one of the largest crypto venues and valued at $32bn by investors including Sequoia and BlackRock. 

Previously one of the most respected figures in the digital assets industry, Bankman-Fried has apologised for mistakes that left up 1mn creditors facing large losses on funds they entrusted to FTX, but has denied intentionally misusing clients’ assets.

Bankman-Fried said the origins of the large borrowing limits for Alameda came as a result of the trading shop’s early role as the main provider of liquidity on FTX before it attracted other financial groups.

FTX, like other big offshore trading venues, handled large volumes of derivatives that allowed traders to magnify their bets using borrowed funds — but professional firms are typically needed to make the market function smoothly.

“If you scroll back to 2019 when FTX was first started, at that point Alameda was 45 per cent of volume or something on the platform,” Bankman-Fried said. “It was basically a situation where if Alameda’s account ran out of capacity to take on new positions that would lead to risk issues for the platform because we didn’t have enough liquidity providers. I think it had fairly large limits because of that.”

By this year, he said, Alameda accounted for around 2 per cent of trading volume and was no longer the key liquidity provider on the exchange. Bankman-Fried said he regrets not revisiting the trading firm’s treatment to ensure that it was subject to the same limits on borrowing as other similar firms operating on the exchange. 

FTX lent to traders so they could make big bets on crypto with just a small initial outlay, known as trading on margin. FTX’s large exposure to Alameda was a key reason that weakness in the trading firm’s balance sheet caused a financial crisis that engulfed both companies.

Bankman-Fried has estimated Alameda’s liabilities to FTX at roughly $10bn by the time both companies filed for bankruptcy in November.

“From a volume, from a revenue, from a liquidity point of view, the exchange was effectively independent from Alameda. Obviously that did not turn out to be true in terms of positions or balances on the venue,” Bankman-Fried said.

John Ray, the veteran insolvency practitioner running FTX in bankruptcy, has criticised its former leadership for failing to keep Alameda and FTX separate. In court filings, he pointed to a “secret exemption of Alameda from certain aspects of FTX.com’s auto-liquidation protocol”. 

Automatic liquidation, or closing, of souring positions was a key tenet of FTX’s risk management procedures and a core part of its proposals to change parts of US financial regulation. When a typical client’s trade started to go underwater, FTX’s liquidation mechanism was meant to start draining the account’s margin to protect the venue from a single trade causing a loss for the exchange.

However, Bankman-Fried said there “may have been a liquidation delay” for Alameda and possibly other large traders. He said was “not confident” as to whether Alameda was subject to the same liquidation protocol as other traders on the exchange, and that the treatment of the trading firm’s account was “in flux”.

Click here to visit Digital Assets dashboard

Read the full article here

Continue Reading

Trending