‘Spoofing’ was not illegal, lawyer for former JPMorgan trader tells court

• Christopher Jordan is one of four men who worked on the bank’s precious metals desk to be prosecuted for deceptive buy and sell orders

Former JPMorgan Chase gold and silver trader Christopher Jordan used a technique known as “spoofing” to gain an edge against high-speed computer algorithms because at the time, there were no rules against it, his lawyer told a federal court jury in Chicago.

“He traded according to the rules as he understood them, and he did so openly because he had nothing to hide,” defence attorney Parvin Moyne said during opening statements.

“You have to be careful not to apply today’s standards” to Jordan’s trading from 2008 to 2010, she told jurors. Spoofing — placing orders with no intent to trade — became illegal in 2010.

Jordan is on trial for wire fraud affecting a financial institution, the last of four men who worked on the JPMorgan precious-metals desk to be prosecuted for deceptive buy and sell orders. Michael Nowak, who ran the operation, and Gregg Smith, the top gold trader, were convicted in August. Jeffrey Ruffo, a salesman who never placed any trade orders, was acquitted.

The prosecutions are part of a long crackdown on market manipulation since the 2008 financial crisis. JPMorgan, the largest US bank, agreed to pay $920m in 2020 to settle US justice department spoofing allegations. It was by far the biggest fine by any financial institution.

According to prosecutors, Jordan would place big orders that he quickly cancelled to manipulate prices, a type of baitand-switch technique that deceived and defrauded other market participants. It was a common practice on the JPMorgan precious-metals desk to get better prices and earn profits for the bank, according to witnesses who testified at the trial of Nowak, Smith and Ruffo.

“The defendant sent false signals to the market,” attorney Matthew Sullivan told jurors in his opening statement. “The sole purposes of these large orders was to trick others. What they represent is fake because they send a fake signal to the market that the defendant actually wants to buy or sell.”

Sullivan told jurors they would see records of trades Jordan made and chats in which he discussed how they were placed. Jordan also lied to the US Commodity Futures Trading Commission (CFTC) about what he was doing, Sullivan said.

“The CFTC asked him if he was doing these bogus orders, and he told them no,” the prosecutor said.

Jordan’s lawyer disputed that claim. “The CFTC never asked him if he spoofed,” she said.

“They never asked him whether he placed a bid or offer without the intent to execute it.”

At the time, there was no rule against a trader placing an order they did not intend to trade, she said.

Years later, in 2018, when the FBI interviewed him, Jordan told agents “he used the spoofing strategy”, Moyne said.

“But make no mistake. He didn’t say he did anything wrong. He did not confess to wire fraud affecting a financial institution,” she said.

Jordan is being tried separately from his former JPMorgan colleagues after a judge determined in April that certain Covid-19 protocols would prevent the court from hosting a trial with more than three defendants.

HE TRADED ACCORDING TO THE RULES AS HE UNDERSTOOD THEM, AND DID SO OPENLY BECAUSE HE HAD NOTHING TO HIDE

Parvin Moyne Defence attorney