Biggest Market Manipulation Penalty Ever

Written by Adam English
Posted September 29, 2020

For years upon years, a handful of traders knew something fishy was going on in the futures market.

Now, with the biggest penalty ever for this kind of illegal activity just announced, we're finally getting an idea of the scale of it, and it is shocking.

JP Morgan is going to pay $920 million and is admitting wrongdoing for tens of trillions of dollars' worth of transactions, which number over 50,000 over about eight years.

Its primary target? Gold and silver.

It is fitting that the Justice Department and the Commodities Futures Trading Commission went after traders at JP Morgan with a law designed to target mobsters, the RICO Act.

Six traders at JP Morgan are being charged, including the head of the metals desk, Mike Nowak.

They aren't alone. Two traders at Deutsche bank were convicted for similar charges last week.

Among other charges, the settlement centers on spoofing, or placing orders without the intent of filling them in order to deceive other traders.

Plus JP Morgan is being looked at for further futures and U.S. dollar shenanigans.

I'm far from surprised, and the same should go for you.

If all this sounds familiar, it should. It has been some years since LIBOR rates were in the spotlight, which affected hundreds of trillions of dollars' worth of transactions.

The same tactics were used. Traders colluded to force prices lower or higher — usually lower — as needed to close the orders they actually wanted to process by creating fake orders.

For years upon years, the agencies tasked with maintaining market integrity dismissed allegations. Ends up they were right all along.

Instead of even cursory inquiries from those tasked with protecting them, they became virtual pariahs. It's great to see them vindicated, even if it took nearly a decade, but the scheme was perpetuated for years and the damage is done.

After all the deferred settlements over the years we've seen, both investigators and the companies involved do a kind of double-speak. They do not admit to any wrongdoing but fall over themselves to proclaim that the wrongdoing is over and won't happen again.

Time and time again, they are wrong. Make no mistake about it, people with privileged access have and will continue to siphon off money from small, less sophisticated traders.

The markets have been and will always be rigged in some fashion. Only the most brazen get caught, and it's never the people at the top. I have no doubt that this will continue. It probably is still happening right now, though by more sneaky and savvy traders.

This is part of what we mean when we say “you'll never be on the inside” around here and is why we call ourselves the Outsider Club.

But at least today we can take some comfort that karma, or whatever you want to call it, caught up to some of the people who have been bleeding everyone else dry with a small cut here or bite there. While they can use their unfair advantage in the markets, they can't stop market forces.

That eight-year period? It includes the last time gold and silver hit all-time highs.

And while I have no doubt that some traders out there aren't deterred in the least by the charges or fines being announced today, there is some comfort to take that they can't stop a market trend with real catalysts behind it.

Gold and silver are certainly going through a major trend these days. Prices may have pulled back some in recent days but they're back on the move up. Gold is right back at the $1,900-an-ounce mark and is sitting up over 28% over the last year.

Gold miner stocks, while still trailing where they should be compared to ratios versus gold prices in recent years, are catching up and the best of them are handing massive windfalls to their investors.

Time will tell, but this very well could be a once-in-a-lifetime kind of bull market. It will continue and there is nothing market manipulators, no matter how big they are, can do about it.

Take care,

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Adam English

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Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page

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