Former Precious Metals Trader Appeals Market Manipulation Conviction

R Tamara de Silva

On September 19, 2023, ex-trader Christopher Jordan announced his intention to appeal his six-month prison sentence and conviction for market manipulation or more specifically, for 'spoofing'. The judgement, delivered by U.S. District Judge Edmond E. Chang in Chicago, mandates that after serving his prison term, Jordan will undergo 18 months of supervised release.

This follows a guilty verdict in December by an Illinois federal jury, which determined that Jordan had engaged in wire fraud affecting a financial institution. The prosecution highlighted a scheme where Jordan misled other market participants with the placement of relatively smaller and genuine orders, and opposing and much larger orders, which he never intended to have filled and would cancel before they could be filled. The larger orders were always placed just above or below the market price and were intended to give a false impression of either supply or demand. Jordan would allegedly cancel the larger orders, when his smaller and genuine orders were filled. Moving the market this way allowed him to trade at more favorable prices.

Conviction for a crime before the fact-

Perhaps the most fascinating aspect of Mr. Jordan’s conviction, much like the convictions of former Merrill Lynch traders, Edward Bases and John Pacilio, is that spoofing was not per se a crime in the books at the time of the alleged wrongful conduct. Edward Bases and John Pacillo were also charged with spoofing but convicted of the more amorphous all-encompassing crime of wire fraud. But spoofing was defined as a crime under Dodd-Frank and this did not become law until 2011.

Spoofing was prohibited by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and enacted as part of the Commodity Exchange Act in 2011. Spoofing describes a form of prohibited trading that gives a false impression of supply and demand by, “bidding or offering with the intent to cancel the bid or offer before execution.” 7 U.S.C. §6C(a)(6)(C).

The prosecution looked at conduct during his tenure at JPMorgan in 2008 and 2009, and later at Credit Suisse in 2010. It was during this time period that Jordan allegedly resorted to spoofing at both trading desks. By creating a false impression of supply and demand, he was said to have lured other traders into fulfilling his genuine trades.

Jordan’s trial marked the last in a series of trials aimed at probing the activities of several individuals once part of JPMorgan's precious metals desk. Earlier in 2022, Michael Nowak and Greg Smith, both formerly associated with the desk, received prison sentences of over a year and two years respectively. Meanwhile, Jeffrey Ruffo, another ex-employee, was not convicted.

An argument in mitigation-?

Another albeit less interesting facet of this case is the argument made by Jordan in mitigation of a long sentence in his sentencing memorandum. In that memorandum, Jordan's defense counsel assets that behavior like spoofing was not uncommon during the period in question. They emphasized that the contemporary regulatory landscape did not explicitly deem such strategies illegal. This is not entirely true.

This argument is weak at best but perhaps, and more accurately, it is false. For example, if someone regularly backed away from trades or withdrew offers in a trading pit, no one would trade with them.

Also in the sentencing memo, Jordan’s defense counsel draws attention to the rapid evolution of trading from manual to digital, asserting the challenges human traders faced in keeping up with swift computer algorithms. But here again, this argument is not entirely true. The movement from the trading floor to the trading screen took place many years before the alleged wrongdoing. It is also tantamount to saying he had to cheat to make money in the high frequency trading world. One wonders if there would not have been better arguments in mitigation...

The prosecution urged the court to set a precedent by awarding a custodial sentence, citing the significance of upholding the integrity of the U.S. financial markets, the judgment mandates that Jordan begins his term in January at a medium-security facility in Otisville, New York. Additionally, a $100 monetary penalty has been imposed on him.

Jordan's defense is led by James J. Benjamin Jr., Parvin D. Moyne, Anne M. Evans of Akin Gump Strauss Hauer & Feld LLP, and Megan Cunniff Church of MoloLamken LLP. On the other side, the government's legal team consists of Matthew F. Sullivan, Lucy B. Jennings, and Christopher Fenton from the U.S. Department of Justice's Criminal Division, Fraud Section.

For reference, the case is registered as U.S. v. Smith et al., with case number 1:19-cr-00669, in the U.S. District Court for the Northern District of Illinois.

For those facing similar accusations or needing defense against charges related to spoofing or market manipulation, contact the De Silva Law Offices. We have extensive expertise in white-collar criminal defense and market manipulations matters along with a deep understanding of the financial markets. Whether you are facing an investigation or charges, we can help with a comprehensive civil and criminal defense strategy tailored to your unique circumstances.