(Bloomberg) — A former JPMorgan Chase & Co. precious-metals trader said his boss coached him to lie to compliance officials about price-manipulating orders and later counseled him against pleading guilty as prosecutors were preparing criminal charges against top executives on the trading desk.
Christian Trunz, who spent more than a decade at JPMorgan, told a Chicago jury that so-called spoof orders he’d placed and quickly canceled in platinum and palladium markets had sparked a four-month probe by bank officials. Trunz said Michael Nowak, the managing director who ran the precious-metals business, advised him to mislead investigators about his intent to execute the trades.
“Mike made it clear to me that this was something that could get me fired,” Trunz, 37, said Wednesday, even though the bogus orders were a trading strategy used by everyone on the desk and a method he’d learned after joining the precious-metals team out of college. “I wanted to keep my job,” he said, so he decided to lie to bank investigators.
Before Trunz was to meet with compliance officials, he said Nowak urged him to say “every order you put into the market you intended to trade.” But that wasn’t true, Trunz said, because he and others at JPMorgan routinely placed large orders in gold and silver that they never intended to execute to push prices up or down. “These trades were the exact trading pattern we’d used for years.”
Trunz, who pleaded guilty in 2019 to spoofing conspiracy and is cooperating with prosecutors, is the third former trader to testify at the fraud and racketeering trial of Nowak; Gregg Smith, JPMorgan’s top gold trader; and hedge-fund salesman Jeffrey Ruffo. They’re accused of systematically manipulating precious-metals markets with spoof orders to help themselves and big hedge-fund clients for years.
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Nowak was once the most powerful person in the gold market. He ran the trading desk for a bank with some of the biggest hedge-fund clients and often dominated order flow in precious-metals futures. Nowak, Smith and Ruffo are accused of operating a criminal enterprise, facing racketeering charges more often used by prosecutors against members of the mafia or street gangs.
According to Trunz, who was working in London for JPMorgan at the time, the advice Nowak gave him about telling investigators that he intended to execute his palladium trades was “not an ask” but a subtle message to lie. Trunz said the experience was unnerving because his mentors, Nowak and Smith, had never told him spoofing wasn’t permitted.
“I was nervous, shocked,” Trunz said. “It was a coaching moment and it was, ‘OK. Got it.’” He added, “Mike, I think he liked me. This was a way for me to understand how I was going to get through this four-month compliance review and be relatively unscathed.”
After the review was complete, Trunz said he got a written warning, was placed on probation and had his bonus docked. He kept his job, but likely would have lost it if he’d told the truth, he said. In 2014, two years before the probe, Trunz had earned about $240,000 in base pay and a bonus of $205,000, according to records presented in court. In 2016, his bonus was about $72,000.
Later, JPMorgan included his platinum and palladium trades as an example of banned market-manipulating activity in the bank’s compliance manual. Trunz said he agreed to allow the use of his trades in the manual because others needed to know it wasn’t permitted.
Read More: Spoofing Is a Silly Name for Serious Market Rigging
While he stop spoofing in 2016, Trunz said he became a “nervous wreck” after he was stopped by FBI agents in the Fort Lauderdale, Florida, airport in December 2018 on his way back from his honeymoon to Puerto Rico. He said he lied when he denied spoofing, telling the agents the claims were ridiculous, but became increasingly concerned he could face prosecution.
Trunz said he confided in Nowak, who encouraged him to hold fast.
“You’re not going to turn around and plead now, are you?” Nowak said, according to Trunz.
“We all have our reasons for trading the way we did,” Nowak told him. But Trunz told jurors that wasn’t true. Everyone on the desk had the same reason for spoofing, because it was part of their strategy to move prices in the direction they wanted, he said.
“My impression at the time was that he was trying to protect me, that whatever happens, we’re going to win…to keep me on board,” Trunz said.
During his testimony Tuesday and Wednesday, Trunz described several examples of his spoofing trades, and explained how they mimicked those by Smith, Nowak and others on the precious-metals desk at JPMorgan.
Trunz was hired in 2007 on the precious-metals desk at Bear Stearns Cos. in New York after graduating from college, shortly before the firm was acquired by JPMorgan the following year. He moved to the bank’s Singapore office in 2013 and then London in 2014, trading precious metals.
During cross-examination on Wednesday, defense lawyers emphasized as they have since the trial began almost two weeks ago, that there may be other explanations for what Nowak, Smith and Ruffo were doing.
“In all of the years you worked with Mr. Smith, he never once sat you down and in a single conversation said this is how you spoof?” asked Jonathan Cogan, Smith’s attorney. “Never said I am trying to manipulate the market? Never heard him say I am going to rip people off?”
“No,” Trunz replied to each question.
The case is US v. Smith et al, 19-cr-00669, US District Court, Northern District of Illinois (Chicago)
(Updates to add questions from defense lawyers.)