Investors get preliminary approval for $60M settlement over alleged JPMorgan 'spoofing'

Commodities traders have secured preliminary approval of a proposed $60 million settlement to resolve class claims over JPMorgan Chase & Co.’s alleged manipulation of futures markets for precious metals.

A Manhattan federal judge said Monday that the agreement, reached last month, had cleared an initial hurdle to approval and scheduled a fairness hearing for July 2.

If ultimately approved, plaintiffs’ counsel said, the deal would build on an earlier $920 million settlement with the federal government over the investment bank’s use of an outlawed trading practice known as “spoofing.”

The technique, which Congress criminalized as part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, is a form of trading manipulation that creates a false sense of supply or demand in a market, with the aim of affecting future prices.

In the 2018 lawsuit, class plaintiffs alleged that JPMorgan “routinely” placed electronic orders to buy and sell futures contracts without ever intending to actually execute the transactions. The so-called spoof orders induced traders to pay artificially inflated prices for the metals, according to the suit.

Allegations of JPMorgan’s misconduct sparked investors to file separate securities class actions, after a trader on the investment bank’s precious metals desk pleaded guilty to commodities fraud and conspiracy in 2018. Other prosecutions followed, and JPMorgan disclosed in February 2020 that it was responding to inquiries from the U.S. Justice Department’s Criminal Division about its trading practices in the metals market.

In September 2020, the bank agreed to admit wrongdoing and pay $920 million to resolve investigations by the Justice Department, Commodity Futures Trading Commission and the Securities and Exchange Commission, in one of the largest fines ever imposed for spoofing.

According to court documents, class attorneys from Lowey had been engaged in settlement negotiations with JPMorgan’s lawyers since May 2020, which included two “day-long” formal mediation sessions before Diane Welsh, a former magistrate judge in the U.S. District Court for the Eastern District of Pennsylvania.

The agreement, the attorneys said, represented a “significant recovery” for the plaintiffs and a “reasonable hedge” against the costs and complexity of continued litigation, including an expected motion to dismiss the suit.

“JPMorgan would likely have challenged, among other things, whether the complaint plausibly stated a claim, and whether any such claims were barred by any of its various defenses. One or more of these arguments could have terminated the case,” Lowey Dannenberg partner Vincent Briganti wrote in a Nov. 19 filing to U.S. District Judge Gregory H. Woods of the Southern District of New York.

Discovery in the case also presented the daunting task of having to wade through years of sophisticated financial data, intra-firm communications and jargon-filled chatroom transcripts among JPMorgan traders.

“Given the highly technical nature of the alleged spoofing and the data-rich environment relating to futures trading, it is likely that discovery costs in this Action would be substantial,” Briganti said.

The plaintiffs are also represented by attorneys from Girard Sharp, Hausfeld, the Nussbaum Law Group, Robins Kaplan, Scott+Scott and Weisslaw, according to the filing.

It was not clear how much plaintiff counsel would be seeking in attorney fees for pursuing the litigation.

The lawsuit has been stayed until further notice by the court, and Woods retained the authority to approve, reject or tweak the terms of the deal following the fairness hearing in the summer.

JPMorgan is represented in the case by attorneys from Sullivan & Cromwell.

The case is captioned In Re: JPMorgan Precious Metals Spoofing Litigation.