On The Job Training

Tuesday’s announcement by the Justice Department of a guilty plea by a long term former trader from JPMorgan for spoofing COMEX precious metal futures was the second such guilty plea since October. Both traders are cooperating in the DOJ’s ongoing investigation.

https://www.justice.gov/opa/pr/precious-metals-trader-pleads-guilty-conspiracy-and-spoofing-charges

While it took way too long for the Justice Department and the CFTC to finally crack down on spoofing, I suppose it’s a case of better late than never. And there can be little doubt that the regulators have cracked down on the illegal practice, which involves the entry and immediate cancellation of large orders solely designed to manipulate prices in the short term.

But there is another aspect of Tuesday’s announcement that pertains strictly to JPMorgan of all the firms where spoofing has occurred. Only at JPMorgan has the Justice Department alleged that the two traders pleading guilty had learned the practice from more senior traders at the bank and spoofed with the full knowledge and consent of their immediate supervisors. Those are the Justice Department’s words, not mine. This brings new meaning to the term - on the job training.

The two traders pleading guilty had worked at JPMorgan for more than a decade, making them each around 23 years old when they began their careers at JPMorgan. I remember what it was like getting a job at a prestigious financial firm at such a young age when I began working at Merrill Lynch nearly 50 years ago. Like the two former JPM traders, I felt lucky to have been given the opportunity to work in such a profession and would do anything I could to succeed at it. If someone told me to jump – I would have asked, how high? I wouldn’t have done anything illegal, but at twenty-something years of age, I’m not sure I would even know for sure what was illegal. How much do we really know at 23 years of age?

I think the same of the two young former JPMorgan traders who have pled guilty. It’s not like anyone teaches spoofing in college; this is a practice learned on the job. In this case, young and inexperienced traders, eager to please and succeed, were sure to do whatever they were instructed and taught by more experienced traders and supervisors. Both did so and rose through the trading ranks, reaching the position of vice president and executive director.

Not for a minute am I completely excusing the illegal behavior of the two traders pleading guilty, but would they have embarked on a journey that ended in criminal guilty pleas were it not for their training and molding by their employer? As such, the guilty pleas need to be put into proper perspective. The Justice Department can continue to extract guilty pleas from individual traders from JPMorgan or it can go to the root cause of the criminal activity and put pressure on the bank to end its manipulative ways.

Ted Butler

https://www.butlerresearch.com/