Former JPMorgan trader challenges certain testimony in spoofing lawsuit
Shortly after former JPMorgan traders Gregg Smith, Michael Nowak, Christopher Jordan, and Jeffrey Ruffo suffered a bitter blow, as the Court has axed their motion to dismiss the second superseding indictment in a spoofing case, a disagreement has emerged over the witnesses and their testimony during trial.
According to a set of documents submitted by Gregg Smith, one of the defendants, the opinion testimony of Armand Nakkab and Brian Wika should not be admitted.
The Government has indicated its intention to call six separate witness to offer the same opinion: that Mr. Smith was engaged in spoofing—i.e., that he placed orders with an unconditional intent to cancel them before execution:
- John Edmonds is a former precious metals trader who worked with Mr. Smith and is expected to opine, as a lay witness, that Mr. Smith spoofed.
- Christiaan Trunz is a former precious metals trader who worked with Mr. Smith and is expected to opine, as a lay witness, that Mr. Smith spoofed.
- Corey Flaum is a former precious metals trader who worked with Mr. Smith and is expected to opine, as a lay witness, that Mr. Smith spoofed.
- Brian Wika, a CME analyst, will be allowed to testify as a lay witness that “Mr. Smith spoofed many times,” and that his trading activity was “clearly” in violation of CME rules that prohibited spoofing and market manipulation.
- Armand Nakkab, a former JPMorgan compliance officer, will be allowed to testify as an expert witness that Mr. Smith’s trading in certain data he reviewed with the Government “does not reflect an intent to trade all the orders he placed”—in other words, that Mr. Smith spoofed.
- Kumar Venkataraman, the government’s retained expert, will be allowed to testify that Defendants’ activity “is inconsistent with an intent to execute and consistent with an intent to cancel before execution”—in other words, that Mr. Smith spoofed.
According to Gregg Smith, this needlessly cumulative evidence creates an unfair prejudice and thus serves as a reason to exclude Nakkab’s and Wika’s opinions.
Smith argues that if the Court allows Wika, an analyst in the market regulation division of the Chicago Mercantile Exchange (CME), to testify, it will do something no other court presiding over a spoofing trial has done: admit testimony about the intent with which a trader placed particular orders, based solely on a years-later, after-the-fact review of trading data, as “lay opinions.”
Although the Court has indicated that Wika may testify in a lay capacity about his “perceptions of” Defendant Gregg Smith’s “trading activity” Wika’s knowledge of Mr. Smith’s trading is no more percipient than that of various retained experts who will opine on the same issue. Like those experts, Wika conducted a retrospective analysis of trading activity long after that activity happened, relying on historical data recorded by COMEX, the CME’s electronic trading platform.
Smith says that Wika is no more competent to testify about that trading in a lay capacity than the experts who reviewed the same data for purposes of this case—which, presumably, is why the government first disclosed him as an expert witness, only to change course when Defendants challenged the reliability of his methodology.
Further, Smith calls Wika’s methodology “demonstrably unreliable”, and claims that Wika’s opinions on Smith’s trading are not admissible under that framework, either.
Regarding Nakkab, Smith explains that while Nakkab was at JPMorgan, he oversaw a thorough compliance-department review that found no issues with Smith’s trading and came to the conclusion that he did not spoof. Moreover, shortly after the CME interview, Eugene Ferrara—whom Nakkab describes as his “second in command”—touted the compliance department’s satisfaction with Mr. Smith’s trading at a groupwide compliance meeting, announcing to the entire Global Commodities Group that the department had concluded that Mr. Smith’s trading was acceptable because his “intention was to trade every single bid and offer.”
Six years later—and only after the government told Nakkab that he was also a subject of its spoofing investigation—he abruptly changed his stance. It was not until then that, for the first time, Nakkab came to the view that certain trading sequences, all of which were cherry-picked and presented to Nakkab by the government, demonstrated a “pattern” which he found “extremely problematic.” It is this retrospective analysis that the government now intends to introduce as Nakkab’s “expert” opinion on those trading sequences.
Although the Order mentions Nakkab’s credentials, “possessing requisite credentials alone is not enough to render expert testimony admissible,” Smith says.
Also, Smith notes that according to the materials disclosed by the government, Nakkab’s analysis apparently consisted of nothing more than reviewing the government’s hand-selected episodes and concluding that they exhibit a “pattern” which he found “problematic.” Worse yet, the data set across which Nakkab claims to have observed this troubling “pattern” was the product of gross selection bias.
Thus, Nakkab’s retrospective opinions on Mr. Smith’s trading are not admissible as expert testimony and must be excluded, Smith says. If the government is permitted to present this sort of retrospective analysis at all, it should be required to do so through Professor Venkataraman alone, he concludes.