About a week after the United States Department of Justice (DOJ) filed the Second Superseding Indictment in the criminal proceedings targeting former JPMorgan traders Gregg Smith, Michael Nowak, Christopher Jordan, and Jeffrey Ruffo, two of the defendants have entered their pleas.

The Second Superseding Indictment was filed in the Court on November 16, 2021. It charges the traders with:

  • Conspiracy to conduct or participate in an enterprise engaged in a pattern of racketeering activity;
  • Conspiracy to commit price manipulation, wire fraud affecting a financial institution, commodities fraud and spoofing;
  • Attempted price manipulation;
  • Wire fraud affecting a financial institution;
  • Commodities fraud;
  • Spoofing.

On November 23, 2021, Gregg Smith and Christopher Jordan entered pleas of not guilty.

This happens as the trial of the defendants has been rescheduled for July 5, 2022. The lawsuit arises of allegations of commodities-spoofing conspiracy perpetrated by the precious metals traders.

Let’s recall that the traders were charged with bank fraud too. However, on August 17, 2021, Judge Edmond E. Chang of the Illinois Northern District Court, issued a Memorandum & Opinion axing the bank fraud charges against the defendants.

Regarding the bank fraud charges, the government had proposed the so-called risk-of-loss theory. The judge noted that it is generally true that exposing a bank to a risk of loss might very well qualify as bank fraud, so long as the defendant intended to defraud the bank and schemed to do so.

But in this case, the Judge said, this theory is presented in all of one sentence in the government’s response brief and, more importantly, is not alleged at all in the indictment. In the one sentence proffering this theory, the government’s response does not actually cite to a specific allegation in the indictment. “There is simply no way that the defense could have been on notice of this theory of bank fraud,” the Judge concludes.

Indeed, the risk-of-loss theory as to JPMorgan, according to the Judge, is not only absent from the indictment, but the theory is actually inconsistent with the allegations in the indictment. The indictment charges the defendants (three of them), which requires the intent to defraud a bank.

But nothing about the risk-of-loss theory sets forth a misrepresentation (or omission) made to JPMorgan. Instead, the indictment alleges that that the purpose of the conspiracy was, in part, to maximize the bank’s profits and minimize its losses.

For these reasons, the bank fraud counts were dismissed. With the dismissal in place, those counts also cannot serve as predicate offenses for the RICO or conspiracy charges, the Judge said.