Former JPMorgan traders Michael Nowak and Gregg Smith have filed a motion to stay an action brought by the Commodity Futures Trading Commission (CFTC) against them.

The relevant documents were submitted at the Illinois Northern District Court on November 22, 2023.

The traders note that the case has to be stayed pending resolution of the appeal and any subsequent retrial in the parallel criminal action against them.

Let’s recall that the CFTC filed a civil enforcement action in the U.S. District Court for the Northern District of Illinois against Michael Nowak and Gregg Smith back in September 2019. The regulator charged the defendants with spoofing, engaging in a manipulative and deceptive scheme, and attempting to manipulate prices in the precious metals futures markets while employed at JPMorgan.

The CFTC complaint alleges that beginning in at least 2008 and continuing through at least 2015, while placing orders for and trading precious metals futures contracts on CME Group Inc.’s exchanges, Nowak and Smith repeatedly engaged in manipulative or deceptive acts and practices by spoofing (bidding or offering with the intent to cancel the bid or offer before execution). The defendants allegedly placed thousands of orders with the intention to cancel them in order to send false signals of increased buying or selling interest designed to trick market participants into executing the orders the defendants wanted filled.

The complaint also alleges that the defendants engaged in spoofing with the intent to manipulate market prices and create artificial prices, and thereby enable their orders to be filled sooner, at a better price, or in larger quantities than they otherwise would.

According to the complaint, the defendants were aware other traders at the bank were also spoofing, and Smith taught other traders at the bank how to spoof.

In August 2022, after a lengthy jury trial and nearly eight days of deliberations, Mr. Smith and Mr. Nowak were convicted of some counts (and acquitted of others), and in August 2023, they were sentenced to 24 months (Mr. Smith) and a year and a day (Mr. Nowak). Defendants, who self-surrendered to the Bureau of Prisons to begin their terms of incarceration in October, are in the process of appealing their convictions. The Seventh Circuit has consolidated their appeals, and their appellate briefs are due in approximately six weeks (January 5, 2024).

The CFTC action has been stayed since June 2020 on the motion of the U.S. Department of Justice (DOJ). At the time, the traders agreed that some stay was appropriate to preserve their Fifth Amendment right against self-incrimination but pushed for substantial discovery to proceed in the interim. The CFTC took no position on the DOJ’s motion but opposed Defendants’ requests for discovery, making it clear that it had no interest in proceeding expeditiously.

Now, the traders say, despite previously being content with a multiyear stay of this action and having opposed efforts by the defense to push it along at all, the CFTC suddenly claims it will be prejudiced by any further delay. It wants not only to depose the defendants in prison while their appeals are pending—thereby forcing them to choose between maintaining their Fifth Amendment privileges or risking the imposition of an adverse inference—but also to move for early summary judgment based on the purported estoppel effect of convictions that may ultimately be overturned.

In other words, according to Nowak and Smith, the CFTC wants to rush to obtain judgments before Defendants’ appellate arguments can be heard—judgments that will be time-consuming and costly to vacate if Defendants’ appeals are successful—while simultaneously boxing Defendants into adverse inferences should this matter proceed to trial.

The defendants argue that such tactics do not serve the interests of justice, and the factors that courts consider in deciding whether to impose a stay weigh in favor of avoiding a waste of judicial resources and extending the stay through resolution of the appeal and any subsequent retrial in the Criminal Action.