DOJ Accuses JPMorgan's Precious Metals Trading Desk Of Being A Criminal Enterprise

From Zero Hedge 9/16/2019:

Who would have thought that JPMorgan's precious metals trading desk is the functional equivalent of the mafia, and that its one-time leader, Blythe Masters, was the mafia's don? 

Well, almost everyone who didn't mind being designated a conspiracy theorist for years. And now comes vindication, because this has just been confirmed by the DOJ, which accused the PM trading desks at JPMorgan of being deeply involved in what prosecutors described as a "massive, multiyear scheme to manipulate the market for precious metals futures contracts and defraud market participants."

In an indictment unsealed on Monday morning, the DoJ charged Michael Nowak, a JPMorgan veteran and former head of its precious metals trading desk and Gregg Smith, another trader on JPM's metals desk, in the probe. (Blythe Masters was somehow omitted).

“Based on the fact that it was conduct that was widespread on the desk, it was engaged in in thousands of episodes over an eight-year period -- that it is precisely the kind of conduct that the RICO statute is meant to punish,” Assistant Attorney General Brian Benczkowski told reporters.

Here's where it gets extra interesting: according to Bloomberg, the unusually aggressive language language embraced by prosecutors reminds legal experts of indictments utilizing the RICO Act - a law allowing prosecutors to take down 'criminal enterprises' like the mafia by charging all members of the organization for any crimes committed by an individual on behalf of the organization.

Prosecutors charged the head of JP Morgan’s global metals trading operation and two other traders with "conspiracy to conduct the affairs of an enterprise involved in interstate or foreign commerce through a pattern of racketeering activity" - language that is typically used to describe a RICO charge.

This hints at the possibility of a deeper prosecution for JP Morgan. Already, 12 people have been charged in the precious metals market-rigging conspiracy.

"We’re going to follow the facts wherever they lead, whether it’s across desks here or at any other bank or upwards into the financial institution,” Benczkowski said.

It's unclear what the DoJ is planning, but they're clearly keeping their options open.

Circling back to the indictment, both Smith and Nowak were put on leave over the summer as the DoJ's investigation neared its conclusion.

A third trader named in the indictment, Christopher Jordan, traded precious metals at JPM until he left in December 2009. He later traded precious metals at two other banks, Credit Suisse and First New York.

In a press release accompanying the indictment, Assistant Attorney General accused all three men of scheming to manipulate the precious metals market while potentially harming their bank's clients.

"The defendants and others allegedly engaged in a massive, multiyear scheme to manipulate the market for precious metals futures contracts and defraud market participants," said Assistant Attorney General Brian A. Benczkowski. "These charges should leave no doubt that the Department is committed to prosecuting those who undermine the investing public’s trust in the integrity of our commodities markets."

William Sweeney, the Assistant Director in Charge of the FBI's New York Field Office, added that this manipulation likely impacted "correlated markets and the clients of the bank they represented." 

"Smith, Nowak, Jordan, and their co-conspirators allegedly engaged in a complex scheme to trade precious metals in a way that negatively affected the natural balance of supply-and-demand," said FBI Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office. "Not only did their alleged behavior affect the markets for precious metals, but also correlated markets and the clients of the bank they represented. For as long as we continue to see this type of illegal activity in the marketplace, we’ll remain dedicated to investigating and bringing to justice those who perpetrate these crimes."

According to Bloomberg, three other banks - Deutsche Bank, HSBC and UBS - agreed to pay $50 million (in total) to settle civil claims by the CFTC. Two former JPM employees who pleaded guilty and contributed evidence against their former colleagues that was used in the indictment.

"While at JPMorgan I was instructed by supervisors and more senior traders to trade in a certain fashion, namely to place orders that I intended to cancel before execution," said one former trader John Edmonds during an October 2018 hearing after pleading guilty to commodities fraud and conspiracy, BBG reports.

The behavior dates back more than 10 years to 2009, according to chat logs that were shown in the indictment. The conversations exposed in the chat logs show just how blatant the manipulation was, and how little the traders did to conceal it.

One of the traders who participated in the chat shown above was Christian Trunz, who traded precious metals at Bearn Stearns before joining JP Morgan after the crisis. He told a federal judge last month that this type of behavior was openly encouraged on JPM's trading desks for roughly a decade, and that other traders taught him how to do it. He pleaded guilty to federal fraud charges on Aug. 20, BBG reports.

Another trader said during a plea hearing that he was instructed to bid up the price of futures contracts by placing, then cancelling, bid orders (the literal definition of spoofing) that he never intended to fill.

"I was instructed that if a client wished to sell futures I should simultaneously place both bids and offers with the intent of canceling the bids prior to execution," Edmonds said during his plea hearing.

Edmonds said the purpose was to falsely transmit liquidity and price information in order to deceive other market participants about the supply and demand so they would trade against the orders that JPMorgan wanted to execute.

"We created market activity which artificially drove the sale price up and induced other market participants to purchase at an inflated price," he said. Edmonds entered into a cooperation agreement with the CFTC in July.

Since the crisis, regulators around the world have cracked down on manipulation in rates, forex and government bond markets, so it's not exactly a surprise that this type of behavior was also happening in precious metals. But the brazenness with which traders engaged in such manipulation suggests that they didn't know what they were doing was illegal or wrong, which, in at least some cases, is probably true.

The aggressiveness of this manipulation probe is notable given that the government has lost the last two manipulation cases in court. The DoJ is trying to show that it is “undeterred and are becoming more, not less, aggressive” in cracking down on market manipulation."

Read the full indictment below:

u.s. v. Smith - Indictment by Zerohedge on Scribd

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Saudi Oil Attack Is the Big One

From the Wall Street Journal, 9/15/2019:

By 

Spencer Jakab

Updated Sept. 15, 2019 7:28 am ET

Saturday’s attack on a critical Saudi oil facility will almost certainly rock the world energy market in the short term, but it also carries disturbing long-term implications.

Ever since the dual 1970s oil crises, energy security officials have fretted about a deliberate strike on one of the critical choke points of energy production and transport. Sea lanes such as the Strait of Hormuz usually feature in such speculation. The facility in question at Abqaiq is perhaps more critical and vulnerable. The Wall Street Journal reported that 5.7 million barrels a day of output, or some 5% of world supply, had been taken offline as a result.

To illustrate the importance of Abqaiq in the oil market’s consciousness, an unsuccessful terrorist attack in 2006 using explosive-laden vehicles sent oil prices more than $2.00 a barrel higher. Saudi Arabia is known to spend billions of dollars annually protecting ports, pipelines and processing facilities, and it is the only major oil producer to maintain some spare output. Yet the nature of the attack, which Iranian-supported Houthi fighters from Yemen claimed was the result of a drone attack by their forces, shows that protecting such facilities may be far more difficult today. U.S. officials blamed Iran and U.S. and Saudi officials were investigating the possibility that another Iranian-backed group carried out all or part of the attack using cruise missiles launched from Iraq. Iranian officials on Sunday denied responsibility for the attacks.

There are countries that even today see their output ebb and flow as a result of militant activity, most notably Nigeria and Libya. Others, such as Venezuela, are in chronic decline due to political turmoil. Such news affects the oil price at the margin but is hardly shocking.

Deliberate attacks by actual military forces have been far rarer, with the exception of the 1980s “Tanker War” involving Iraq, Iran and the vessels of other regional producers such as Kuwait. When Saddam Hussein’s Iraqi forces invaded Kuwait in 1990, removing its production from the market and putting Saudi Arabia’s massive crude output under threat, prices more than doubled over two months.

Yet Saturday’s attack could be more significant than that. Technology from drones to cyberattacks are available to groups like the Houthis, possibly with support from Saudi Arabia’s regional rival Iran. That major energy producer, facing sanctions but still shipping some oil, has both a political and financial incentive to weaken Saudi Arabia. The fact that the actions ostensibly were taken by a nonstate actor, though, limits the response that the U.S. or Saudi Arabia can take. Attempting to further punish Iran is a double-edged sword, given that pinching its main source of revenue, also oil, would further inflame prices.

While the redundancies in Saudi oil infrastructure mean that output may be restored as soon as Monday, the attack could build in a premium to oil prices that has long been absent due to complacency. Indeed, traders may now need to factor in new risks that threaten to take not hundreds of thousands but millions of barrels off the market at a time. U.S. shale production may have upended the world energy market with nimble output, but the market’s reaction time is several months, not days or weeks, and nowhere near enough to replace several million barrels.

After the smoke clears and markets calm down, the technological sophistication and audacity of Saturday’s attack will linger over the energy market.

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Snowden Spills: Infamous Whistleblower Opines On Spycraft, AI, And Being Suicided

From Zero Hedge 9/14/2019:

Edward Snowden has finally laid it all out - documenting his memoires in a new 432-page book, Permanent Record, which will be published worldwide on Tuesday, September 17. 

Meeting with both The Guardian and Spiegel Online in Moscow as part of its promotion, the infamous whistleblower spent nearly five hours with the two media outlets - offering a taste of what's in the book, details on his background, and his thoughts on artificial intelligence, facial recognition, and other intelligence gathering tools coming to a dystopia near you. 

While The Guardian interview is 'okay,' scroll down for the far more interesting Spiegel interview, where Snowden goes way deeper into his cloak-and-dagger life, including thoughts on getting suicided. 

First, The Guardian:

Snowden describes in detail for the first time his background, and what led him to leak details of the secret programmes being run by the US National Security Agency (NSA) and the UK’s secret communication headquarters, GCHQ.

He describes the 18 years since the September 11 attacks as “a litany of American destruction by way of American self-destruction, with the promulgation of secret policies, secret laws, secret courts and secret wars”.

Snowden also said: “The greatest danger still lies ahead, with the refinement of artificial intelligence capabilities, such as facial and pattern recognition.

“An AI-equipped surveillance camera would be not a mere recording device, but could be made into something closer to an automated police officer.”  -The Guardian

Other notables from the Guardian interview: 

• Snowden secretly married his partner, Lindsay Mills, two years ago in a Russian courthouse. They met when he was 22 (14 years ago) on the internet site "Hot or Not," where he rated her a 10 out of 10 and she rated him a (generous) eight. 
• He freely moves around Moscow, riding the metro, visiting art galleries or the ballet, and meeting with friends in cafes and restaurants.
• The 36-year-old lives in a two-bedroom flat on the outskirts of Moscow, and derives most of his income (until now) from speaking fees - mainly to students, civil rights activists and others abroad via video chat.
• Snowden is an "indoor cat by choice," who is "happiest sitting at his computer late into the night, communicating with campaigners and supporters."
• At a training school for spies, Snowden was nicknamed "the Count" after the Sesame Street character. 

The Der Spiegel interview, meanwhile, is way more interesting... For example: 

"If I Happen to Fall out of a Window, You Can Be Sure I Was Pushed."

Meeting Edward Snwoden is pretty much exactly how children imagine the grand game of espionage is played.

But then, on Monday, there he was, standing in our room on the first floor of the Hotel Metropol, as pale and boyish-looking as the was when the world first saw him in June 2013. For the last six years, he has been living in Russian exile. The U.S. has considered him to be an enemy of the state, right up there with Julian Assange, ever since he revealed, with the help of journalists, the full scope of the surveillance system operated by the National Security Agency (NSA). For quite some time, though, he remained silent about how he smuggled the secrets out of the country and what his personal motivations were. -Spiegel Online

Select excerpts via Der Spiegel (emphasis ours): 

***

DER SPIEGEL: Mr. Snowden, you always said: "I am not the story." But now you've written 432 pages about yourself. Why?

Edward Snowden: Because I think it's more important than ever to explain systems of mass surveillance and mass manipulation to the public. And I can't explain how these systems came to be without explaining my role in helping to build them.

DER SPIEGEL: Wasn't it just as important four or even six years ago?

Snowden: Four years ago, Barack Obama was president. Four years ago, Boris Johnson wasn't around and the AfD (Germany's right-wing populist party Alternative for Germany) was still kind of a joke. But now in 2019, no one is laughing. When you look around the world, when you look at the rising factionalization of society, when you see this new wave of authoritarianism sweeping over many countries: Everywhere political classes and commercial classes are realizing they can use technology to influence the world on a new scale that was not previously available. We are seeing our systems coming under attack.

DER SPIEGEL: What systems?

Snowden: The political system, the legal system, the social system. And we have the proclivity to think that if we get rid of the people we don't like, the problem is solved. We go: "Oh, it's Donald Trump. Oh, it's Boris Johnson. Oh, it's the Russians" But Donald Trump is not the problem. Donald Trump is the product of the problem.

***

DER SPIEGEL: While writing, did you discover any truths about yourself that you didn't like?

Snowden: The most unflattering thing is to realize just how naïve and credulous I was and how that could make me into a tool of systems that would use my skills for an act of global harm. The class of which I am a part of, the global technological community, was for the longest time apolitical. We have this history of thinking: "We're going to make the world better."

***

DER SPIEGEL: Was that your motivation when you entered the world of espionage?

Snowden: Entering the world of espionage sounds so grand. I just saw an enormous landscape of opportunities because the government in its post-9/11 spending blitz was desperate to hire anybody who had high-level technical skills and a clearance. And I happened to have both. It was weird to be just a kid and be brought into CIA headquarters, put in charge of the entire Washington metropolitan area's network.

DER SPIEGEL: Was it not also fascinating to be able to invade pretty much everybody's life via state-sponsored hacking?

Snowden: You have to remember, in the beginning I didn't even know mass surveillance was a thing because I worked for the CIA, which is a human intelligence organization. But when I was sent back to NSA headquarters and my very last position to directly work with a tool of mass surveillance, there was a guy who was supposed to be teaching me. And sometimes he would spin around in his chair, showing me nudes of whatever target's wife he's looking at. And he's like: "Bonus!"

***

DER SPIEGEL: You became seriously ill and fell into depression. Have you ever had suicidal thoughts?

Snowden: No! This is important for the record. I am not now, nor have I ever been suicidal. I have a philosophical objection to the idea of suicide, and if I happen to fall out of a window, you can be sure I was pushed.

***

DER SPIEGEL: You write that you sometimes smuggled SD memory cards inside a Rubik's cube.

Snowden: The most important part of the Rubik's cube was actually not as a concealment device, but a distraction device. I had to get things out of that building many times. I really gave Rubik's cubes to everyone in my office as gifts and guards saw me coming and going with this Rubik's cube all the time. So I was the Rubik's cube guy. And when I came out of the tunnel with my contraband and saw one of the bored guards, I sometimes tossed the cube to him. He's like, "Oh, man, I had one of these things when I was a kid, but you know, I could never solve it. So I just pulled the stickers off." That was exactly what I had done -- but for different reasons.

DER SPIEGEL: You even put the SD cards into your mouth.

Snowden: When you're doing this for the first time, you're just going down the hallway and trying not to shake. And then, as you do it more times, you realize that it works. You realize that a metal detector won't detect an SD card because it has less metal in it than the brackets on your jeans.

***

DER SPIEGEL: You describe your arrival in Moscow as a walk in the park. You say you refused to cooperate with the Russian intelligence agency FSB and they let you go. That sounds implausible to us.

Snowden: I think what explains the fact that the Russian government didn't hang me upside down my ankles and beat me with a shock prod until secrets came out was because everyone in the world was paying attention to it. And they didn't know what to do. They just didn't know how to handle it. I think their answer was: "Let's wait and see."

DER SPIEGEL: Do you have Russian friends?

Snowden: I try to keep a distance between myself and Russian society, and this is completely intentional. I live my life with basically the English-speaking community. I'm the president of the Freedom of the Press Foundation. And, you know, I'm an indoor cat. It doesn't matter where I am -- Moscow, Berlin, New York -- as long as I have a screen to look into.

***

Read the rest of Der Spiegel's interview with Edward Snowden here.

Meanwhile, The Guardian provides an interesting 'Snowden Timeline': 

Snowden's timeline

21 June 1983 Edward Joseph Snowden is born in Elizabeth City, North Carolina, US.

2006-2013 Initially at the CIA, and then as a contractor for first Dell and then Booz Allen Hamilton, Snowden spends years working in cybersecurity on projects for the US National Security Agency (NSA).

20 May 2013 Edward Snowden arrives in Hong Kong, where a few days later he meets with Guardian journalists, and shares with them a cache of top secret documents he has been downloading and storing for some time.

5 June 2013 The Guardian begins reporting the Snowden leaks, with revelations about the NSA storing the phone records of millions of Americans, and the agency’s claim its Prism programme had “direct access” to data held by Google, Facebook, Apple and other US internet giants.

7 June 2013 The US president, Barack Obama, is forced to defend the programmes, insisting that they are adequately overseen by the courts and Congress.

9 June 2013 Snowden goes public as the source of the leaks in a video interview.

16 June 2013 The revelations expand to include the UK, with news that GCHQ intercepted foreign politicians’ communications during the 2009 G20 summit in London, and that the British spy agency has also tapped the fibre-optic cables carrying much of the internet’s traffic.

21 June 2013 The US files espionage charges against Snowden and requests Hong Kong detain him for extradition.

23 June 2013 Snowden leaves Hong Kong for Moscow. Hong Kong claims that the US got Snowden’s middle name wrong in documents submitted requesting his arrest meaning they were powerless to prevent his departure.

1 July 2013 Russia reveals that Snowden has applied for asylum. He also expresses an interest in claiming asylum in several South American nations. Eventually Ecuador, Nicaragua, Bolivia, and Venezuela offer permanent asylum.

3 July 2013 While en route from Moscow, Bolivia’s president, Evo Morales, is forced to land in Vienna after European countries refuse his plane airspace, suspecting that Snowden was on board. It is held and searched for 12 hours.

1 August 2013 After living in an airport for a month, Snowden is granted asylum in Russia.

21 August 2013 The Guardian reveals that the UK government ordered it to destroy the computer equipment used for the Snowden documents.

December 2013 Snowden is a runner-up to Pope Francis as Time’s Person of the Year, and gives Channel 4’s “Alternative Christmas Message”.

May 2015 The NSA stops the bulk collection of US phone calling records that had been revealed by Snowden.

December 2016 Oliver Stone releases the movie Snowden featuring Joseph Gordon-Levitt, Melissa Leo, Tom Wilkinson, Zachary Quinto and a cameo by former Guardian editor Alan Rusbridger.

January 2017 Snowden’s leave to remain in Russia is extended for three more years.

June 2018 Snowden says he has no regrets about his revelations, saying: “The government and corporate sector preyed on our ignorance. But now we know. People are aware now. People are still powerless to stop it but we are trying.”

March 2019 Vanessa Rodel, who sheltered Snowden in Hong Kong, is granted asylum in Canada.

September 2019 Snowden remains living in an undisclosed location in Moscow as he prepares to publish his memoirs.