Class Action Accuses JPMorgan of ‘Spoofing’ Treasury Futures Market, Harming Investors [UPDATE]
by Erin Shaak
Last Updated on October 7, 2021
Endeavor Trading, LLC v. JPMorgan Chase & Co. et al.
Filed: July 9, 2020 ◆§ 1:20-cv-05285
A class action claims JPMorgan unlawfully manipulated the prices of U.S. Treasury futures contracts and options that trade on U.S.-based exchanges.
J.P. Morgan Securities LLC JPMorgan Chase & Co. J.P. Morgan Clearing Corp. J.P. Morgan Futures Inc.
New York
Case Updates
October 7, 2021 – $15.7M Settlement Proposed
A proposed deal has been reached to settle allegations that JPMorgan manipulated the prices of U.S. Treasury futures contracts and options.
The plaintiffs’ counsel praised the proposed settlement as “an excellent result” in a September 22, 2021 memo filed in support of their motion for preliminary approval.
According to court documents, anyone who transacted in U.S. Treasury futures or options on U.S. Treasury futures on U.S.-based exchanges (including the Chicago Mercantile Exchange and Chicago Board of Trade) from April 1, 2008 through January 31, 2016 will be eligible to file a claim for a portion of the $15.7 million settlement. Payments will be determined based on each investor’s estimated financial damages, the memo states.
The order also points out that the settlement aims to provide additional relief on top of payments investors may have received as part of JPMorgan’s settlements with the U.S. Department of Justice, U.S. Attorneys’ Office for the District of Connecticut and the Commodity Futures Trading Commission.
While Endeavor Trading, LLC—the plaintiff in the case initially posted on this page—voluntarily dismissed its claims in October 2020, the two cases detailed in the sidebar are covered by the proposed deal.
If the settlement is approved, a website will be set up under the URL TreasuryFuturesClassActionSettlement.com to provide access to more information on the deal and important documents related to the litigation.
July 9, 2020 – JP Morgan Faces Additional Class Actions in New York
J.P. Morgan Chase & Co. has been named in at least one more proposed class action recently transferred to the Southern District of New York.
A case originally filed in Illinois on May 29, 2020 accuses the financial firm and at least three affiliates of “spoofing” the U.S. Treasury futures market for over a decade.
According to the suit, the deceptive trading scheme allowed the defendants to manipulate prices of treasury futures contracts and options for their own financial benefit while injuring other investors who traded on the market during the applicable time.
“J.P. Morgan deployed this fraudulent and deceptive spoofing scheme across the full range of Treasury futures,” the complaint reads. “This strategy was repeated tens of thousands of times during numerous trading days from 2009 to the present. Every time it did so, J.P. Morgan was able to manipulate the Treasury futures markets to the detriment of Plaintiff and other market participants.”
The lawsuit notes that while some details of regulatory investigations against J.P. Morgan have come to light, discovery will reveal further evidence of the defendants’ supposedly “concealed and secretive” actions.
Read the full complaint here.
July 9, 2020 – Another Case Transferred to the Southern District of New York
A proposed class action originally filed against JP Morgan Chase in Illinois in May 2020 has recently been transferred to the Southern District of New York.
Echoing the case detailed on this page, the 36-page suit claims JP Morgan Chase & Co. and several affiliates manipulated the prices of U.S. Treasury futures contracts and options through a “spoofing” scheme that ultimately injured other investors trading on the market. From the complaint:
“Defendants manipulated the prices of Treasury Futures by employing a classic manipulative device known as ‘spoofing,’ whereby Defendants placed orders for Treasury Futures to send false and illegitimate supply and demand signals to an otherwise efficient market and then canceled those orders before execution. As a result, Defendants caused Treasury Futures prices to be artificial throughout the Class Period to financially benefit their trading positions at the expense of other investors, like Plaintiffs and the Class.”
The lawsuit looks to cover anyone who transacted in treasury futures or options on treasury futures traded on a domestic exchange anytime since January 1, 2009.
The full complaint, including a detailed explanation of spoofing, can be read here.
A proposed class action claims JPMorgan Chase & Co. and several affiliates have unlawfully manipulated the prices of U.S. Treasury futures contracts and options that trade on U.S.-based exchanges.
According to the 24-page lawsuit, defendants JPMorgan Chase & Co.; J.P. Morgan Securities LLC; J.P. Morgan Clearing Corp. (now known as J.P. Morgan Securities LLC); and J.P. Morgan Futures Inc. (now known as J.P. Morgan Securities LLC) have “routinely engaged in a sophisticated and manipulative scheme” by which they artificially altered supply and demand on the Treasury futures market in order to financially benefit from genuine orders.
Treasury futures are standardized contracts for the purchase and sale of U.S. government notes or bonds for future delivery, the case explains. The Chicago Mercantile Exchange (CME) Group, one of the world’s largest derivative exchanges, operates CME Globex, an electronic platform used to trade futures and options contracts, the lawsuit says. Because orders—i.e., requests to buy or sell—are displayed anonymously in the order book, market participants are unable to detect the defendants’ alleged scheme to “spoof” the market, per the complaint.
Echoing a case filed against Merrill Lynch last year, the lawsuit says that “spoofing” is a “manipulative and prohibited trading device” used to artificially alter prices in the futures market by entering deceptive bids or offers that are subsequently canceled. The practice results in “a fake supply and demand” that tips the prices of futures contracts in the spoofer’s favor, the suit states.
According to the lawsuit, spoofing occurs in three steps—the “build-up,” the “cancel,” and the “sweep”:
“In the first stage, the spoofer places many orders to sell that the spoofer does not intend to execute. Honest market participants, or more likely their computers, follow suit and place orders to sell with the expectation that prices will fall and they can buy back their contracts for a profit. In stage two, the spoofer then cancels the fake orders. This effectively removes the false demand from the market. In stage three, the spoofer sweeps up the market, buying the honest market participants’ contracts. As the honest traders scramble to reverse their sell orders, the spoofer is waiting to sell their contracts back to them at a profit.”
According to the lawsuit, the defendants’ spoofing practice in the Treasury futures market has allowed the companies to undermine the integrity of the market and “take[] advantage of honest market participants” for their own financial benefit.
JPMorgan’s conduct, the suit says, was concealed from investors until the firm disclosed in its 2019 Form 10-K that it was under criminal investigation by the U.S. Department of Justice over “trading practices in the metals market and … similar trading-practices issues in markets for other financial instruments, such as U.S. Treasuries.”
In an article published shortly after the disclosure, the Wall Street Journal reported that the defendants are being investigated for manipulating the U.S. Treasury futures market.
The lawsuit claims JPMorgan has, over the last 10 years, “repeatedly engaged in manipulative and prohibited trading practices” that have drawn scrutiny from regulatory bodies, adding that the DOJ and Commodity Futures Trading Commission (CFTC) criminally charged three JPMorgan employees for their participation in a spoofing scheme on the precious metals market that spanned nearly a decade.
Per the complaint, the defendants’ spoofing conduct has ultimately harmed investors such as the plaintiff, who were forced to pay more for Treasury futures purchases and received less for futures sales than they otherwise would have in an unmanipulated market.
The lawsuit looks to cover any person or entity who transacted in Treasury futures or options traded on a domestic exchange anytime since January 1, 2009.
Get class action lawsuit news sent to your inbox – sign up for ClassAction.org’s newsletter here.
Before commenting, please review our comment policy.