A former Bear Stearns Cos. precious-metals trader avoided prison for attempted market manipulation after the judge credited him with helping US prosecutors in their crackdown on the widespread practice of spoofing at big banks.
(Bloomberg) — A former Bear Stearns Cos. precious-metals trader avoided prison for attempted market manipulation after the judge credited him with helping US prosecutors in their crackdown on the widespread practice of spoofing at big banks.
Corey Flaum was a key government witness at the 2022 federal trial of JPMorgan Chase & Co. gold traders Gregg Smith and Michael Nowak, both of whom were convicted. Smith had previously worked at Bear Stearns. Flaum’s testimony also helped the US Justice Department secure $60.4 million in spoofing penalties from another former employer, The Bank of Nova Scotia.
Flaum was sentenced Wednesday in Brooklyn, New York, by US District Judge Brian Cogan, who said a non-custodial sentence was appropriate because of the assistance the former trader provided to prosecutors. Flaum could have faced almost five years in prison under sentencing guidelines.
“This is an honorable person who got on the wrong path,” Cogan said. “It is a high branch from where he’s fallen,” the judge said, noting that Flaum had lost his job in the financial services industry and most of his life savings. “That is a significant punishment.”
During a spoofing trial in Chicago last year, Flaum described how he watched Smith use big spoofing orders he quickly canceled — with no intention of executing them — so as to move prices up or down, a practice known as spoofing. Smith and Nowak, who ran the precious-metals desk at JPMorgan, were convicted. Smith got two years in prison. Nowak was sentenced to one.
Flaum admitted he manipulated the prices of precious-metals futures by placing spoof orders from June 2007 to July 2016. He said he learned how to spoof at Bear Stearns and continued to use the trading technique when he left to work at Bank of Nova Scotia.
Read More: Spoofing Is a Silly Name for Serious Market Rigging
At his sentencing hearing, Flaum apologized for his crimes, telling the judge, “I am deeply sorry for what I did and take full responsibility for my actions.”
Matthew Sullivan, a Justice Department attorney who tried the Chicago spoofing cases, told the judge that Flaum’s decision in 2019 to plead guilty and cooperate with US prosecutors came at a crucial time, after the government had already lost a first spoofing trial.
“There was an environment of skepticism over whether the government could obtain convictions,” Sullivan said.
As a result of Flaum’s help, the Bank of Nova Scotia also had to admit it made false statements regarding his spoofing activities, Sullivan said. “His testimony was an important part of the government’s case,” the prosecutor said, “and his cooperation has been unwavering.”
The Bank of Nova Scotia entered into a deferred prosecution agreement with the government in 2020 over the spoofing case and agreed to fines, forfeitures and other penalties. That same year, JPMorgan, which acquired Bear Stearns, agreed to pay $920 million to settle allegations it manipulated precious metals and Treasury markets for years.
In letters to the court, both prosecutors and Flaum’s lawyers cited his cooperation as a government witness as a reason to spare him from prison. Prosecutors said he provided “truthful, complete and reliable” testimony, which was “an important part of the government’s case and contributed to securing the convictions of Mr. Smith and Mr. Nowak.”
During his time on the stand, Flaum told jurors that manipulation of precious metals was “pretty widespread” and that “nobody ever said boo about doing it. No one ever said it was legal or illegal. It was common practice.”
Two other cooperating witnesses in the JPMorgan spoofing case also were spared prison, after pleading guilty, Sullivan said.
Flaum, a graduate of University of Michigan, worked in finance at several financial firms including two hedge funds before joining Bear Stearns, his lawyers said.
The case is US v Flaum, 19-CR-338, US District Court, Eastern District of New York (Brooklyn).
(Updates with comments at sentencing hearing.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.