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Business

Wall Street to Pay $1.8 Billion in Fines Over Traders’ Use of Banned Messaging Apps

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WASHINGTON—Eleven of the world’s largest banks and brokerages will collectively pay $1.8 billion in fines to resolve regulatory investigations over their employees’ use of messaging applications that broke record-keeping rules, regulators said Tuesday.

The fines, which many of the banks had already disclosed to shareholders, underscore the market regulators’ stern approach to civil enforcement. Fines of $200 million, which many of the banks will pay under the agreements, have typically been seen only in fraud cases or investigations that alleged harm to investors.

But the SEC, in particular, has during the Biden administration pushed for fines that are higher than precedents, saying it wants to levy fines that punish wrongdoing and effectively deter future potential harm. The SEC’s focus on record-keeping is likely to be extended next to money managers, who also have a duty to maintain written communications related to investment advice.

Last month, the SEC alleged that hedge-fund manager Deccan Value Investors LP and its chief investment officer failed to maintain messages sent over

Apple

iMessage and WhatsApp. In some cases, the chief investment officer directed an officer of the company to delete their text messages, the SEC said. The claims were included in a broader enforcement action, which Deccan settled without admitting or denying wrongdoing.

The Wall Street Journal reported last month that the settlements announced Tuesday were likely to top $1 billion and would be announced before the end of September.

Eight of the largest entities, including Goldman Sachs and Morgan Stanley, agreed to pay $125 million to the SEC and at least $75 million to the CFTC. Jefferies will pay a total of $80 million to the two market regulators, and

Nomura

NMR -1.20%

agreed to pay $100 million. Cantor agreed to pay $16 million.

The SEC said it found “pervasive off-channel communications.” In some cases, supervisors at the banks were aware of and even encouraged employees to use unauthorized messaging apps instead of communicating over company email or other approved platforms.

“Today’s actions—both in terms of the firms involved and the size of the penalties ordered—underscore the importance of recordkeeping requirements: they’re sacrosanct. If there are allegations of wrongdoing or misconduct, we must be able to examine a firm’s books and records to determine what happened,” said SEC Enforcement Director

Gurbir Grewal.

Bank of America, which faced the highest fine from the CFTC, had a “widespread and long-standing use of unapproved methods to engage in business-related communications,” according to the CFTC’s settlement order. One trader wrote in a 2020 message to a colleague: “We use WhatsApp all the time, but we delete convos regularly,” according to the CFTC.

One head of a trading desk at Bank of America told subordinates to delete messages from their personal devices and to communicate through the encrypted messaging app Signal, the CFTC said. The head of that trading desk resigned this year, although the bank was aware of his conduct in 2021, the CFTC said.

At Nomura, one trader deleted messages on his personal device in 2019 after being told the CFTC wanted them for an investigation, the agency said. The trader made false statements to the CFTC about his compliance with the records request, the regulator said.

Broker-dealers have to follow strict record-keeping rules intended to ensure regulators can access documents for oversight purposes. The firms settling with the SEC and CFTC admitted their employees’ conduct violated those regulations.

JPMorgan Chase

& Co.’s brokerage arm was the first to settle with the two market regulators over its failure to maintain required electronic records. JPMorgan paid $200 million last year and admitted some employees used WhatsApp and other messaging tools to do business, which also broke the bank’s own policies.

Regulators discovered that some JPMorgan communications, which should have been turned over for separate enforcement investigations, weren’t collected because they were sent on employees’ personal devices or apps that the bank didn’t supervise.

Write to Dave Michaels at dave.michaels@wsj.com

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Business

There Are Signs Inflation May Have Peaked, but Can It Come Down Fast Enough?

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Growing signs that price pressures are easing suggest that June’s distressingly high 9.1% increase in consumer prices will probably be the peak. But even if inflation indeed comes down, economists see a slow pace of decline.

Ed Hyman,

chairman of Evercore ISI, pointed to many indicators that  9.1% might have been the top. Gasoline prices have fallen around 10% from their mid-June high point of $5.02 a gallon, according to AAA. Wheat futures prices have fallen by 37% since mid-May and corn futures prices are down 27% from mid-June. The cost of shipping goods from East Asia to the U.S. West Coast is 11.4% lower than a month ago, according to Xeneta, a Norway-based transportation-data and procurement firm.

Easing price pressures and improvements in backlogs and supplier delivery times in business surveys suggest that supply-chain snarls are unraveling. Mr. Hyman noted that money-supply growth has slowed sharply, evidence that monetary tightening is starting to bite.

Inflation expectations also fell recently—an upbeat signal for the Fed, which believes that such expectations influence wage and price-setting behavior and thus actual inflation. The University of Michigan consumer-sentiment survey showed that longer-term inflation expectations slipped from June’s 3.1% reading to 2.8% in late June and early July, matching the average rate during the 20 years before the pandemic.

Bond investors are less worried about inflation, based on the “break-even inflation rate”—the difference between the yield on regular five-year Treasury bonds and on inflation-indexed bonds—which has dropped to 2.67% from an all-time high of 3.59% hit in late March.

Inflation-based derivatives and bonds are projecting that the annual increase in the CPI will fall to 2.3% in just a year, around the Fed’s 2% target (which uses a different price index), according to the Intercontinental Exchange.

Roberto Perli,

economist at Piper Sandler, calls such an outcome “optimistic but not totally implausible.” From February through early June, investors thought inflation would still be between 4% and 5% in a year.

“It’s a step in the right direction, but ultimately, even if June is the peak, we’re still looking at an environment where inflation is too hot,” said

Sarah House,

senior economist at Wells Fargo, who expects fourth-quarter inflation between 7.5% and 7.8%. “So peak or not, inflation is going to remain painful through the end of the year.”

And the slower it is to ebb, the larger the likelihood of a damaging downturn, said

Brett Ryan,

senior U.S. economist at Deutsche Bank.

Core inflation, which strips out volatile food and energy prices and is considered a better measure of inflation trends, was 5.9% in June, down from a peak of 6.5% in March. But Ms. House and Mr. Ryan both expect core inflation to revive and peak sometime around September, as strong price growth for housing and other services combines with low base comparisons in the 12-month calculation.

“The more persistent inflation pressures, the higher the Federal Reserve needs [interest rates] to go to address them,” said Mr. Ryan. “That argues for a larger recession risk.”

Fed Chairman

Jerome Powell

has said the central bank wants to see clear and convincing evidence that price pressures are subsiding before slowing or suspending rate increases.

“The moment of truth comes at the end of this year,” said Mr. Hyman. “If the Fed keeps on raising rates, then they’d invert the yield curve. I think that would increase the odds of recession enormously. It would probably also lower inflation, although it also seems to already be slowing, and will probably be even slower by then.”

Aichi Amemiya,

U.S. economist at Nomura, said that though it is too early to call it, his forecast sees June as the peak for the annual measure of overall inflation. However, the month-over-month change in core CPI will be key to watch in coming months, he said. If it slows from June’s pace of 0.7% to 0.3% on a sustained basis by year-end, he expects the Fed to start planning to ease up on rate increases. That, however, will be hard to achieve, said Mr. Amemiya, “which means the Fed will likely continue tightening even after the economy enters a recession.”

Around the turn of the year, economists were generally confident that inflation would peak in early 2022, as energy prices stabilized and supply-chain pressures eased. Then Russia invaded Ukraine, and energy prices soared. Buzz about  “the peak” crescendoed again when inflation slid to an 8.3% annual rate in April, from 8.5% in March. But gasoline prices flared up again, and gains in food and rent picked up, too.

There is plenty of potential for another reversal in coming months, said Ms. House.

“When we look at ongoing core inflation pressures, it wouldn’t take much in the way of a commodities price shock for us to reach another high,” she said, adding that possible examples include an escalation of the Russia-Ukraine conflict, a hurricane that shuts down an oil refinery, or an outage at a key semiconductor or auto plant. “We all hope we’re at the peak. But hope is not really an inflation strategy right now.”

Write to Gwynn Guilford at gwynn.guilford@wsj.com

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Business

Prosecutors Say JPMorgan Traders Scammed Metals Markets by Spoofing

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CHICAGO—

JPMorgan Chase

& Co.’s precious-metals traders consistently manipulated the gold and silver market over a period of seven years and lied about their conduct to regulators who investigated them, federal prosecutors said Friday.

The bank built a formidable franchise trading precious metals, but some of it was based on deception, prosecutors said at the start of a trial of two former traders and a co-worker who dealt with important hedge-fund clients. They said the traders engaged in a price-rigging strategy known as spoofing, which involved sending large, deceptive orders that fooled other traders about the state of supply and demand. The orders were often canceled before others could trade with them.

The criminal trial in Chicago is the climax of a seven-year Justice Department campaign to punish alleged spoofing in the futures markets. Prosecutors have alleged the former members of

JPMorgan’s

JPM -0.31%

precious-metals desk constituted a sort of criminal gang that carried out a yearslong conspiracy that racked up big profits for the bank.

“Day in, day out for seven years, the defendants manipulated the market so that they could make more money,” U.S. Justice Department prosecutor Lucy Jennings said. “And then they lied to cover it up.”

JPMorgan paid $920 million in 2020 to resolve regulatory and criminal charges over the conduct, which involved nine futures traders and at least two salespeople who dealt with clients such as hedge funds, according to court records. Three former traders cooperated with the Justice Department’s investigation and will testify against the three defendants: Gregg Smith and Michael Nowak, who traded precious metals; and Jeffrey Ruffo, who was their liaison to big hedge funds whose trades earned money for the bank.

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Attorneys for Messrs. Smith, Nowak and Ruffo told jurors Friday that prosecutors cherry-picked a handful of trades to concoct a misleading theory of how the men traded.

Mr. Smith canceled many orders but never used them as a ruse, defense attorney Jonathan Cogan said. He often canceled orders after he realized that high-speed trading firms, which made decisions faster than he could, jumped ahead of his orders and moved the price up or down, Mr. Cogan said.

“He did not place orders with the intent to manipulate the market, not during the snippets of time the prosecutors will focus on in this case—not ever,” Mr. Cogan said.

An attorney for Mr. Nowak, who led the precious-metals desk, said his client was a gold-options trader during the years under scrutiny. Mr. Nowak used futures mostly to limit the risk of his large options positions, attorney David Meister said, so his pay wasn’t linked to making more or less money on a futures trade.

“The stuff he’s charged with here couldn’t move the needle for Mike’s pay,” Mr. Meister said.

Mr. Smith had worked at Bear Stearns before joining JPMorgan in 2008 when the bank acquired Bear in a fire sale precipitated by the financial crisis. Mr. Nowak traded for JPMorgan in both London and New York. Mr. Ruffo worked at the bank for a decade, communicating with hedge funds that were brokerage clients and providing the desk with important market intelligence, according to prosecutors. All three have pleaded not guilty.

Prosecutors have alleged the pattern of spoofing was continuous, a claim that allowed them to charge the three men with racketeering in addition to conspiracy, attempted price manipulation, fraud, and spoofing. The conduct allegedly spanned from 2008 to 2016.

Racketeering is a charge typically reserved for criminal enterprises such as the mafia and violent gangs, although eight soybean-futures traders in Chicago were convicted of racketeering in a crackdown on cheating in the early 1990s.

U.S. District Judge Edmond E. Chang has reserved up to six weeks for the trial, although prosecutors said Friday that they could be finished presenting their case within two weeks. Judge Chang last year dismissed part of the case—several counts of bank fraud—against the defendants. Prosecutors also recently moved to drop allegations related to options trading that authorities claimed had been manipulative.

Prosecutors have alleged that JPMorgan employees already were spoofing when Mr. Smith got to the bank. They say Mr. Smith and another trader from Bear brought a new style of spoofing that was more aggressive than the simpler approach people at JPMorgan had been using, according to court records.

Spoofing became an important way to successfully execute trades for hedge-fund clients whose fees were critical to the trading desk, prosecutors said. “It was key to get the best prices for those clients, so that they keep coming back to the precious-metals desk at JPMorgan, and not another bank,” Ms. Jennings said.

Guy Petrillo, an attorney for Mr. Ruffo, said Friday his client was a reliable and honest salesman whose only role was to communicate with clients and pass their orders to traders such as Messrs. Smith and Nowak.

“There will be no reliable evidence that Jeff knew that traders were using trading tactics that he understood at the time were unlawful,” Mr. Petrillo said.

Federal prosecutors have honed a formula for going after spoofing defendants during their multiyear strike on the practice. In addition to using cooperating witnesses who said they knew the conduct was wrong, prosecutors have deployed trading charts and electronic chats to depict a sequence of trades intended to deceive others in the market. While the charts show a pattern of allegedly deceptive trading, prosecutors said the incriminating chats reveal the intent of the traders placing the orders.

Former traders at

Deutsche Bank AG

and

Bank of America Corp.

were convicted of spoofing-related crimes in 2020 and 2021, respectively.

Those trials featured chats in which some defendants boasted about spoofing.

Lawyers for Messrs. Smith, Nowak and Ruffo said there are no chats in which their clients talked about spoofing because the men didn’t engage in it.

Spoofing is a form of market manipulation outlawed by Congress in 2010. Spoofers send orders priced above or below the best prices, so they don’t immediately execute. Those orders create a false appearance of supply and demand, prosecutors say. The tactic is designed to move prices toward a level where the spoofer has placed another order he wants to trade. Once the bona fide order is filled, the spoofer cancels the deceptive orders, often causing prices to move back to where they were before the maneuver started.

Mr. Smith’s style of spoofing involved layering multiple deceptive orders at different prices and in rapid succession, according to the settlement agreement that JPMorgan struck with prosecutors two years ago. It was harder to pull off but also harder to detect, and other JPMorgan traders adopted his mode of trading, court records say.

In the earlier trials, prosecutors successfully defended their theory that spoofing constitutes a type of fraud. Some traders have argued spoofing doesn’t involve making false statements—usually a precondition for fraud—because electronic orders don’t convey any intent or promises.

The tactic can impose losses on those tricked by spoofing patterns. The government has portrayed some of Wall Street’s most sophisticated trading firms, such as Citadel Securities and Quantlab Financial, as the past victims of spoofers. In the latest trial, prosecutors also plan to call individual traders who traded for their own accounts and were harmed by spoofing.

Write to Dave Michaels at dave.michaels@wsj.com

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All U.S. Trial Convictions in Crisis-Era Libor Rigging Have Now Been Overturned

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WASHINGTON—A federal appeals court reversed the convictions of two former

Deutsche Bank AG

traders found guilty of rigging a global lending benchmark, overturning one of the U.S. government’s highest-profile court victories linked to the 2008 financial crisis. 

The decision Thursday dealt a blow to the legacy of an investigation that Washington poured resources into after the financial crisis, when prosecutors were criticized for not pursuing enough cases against individual traders and executives. The cases focused on how traders and brokers world-wide influenced the daily London interbank offered rate, known as Libor, which helped set the value of lucrative derivatives they traded and made banks appear healthier.

Thursday’s reversal shows how difficult it has been for prosecutors to use broadly written antifraud laws to punish traders operating in sophisticated markets where standards of conduct weren’t always clear. A panel of the U.S. Court of Appeals for the Second Circuit found evidence used to convict Matthew Connolly and Gavin Black wasn’t enough to stand up fraud and conspiracy charges. A jury in New York had convicted the two men in 2018.

The Manhattan-based appeals court in 2017 also tossed Libor-related verdicts against two traders who had worked at Rabobank Group.

The court action Thursday means every Libor trial conviction in the U.S. has now been overturned. Six other traders from Rabobank and Deutsche Bank pleaded guilty in the U.S. to Libor-related misconduct from 2014 to 2016. Many convictions in the U.K. stand, including that of Tom Hayes, a former star trader at

UBS Group AG

, who was found guilty of rigging Libor and served more than five years in prison before being released last year.

Libor, a gauge of the rates at which banks could borrow from other banks, was published for many years by the British Bankers’ Association. The BBA’s version of Libor was vulnerable to manipulation because traders could influence the rates submitted by their banks.

Financial markets have since started a shift away from Libor in favor of a new reference rate that is calculated based on actual trades. U.S. banks weren’t allowed to issue new debt tied to Libor beginning in January.

A series of Wall Street Journal articles in 2008 raised questions about whether global banks were manipulating the interest-rate-setting process by lowballing Libor to avoid looking desperate for cash during the financial crisis.

The three judges wrote that prosecutors hadn’t proved that Messrs. Connolly and Black made false statements—a requirement for proving fraud—when they gave input related to what Deutsche Bank should submit to the BBA.

The government’s case, according to the judges, depended on the flawed idea that there was one true Libor rate that Deutsche Bank should have offered, when in fact the number was a hypothetical measure influenced by many factors.

Prosecutors didn’t present evidence suggesting that Deutsche Bank couldn’t actually have borrowed at the rates it submitted, the judges wrote. While nudging Libor one way or another to make money might be wrong, the submissions weren’t false if the bank could have gotten cash at those rates, according to the panel.

The BBA’s own instructions for submitting Libor around the time of the financial crisis didn’t prohibit taking a bank’s derivatives bets into consideration. In effect, the judges wrote, prosecutors tried to criminalize conduct that was just unseemly.

“In some ways, these reversals underscore what a screwed-up benchmark Libor was to begin with, when you are not being asked to submit actual offers or bids, but just hypotheticals,” said Aitan Goelman, a former director of enforcement for the Commodity Futures Trading Commission, a civil regulator that fined many banks for Libor violations. “It almost begged to be manipulated.”

Mr. Black, a U.K. citizen who had worked for the bank in London, was sentenced in November 2019 to three years of probation including nine months of home confinement, which he was allowed to serve in his home country. Mr. Connolly, who worked for Deutsche Bank in New York, was sentenced to two years of probation including six months of home confinement.

“We have long maintained that Gavin Black committed no crime, and we are deeply appreciative that the Court of Appeals carefully reviewed the record and reached the same conclusion,” said Seth Levine, a lawyer for Mr. Black at Levine Lee LLP. “This is a case that never should have been brought, and the court has now vindicated Mr. Black’s position.”

“We are elated that Matt Connolly has been fully exonerated in this contrived case that never should have been brought,” said Kenneth Breen, a lawyer at Paul Hastings LLP for Mr. Connolly.

Deutsche Bank in 2015 agreed to pay $2.5 billion in fines to resolve Libor charges in the U.S. and the U.K., and a London unit of the bank pleaded guilty in the U.S. to one count of wire fraud.

Spokesmen for Deutsche Bank and the Justice Department declined to comment.

Write to Dave Michaels at dave.michaels@wsj.com

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Business

Stock Market Today: Dow Rose as Moderna Slumped Again

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The


Dow Jones Industrial Average
had one of its best days this year on Monday, as value and defensive stocks led a rebound from last week’s market declines.

The news Monday was relatively positive, with signs that the Omicron variant of Covid-19 might be less severe than earlier strains and reports that China is considering easing monetary policy. On the Federal Reserve policy front, the latest reporting suggested that the central bank could announce plans at its next meeting to more quickly pull back from its bond-buying program.

The Dow surged 647 points, or 1.9%, for its best one-day point gain since November 2020 and the largest percentage increase since last March. The


S&P 500
closed up 1.2% and the Nasdaq Composite rose 0.9%, while the small-cap


Russell 2000
gained 2.1%, for its fourth-straight daily move of 2% or more.

Post-pandemic reopening stocks were among the biggest gainers on Monday. The


U.S. Global Jets
exchange-traded fund (ticker: JETS) added 5.3%, as


American Airlines Group

(AAL) added 7.9% and


United Airlines Holdings

(UAL) jumped 8.3%. Cruise lines


Carnival

(CCL) and


Royal Caribbean Cruises

(RCL) surged 8.0% and 8.3%, respectively.


Marriott International

(MAR) added 4.5%,


Live Nation Entertainment

(LYV) rose 6.1%, and


Cinemark Holdings

(CNK) gained 7.7%.

S&P 500 value stocks as a group gained 1.4% on Monday, versus a 0.9% rise for growth stocks in the index.

Investor attention remains focused on the newly discovered Omicron variant of coronavirus, news of which recently brought about the Dow’s worst day of the year and saw volatility rock markets last week. The latest headline driving sentiment comes from South Africa, where data—though from a small sample size—suggest that symptoms caused by Omicron were milder than with other variants.

Investors aren’t out of the woods yet, however. The broad market will remain sensitive to daily headlines about Omicron—both good and bad.

“It still feels like we’re in the guesswork stage of working out what the impact of Omicron will be,” said Russ Mould, an analyst at broker AJ Bell. “It would be naive to rule out further volatility as markets attempt to work out exactly what’s going on.”

On Monday, the news was positive and investors bought the market. All 11 S&P 500 sectors closed in the green.

Fed policy has been pushing investor sentiment the other way. Chair Jerome Powell indicated last week that the central bank would consider speeding up its slowing, or tapering, of monthly asset purchases, which add liquidity to markets, amid higher inflation.

“We’re really at a fascinating crossroads in markets at the moment,” said Jim Reid, a strategist at Deutsche Bank. “The market sentiment on the virus and the policy makers at the Fed are moving in opposite directions.”

Those trends mean different things for different kinds of stocks and indexes.

If Omicron is less severe than feared, then the economy might hold up better than expected. That would be good for economically-sensitive cyclical stocks, like many of those in the Dow. Higher bond yields and interest rates, however, can put downward pressure on stock valuations, particularly those with nosebleed price-to-earnings ratios, many of which are found in the Nasdaq.

“Like Friday, how the Nasdaq trades will likely determine the day, as markets want to see the tech sector stabilize after intense weakness late last week,” wrote the Sevens Report’s Tom Essaye. “If the Nasdaq can stabilize, the broad market can bounce.”

The tech-heavy index bounced from a loss of about 1% shortly after Monday’s opening bell.

In the commodity space, oil prices rose Monday after Saudi Arabia raised its January prices for Asian and U.S. customers over the weekend by $0.60, in a sign of firmer demand expectations.

Futures contracts for the international oil benchmark Brent rose 4.6%, to above $73 a barrel, with U.S. futures for West Texas Intermediate crude up 4.9% to about $69.50 a barrel.

“Given that OPEC+ is proceeding with its planned 400,000 barrels per day increase this month, it appears that Saudi Arabia is taking a punt that Omicron is a virus in a teacup,” said Jeffrey Halley, an analyst at broker Oanda. “Saudi Arabia’s confidence, along with the South African Omicron article over the weekend, is a boost to markets looking for good news in any corner they can find it.”

Cryptocurrency markets remained depressed after digital assets took a tumble over the weekend.


Bitcoin
and


Ether,
the two leading cryptos, remained off their lows following the stark fall Saturday, but were slipping after steadying Sunday. Bitcoin was trading hands around $49,000—down from more than $57,000 as recently as Friday—with Ether holding above $4,000.

Here are several stocks on the move Monday:


Nvidia

(ticker: NVDA) was among the most actively traded stocks in the U.S. Monday, closing down about 2.1%. Shares of fellow semiconductor firm Advanced Micro Devices (AMD) lost 3.4%.


Lucid Group

(LCID) stock dropped 5.1% after the electric-vehicle startup revealed that it had received a subpoena from the Securities and Exchange Commission, without offering many details.


Kohl’s

(KSS) gained 5.4% after an activist investor said it should explore selling itself.


Moderna

(MRNA) fell 13.5% after its president said that the risk that vaccines don’t work as well against Omicron is high. Pfizer (PFE) stock slid more than 5%.

Alibaba Group Holding (BABA) stock closed up 10.4% after a management shakeup at the e-commerce giant.


Deutsche Bank

(DB) rose 3.6% after JPMorgan upgraded the bank to Overweight from Neutral, adding that the group shows positive revenue developments in key divisions.

Pharma giant


Roche

(ROG.Switzerland) rose 1.5% in Zurich after announcing that it would release rapid antigen tests for Covid-19 and flu viruses next month.

Food delivery group


Just Eat Takeaway.com

(JET.U.K.) fell 4.9% in London following a price target cut and downgrade to Market Perform from Outperform by Bernstein, which sees few positive catalysts in the pipeline for the company.

Write to Jack Denton at jack.denton@dowjones.com

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Business

Deutsche Bank Whistleblower Gets $200 Million Bounty for Tip on Libor Misconduct

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A whistleblower whose information helped U.S. and U.K. regulators investigate manipulation of global interest-rate benchmarks by

Deutsche Bank AG

was awarded nearly $200 million for assisting the probe, according to people familiar with the matter.

The payout is the largest ever by the Commodity Futures Trading Commission, which along with the Justice Department and U.K. Financial Conduct Authority settled enforcement actions against Deutsche Bank in 2015.

The CFTC’s announcement didn’t name the bank or the case, but the reward is related to the bank’s manipulation of the London interbank offered rate and similar widely used benchmarks, the people said.

The whistleblower’s application for an award was initially denied by the CFTC, but the U.S. derivatives regulator ultimately decided that the individual’s information was helpful after the whistleblower submitted a request for reconsideration.

“We’re very happy that the CFTC was able to reverse an earlier decision and turn around their thinking,”

David Kovel,

a managing partner at law firm Kirby McInerney LLP who represents the whistleblower. “It says a lot about the people there that they don’t feel forced to stick with the wrong decision given the amount that’s at stake.”

The Wall Street Journal previously reported that the former executive had provided information that helped CFTC and Justice Department investigations that led to roughly $2.5 billion in settlements with Deutsche Bank in 2015, including $800 million with the CFTC. They alleged that the bank manipulated Libor, a benchmark interest rate used to set short-term loans for global banks which traders and other bank employees could manipulate because it was based on oral submissions and not on actual transactions.

“The kind of information he provided was of the sort that was very hard to get if you don’t know where to look in a big financial organization,” Mr. Kovel said.

Rigging Libor was profitable for banks and other market participants because billions of dollars worth of derivatives known as swaps were priced off movements in the benchmark.

A spokesman for Deutsche Bank declined to comment.

The prospect of such a large payout pushed the CFTC whistleblower program into turmoil this year, as agency leaders contended there was no mechanism to pay the former bank executive and other applicants and keep funding the program. The agency averted a crisis after President Biden signed a bill in July to fund the program.

The CFTC investigation had already started by the time the whistleblower approached a separate agency, officials wrote in an order making the award. But the information proved valuable in interviews that authorities conducted as they expanded their probe, according to the order.

Dawn Stump,

a Republican commissioner on the CFTC, said in a statement that she disagreed with basing the award partly on a fine levied by a foreign regulator. Like the CFTC’s announcement, Ms. Stump didn’t name the bank or the underlying case in her statement.

Ms. Stump wrote that the CFTC has never before given an award to a tipster based on an overseas regulator’s enforcement action.

More From Risk & Compliance Journal

“I believe we need to take an especially close look at cases where a whistleblower asks the commission to tap its limited Customer Protection Fund for an award relating to an action by a foreign futures authority to address harm outside the United States,” Ms. Stump wrote.

Thursday’s award is the largest issued to a single person since the 2010 Dodd-Frank financial overhaul law created the programs to help avoid another massive fraud like Bernie Madoff’s Ponzi scheme.

The Securities and Exchange Commission last year issued its biggest whistleblower payment ever of about $114 million to a tipster.

“It’s showing that the CFTC program, like the SEC program, over the past 10 years, has really reached its maturity,” said

Mary Inman,

an attorney representing whistleblowers at law firm Constantine Cannon LLP.

Corrections & Amplifications
The Securities and Exchange Commission last year issued its biggest whistleblower payment ever of about $114 million to a tipster. An earlier version of this article incorrectly said the payment was to two tipsters. (Corrected on Oct. 21)

Write to Mengqi Sun at mengqi.sun@wsj.com and Dave Michaels at dave.michaels@wsj.com

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Goldman, Morgan Stanley Limit Losses With Fast Sale of Archegos Assets

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Goldman Sachs Group Inc. and Morgan Stanley were quick to move large blocks of assets before other large banks that traded with Archegos Capital Management, as the scale of the hedge fund’s losses became apparent, according to people with knowledge of the transactions. The strategy helped limit the U.S. firms’ losses in last week’s epic stock liquidation, they said.

Losses at Archegos, run by former Tiger Asia manager Bill Hwang, have triggered the liquidation in excess of $30 billion in value. Banks were continuing to sell blocks of stocks linked to Archegos Monday, traders said.

“This is a challenging time for the family office of Archegos Capital Management, our partners and employees. All plans are being discussed as Mr. Hwang and the team determine the best path forward,” a company spokeswoman said in a statement Monday evening.

Archegos took big, concentrated positions in companies and held some positions in a mix of stock and swaps. Swaps are a common arrangement in which a trader gets access to the returns generated by a portfolio of shares or other assets in exchange for a fee.

Losses threatened to spill over into the so-called prime brokerage businesses that have been handling the firm’s trading. The group of large Wall Street banks includes Goldman, Morgan, Credit Suisse Group AG, Nomura Holdings Inc., UBS Group AG and Deutsche Bank AG , said people familiar with the firm’s trading.

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