When the Space Shuttle Challenger exploded only 73 seconds after its launch on January 28, 1986, the shock and horror of the tragedy united Americans in mourning. In the weeks and months afterwards, though, the hunt for an explanation led to no small amount of finger-pointing at NASA from the public, the media and the U.S. government. President Ronald Reagan — who had been a vocal champion of the Challenger mission — formed a Presidential Commission consisting of prominent scientists and astronauts (including Neal Armstrong) to investigate the accident, and the ensuing report revealed how a series of mistakes and poor decisions resulted in the deaths of the seven-member crew in a televised moment that an entire generation of adults, and children, vividly remember.
Three of those now-grown children are Daniel Junge, Steven Leckart and Glen Zipper, the creative team behind the new Netflix miniseries, Challenger: The Final Flight. Premiering on the streaming service on Sept. 16, the four-episode series provides a step-by-step history of how the Challenger mission came together… and what went horribly wrong. In the process, The Final Flight illustrates how the disaster can’t be blamed on any single person. “There isn’t one villain,” Leckart tells Yahoo Entertainment. “If anything, the villain would be groupthink and systemic dysfunction. We knew from the beginning that this was going to be a complex story where there wasn’t a binary hero and villain.”
That villain-free approach extends to NASA as an entity, which comes under intense scrutiny during the series, but isn’t singled out as the proverbial “bad guy.” “We didn’t set out to crucify NASA,” confirms Leckart, who co-directed the film with Junge, while Zipper served as the project’s executive producer along with J.J. Abrams. “We read the entire commission report, and saw how the paper trail went back and how many voices there were in the room. Managing an institution like that is so complex.” And as Junge notes, the Challenger has since become the model for industries seeking to study breakdowns in management structure. “There were human failures, poor decision and hubris, but you see some of those bad human actions within this overall picture of systemic failure.”
The Final Flight is nothing if not thorough in its presentation of the many missteps that preceded the January 28 launch, including serious design flaws that were overlooked, engineering concerns that were overruled and weather conditions that perhaps should have prompted further delays. At the root of it all was NASA’s understandable desire to reignite public interest in the space programs which had waned considerably since Armstrong took that one small step on the lunar surface in 1969.
It was that impetus that led officials to make an unprecedented choice: placing a civilian — educator Christa McAuliffe — onboard the Challenger. “She was the everyperson,” Junge says of the Boston-born teacher, who was selected by the Teacher in Space Project announced to great fanfare by the Reagan administration in 1984. “Rather than make science ordinary, they were trying to bring the ordinary to science and Christa exemplified that perfectly.”
Like any government agency, NASA was also concerned about keeping its budget intact at a time when the Reagan administration was increasingly spending funds on defense projects like “Star Wars” — the nickname given to a planned missile defense system. Over the years, it’s been speculated that NASA delayed the launch date until January 28 to sync up with Reagan’s State of the Union address, which he was scheduled to deliver that evening. But Leckart says that the documentary team’s research didn’t turn up evidence that any members of the administration pressured NASA to get the Challenger in orbit to meet that specific date. “They never would have rushed a launch to appease the president if there was any danger. Reagan had talked about the Challenger as a ‘Rah-rah America’ moment, but any other president would have done the same. Party aside, you would have seen any president say, ‘Look what we’ve achieved.’” (At the same time, according to several subjects interviewed in the film, Reagan did take steps to try and preserve NASA’s reputation in the Commission hearings.)
If there’s anyone who audiences might perceive as seeming remotely villain-like in The Final Flight, it would be Dr. William R. Lucas. As the director of the NASA Marshall Space Flight Center from 1974 to 1986, Lucas oversaw the Space Shuttle program and pushed to maintain an aggressive launch schedule. As outlined in the film, he also had the authority to overrule any pre-launch concerns, and did so in the case of Challenger, willfully turning a blind eye to the specific design flaw — one involving the rubber O-rings intended to seal the field joints of the rocket boosters — that was found to play a major role in the explosion. Lucas appears for an on-camera interview in The Final Flight and stands by his actions three decades later. “Going into space is something that great countries do,” he says in the film. “It’s also risky; you have to take some chances. There’s no way you can account for those seven lives except to say that’s the way development happens… The costs sometimes are very difficult and those lives were it.”
Lucas’s words may sound callous, but Leckart still cautions viewers against seeing him as the Emperor Palpatine of the Challenger saga. “Space travel is inherently dangerous and really difficult, and [NASA] has to make tough decisions. You know when you’re signing up to be an astronaut that you may be risking your life. Three astronauts died on the launching pad before we landed on the moon, but we didn’t stop. Challenger happened, but we didn’t stop. So could he have a sense of contrition? I think he really believes in the decision he made, and stands by it. He doesn’t feel that people deserved to die, but that’s the point. Despite all of our best ignitions, these things unfortunately happen and that’s part of what we’re setting out to do. There’s a risk versus reward scenario that we play out in our mind and we choose to take the risks.”
In making the documentary, all three filmmakers had a chance to reflect on their personal memories of watching the Challenger tragedy happen in real time. Both Zipper and Junge remember being in middle school math class when the news broke and teachers were urged to turn on their televisions. “They marched the whole school into the cafeteria and we watched the news,” Zipper recalls. “As traumatic and painful as it was, our teachers recognized it was history that was happening, and we needed to participate in it in some way.” In contrast, Leckart remembers that his elementary school classroom’s television was turned off as soon as the explosion occurred. “We didn’t talk about it; it was just ‘Go outside,’” he says now. “That was really my experience with death. I hadn’t lost a loved one or a pet; I didn’t know what death was.”
The Final Flight purposely avoids showing the famous final moments of the Challenger until the end of the third episode in order to make viewers experience the sheer enormity of the tragedy all over again. “That footage is so iconic, I think people became desensitized to it,” explains Zipper. “Across the first three episodes of the series, we reinvest you in the crew members’ stories, so by the time you see the explosion, it’s imbued with a whole new meaning. It’s hard to watch at that point.” While the directors initially contemplated reconstructing the launch with multiple pieces of archival film footage — including some angles that had never been seen before — they ultimately decided to only use the footage that millions of people at home watched on that January morning.
“It’s probably the longest uncut shot in the series,” Junge notes. “There’s a little bit of new sound design there, but otherwise it’s exactly how it was experienced and re-experienced on the day of the accident. I think that footage has been used in the media in the past quite gratuitously, so we wanted to hold off on it for that reason. We wanted you to experience this in a real-time telling, to the point where it’s almost a surprise when you see it in that moment.”
News footage from January 28 also captures the horrified reactions of the family members of the Challenger crew, including McAuliffe’s parents and her husband, Steven J. McAuliffe. According to the filmmakers, both he and their two now-grown children declined to be interviewed for the series. “We did send a letter, and we heard back that he appreciated the letter but he’s not really done any press and my understanding is that’s not something he’s interested in doing,” Leckart says. Other family members, among them McAuliffe’s sister, did agree to be interviewed. “They all talked about the steps of grief,” Junge says. “That was a common theme across all the interviews: that idea of disbelief and shock moving to anger and finally to some resolve and level of forgiveness that seemed to be a common theme throughout the interviews.”
Seeing the extended family of the crew members also drives home the diversity of the crew members onboard the Challenger — one of the chief legacies of both that mission and the since-discontinued Space Shuttle program in general. “The shuttle program opened the doors to women and people of color,” Leckart says. “Space was no longer going to be the purview of white male fighter pilots.” That’s one of the reasons for optimism about the future of space flight that the filmmakers hope audiences take away from the story of the doomed Challenger shuttle. “Although there is a cautionary tale within our series, we all agree that we wanted to end this up on an uplifting note,” Junge remarks. “We all believe in space exploration — we just need to go into it wide-eyed.”
Challenger: The Final Flight is currently streaming on Netflix.
Read more from Yahoo Entertainment:
Donald Trump wanted daughter Ivanka to be running mate in 2016, book says
Donald Trump wanted to name his daughter, Ivanka Trump, as his running mate in 2016, according to a new book by former campaign deputy Rick Gates, reported by Bloomberg News.
Related: New York Times publishes Donald Trump’s tax returns in election bombshell
“I think it should be Ivanka,” Trump is quoted as saying in Wicked Game: An Insider’s Story on How Trump Won, Mueller Failed and America Lost, which will be published on 13 October. “What about Ivanka as my VP?”
The news lands as Ivanka Trump, who with her husband Jared Kushner remains a senior White House adviser, is named in the New York Times’ bombshell report on her father’s taxes, appearing to have received “consulting fees” that helped reduce the family tax bill.
Ivanka has not served in elected office but is widely thought to have political ambitions of her own, possibly in the 2024 presidential race.
She’s bright, she’s smart, she’s beautiful, and the people would love her!
Gates says Trump was serious about making his then 34-year-old daughter his potential vice-president, returning to the theme and even carrying out public polling.
“All heads turned toward her, and she just looked surprised,” he reportedly writes of when Trump raised the idea to a group of aides. “We all knew Trump well enough to keep our mouths shut and not laugh. He went on: ‘She’s bright, she’s smart, she’s beautiful, and the people would love her!”’
Ivanka Trump reportedly told her father it wasn’t a good idea. Gates says Mike Pence, then governor of Indiana, was picked after delivering a “vicious and extended monologue” about Hillary Clinton, Trump’s opponent.
Gates, who told the Washington Post he was not sure Trump would have gone through with picking his daughter, was indicted by special counsel Robert Mueller in his investigation of connections between Russia and the Trump campaign. He co-operated and was sentenced in December 2019 to three years probation and intermittent confinement for tax and lobbying offenses committed with Paul Manafort, Trump’s former campaign chair who was sent to prison.
The White House did not immediately comment on Bloomberg’s report.
Gates also reportedly writes that former secretary of state Condoleezza Rice, Tennessee senator Bob Corker, Alabama senator Jeff Sessions (eventually Trump’s first attorney general), Iowa senator Joni Ernst and former defense secretary Robert Gates were suggested to Trump as possible running mates.
Ivanka and Kushner, Gates says, liked the idea of former House speaker and candidate for the Republican presidential nomination Newt Gingrich.
The Post reported that Gates has remained loyal, writing: “Unlike a number of other memoirs by former Trump staffers, Gates’s book serves not as a tell-all, but rather a defense of the president and how he and others helped elect him.”
One such tell-all, Stephanie Winston-Wolkoff’s Melania & Me: The Rise and Fall of My Friendship With the First Lady, claims Gates worked with Ivanka Trump to undermine Melania Trump, the president’s third wife.
For example, Wolkoff details suspicions that Gates was behind a scandal over plagiarism from Michelle Obama in Melania Trump’s convention speech in Cleveland in 2016. Wolkoff writes: “If Ivanka controlled Rick, and Rick had allegedly written Melania’s convention speech, did that mean Ivanka was behind that major faux pas/sabotage?”
Wolkoff also writes of a scandal over fundraising for the inauguration, on which Gates worked. Melania Trump, she writes, called aides to her stepdaughter “snakes”.
Ex-Fox News Anchor Shepard Smith Vows to Fight Disinformation With New CNBC Show
Unlike President Donald Trump’s eagerly accommodating attorney general, Bill Barr, Shepard Smith doesn’t believe that New York is a dystopian jurisdiction of “anarchy, violence, and destruction.” That was the claim in last week’s Justice Department memo threatening the cutoff of federal tax dollars to the city.
“You know, man, I walk out in Greenwich Village and we have outdoor restaurants everywhere,” CNBC’s newest star told The Daily Beast, in that familiar booming broadcast voice only slightly inflected by his small-town Mississippi roots, as he got ready for Wednesday night’s debut of The News with Shepard Smith, an hour-long show that replaces the 7 p.m. airing of Shark Tank.
“And I walked by the Red Lion the other night”—the famed Greenwich Village live music venue—“and there was an amazing singer and guitar player in the doorway and they had socially distanced tables set up right on Bleecker Street, and it was fantastic,” Smith went on. “New York was alive, and people were out and about, and they were being right with each other.”
Getting positively rhapsodic, Smith continued: “I live in the Village. How many languages and every kind of people from every place on the planet! I used to walk to the subway station and hear every language—sometimes English—on the way. And all those people from all those places are all doing the same thing. They’re being good to each other by wearing their masks and staying separate. I loved it.”
Shepard Smith Leaving Fox News After Clashes With Colleagues
Without quite saying so, Smith, 56, was firmly and volubly rejecting much of the messaging—whether about immigrants, COVID-19 or the alleged lawlessness of Blue State cities—coming out of the Trump White House these days.
And without mentioning the president’s name, Smith—a mega-donor to the Committee to Protect Journalists (to the tune of $500,000, a check he wrote last November when he emceed the group’s annual fundraising dinner)—also chided Trump for repeatedly mocking MSNBC anchor Ali Velshi at his rallies for getting hit by a rubber bullet (a “beautiful sight,” Trump likes to gloat) as he covered a peaceful demonstration in Minneapolis against George Floyd’s alleged murder by cop.
“Violence should never be glorified or condoned,” Smith told The Daily Beast. “I don’t wish harm on anyone. My colleagues, friends, and family don’t either. Leaders have the power to inspire and influence. That power, used properly, can make us better. I hope we can disagree with civility and respect.”
At Fox News, where he had thrived for nearly a quarter-century, Smith was a rarity—an increasingly severe critic of Trump’s lies, his “crazy… ridiculous throwaway lines,” his campaign’s involvement with Russian operatives, and his attacks on journalists; Trump of course returned the favor, deriding “low ratings Shep Smith” (never mind that he consistently crushed his rivals at CNN and MSNBC) as “HOPELESS & CLUELESS!”
Yet when Smith is asked why he quit Fox News last October—a whiplash-inducing turnabout barely 18 months after he signed a lucrative multi-year deal to continue at the right-leaning cable channel—his natural fluency becomes clipped and abrupt, almost as if he’s acting out a Hemingway parody.
“I made a decision to leave. I left. And that’s it,” Smith said about his departure, which—seconds after he announced it on air Oct. 11—astonished such colleagues as Neil Cavuto (“Whoa!…I’m a little stunned and a little heartbroken”), Bret Baier (“Today brought about a little shock for us here”), and John Roberts (“I…suddenly got hit by a subway train. Holy mackerel!”).
On his final newscast, Smith told viewers, “Recently I asked the company to allow me to leave Fox News and begin a new chapter. After requesting that I stay, they obliged.”
Published reports suggested that Smith gave up a $15-million annual salary, significantly more than CNBC is said to be paying him (“I don’t talk about money, because my mama told me that’s not polite,” Smith jokes), because he could no longer abide the conspiracy theories, fanciful claims, and pro-Trump propaganda being pushed by some of his Fox News colleagues, especially primetime hosts Tucker Carlson, Sean Hannity, and Laura Ingraham.
The last straw, according to a friend who is regular contact with Smith, was his on-air dustup with Carlson last September over an insult made against Fox News’ resident judicial analyst, former New Jersey judge Andrew Napolitano, by one of Carlson’s guests. On Smith’s afternoon show, Napolitano had said Trump’s tacit quid pro quo attempt to coerce the president of Ukraine into launching an investigation into Joe Biden, in return for congressionally-mandated military aid, constituted a crime.
That night, Carlson’s guest Joe DiGenova, a rabidly pro-Trump former U.S. attorney, called Napolitano “a fool,” with zero pushback from Carlson.
“Attacking our colleague, who’s here to offer legal assessments, on our air, in our work home, is repugnant,” Smith declared grimly the next day—prompting Carlson that night to invite DiGenova on again and snicker, “Repugnant! Not clear if that was you or me, but someone’s repugnant.”
Shep Smith Hammers Fox News Guest for ‘Repugnant’ Attack on Colleague Judge Napolitano
Smith, his friend said, was frustrated and angry that Fox News CEO Suzanne Scott and news president Jay Wallace, Smith’s longtime former producer, did nothing to put a stop to the sort of unseemly internecine public feuding that Fox News founder Roger Ailes would never have permitted—accelerating his decision.
Asked about that, Smith didn’t contradict it, but was the soul of tact and diplomacy. “I was there for 23 years,” he said, “and my goal was always the same—to seek the truth, find the truth and tell the truth and then have some fun doing it. We gotta have a little fun in life and we have to find the kinds of people who make everything that’s terrible better—heroes in the chaos, because I cover a lot of chaos.
“And while I was there, I made friends for life. I was fortunate to be able to do a first draft of history, and I decided I wanted a change. And I made it. And one of the things that’s constant in my life is I have to make a lot of decisions. We all do. It’s part of my life at work. I’m one of the people who makes decisions, and when I make one, that’s it. Because there’s too many more to be made.”
Smith’s departure came more than three years after the disgraced Ailes resigned amid sexualmisconduct allegations, and two years after his May 2017 death. “I loved him,” Smith told viewers in an emotional tribute to his late mentor and cheerleader—a man, he acknowledged, with “well-documented flaws.”
Nearly four years later, Smith said tersely: “I think Roger wanted news. And he wanted me to do the news. And I did it. And I’m glad I did it. And I’m glad I moved on to a new challenge.”
Smith said the CNBC program—which will draw upon the journalistic resources of NBC News, a division of the company Trump persists in calling “Concast”—will be different from what he was doing at Fox, where the news reports were frequently punctuated by punditry.
“We’re gonna do a newscast,” he said. “We’re gonna seek the truth and find the truth and tell the truth, in context and with perspective. We’re gonna have experts and we’re gonna have newsmakers. But we’re gonna have no pundits and no opinion.”
Smith elaborated: “I think everything goes into about six buckets these days. I think there’s politics and there’s COVID and, beyond that, there’s the information age and all the changes, there’s social justice and how we have to have it, there’s income inequality and how it will kill us if we let it, and there’s climate change that we better pay attention to or we’ll wake up one day and say this period was a cakewalk. About everything in life goes in those buckets and that’s what we’re gonna be focusing on.”
Although Smith acknowledges that politics, namely the future of the Senate and Biden versus Trump, are likely to dominate his newscast for a good long while—“’Tis the season”—“it’s not my favorite thing,” he said. “There’s a lot of agendas there. I like people stories. I like to cover things that affect people’s day to day lives. Like now. Everything about life has changed one way or another, and I think documenting how we live in this new normal that changes all the time is important and interesting.”
Smith also indicated that he’ll be doing the sort of fact-checking, political and otherwise, that distinguished his work at Fox News.
“I’m worried about disinformation most,” he said. “I’m worried about deep fakes and I’m worried about people who live in an information hole that’s actually a dis-information hole…It’s fairly new in the arc of things. It’s brand new. And we have to learn how to call out misinformation and disinformation because it’s injurious to society. So that’s one thing we’re gonna do.”
He added a cautionary note against “the shiny object. So many people—business leaders, CEOs, politicians—they throw up a shiny object to try to distract you from what’s going on. We’re gonna call that out—maybe not every single day, but some days I think there will be more than one shiny object. We should not be distracted.”
Smith, who prefers to keep his private life private, has been increasingly open in recent years that he’s a gay man in a longtime committed relationship with 33-year-old Giovanni “Gio” Graziano, a former Fox News and Fox Business Network producer who these days is managing their mutual finances among other pursuits, such as academics and caring for their four-year-old Italian water dog, a truffle-sniffing Lagotto Romagnolo named Lucia.
When asked on Friday about the impending Supreme Court nomination of former Antonin Scalia clerk Amy Coney Barrett and its potential impact on recently adjudicated LGBTQ rights such as marriage—and whether a 6 to 3 conservative majority on the court might threaten those rights—Smith sounds like he’s either unconcerned or putting on a brave face.
“We weren’t granted rights! We already had them!” he boomed. “They were there from the Constitution. And that’s a done deal. In America people don’t take away rights. That’s not what America is. That’s not what America does. America doesn’t take away rights. America makes sure that everyone gets to exercise their rights that are inalienable and are endowed by the Creator. That’s what America does. I’ve not met anyone at any level, anywhere, who wants to take the rights away that were granted to me by the Constitution. I’ve not met the person who wants to do that. That’s not gonna happen.”
Smith burst out laughing when asked if he and Gio might consider availing themselves of the right to get married.
“I don’t know that we need the government involved in our relationship,” he said with a chuckle. “If it ain’t broke, don’t fix it. I don’t know. I don’t know anything. I’m enormously happy, and I hope nothing changes.”
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Caesars shoots lower than expected with $3.7 billion William Hill bid
Inside the JPMorgan Trading Desk the U.S. Called a Crime Ring
(Bloomberg) — Billionaires have Davos. For filmmakers, there’s Sundance. For the people who mine and trade and ship everything from iron ore to platinum, there’s London Metal Exchange Week. It’s a blur of symposiums and drinks, with a reliably lavish lunch thrown by JPMorgan Chase & Co. On a balmy October day in 2018, hundreds of guests crossed a courtyard in the shadow of the Bank of England to a medieval guild hall for champagne and sashimi courtesy of the bank and its top metals trader, Mike Nowak.Nowak had plenty to celebrate. His global trading desk at JPMorgan was the powerhouse in futures contracts for gold, silver, platinum and palladium that account for tens of trillions of dollars in transactions annually. In his mid-40s, Nowak had run the precious metals desk for more than a decade. He had a young family, a house outside Manhattan and a seven-bedroom vacation home a few blocks from the beach in New Jersey.But that world was unraveling. Unbeknown to Nowak, one of his former employees was turning on him.That same day, the sun was barely up in Brooklyn when a trader named John Edmonds set off for a meeting with federal prosecutors. Edmonds, who’d worked for years on Nowak’s desk, took a four-hour car trip to Hartford, Connecticut, where he told authorities that Nowak’s crew wasn’t just buying and selling precious metals, but systematically cheating to help themselves and their top clients. Edmonds admitted to fraudulent trades that day in a sealed guilty plea. Soon, others from the precious metals desk provided accounts, setting off events leading to criminal charges against Nowak and four others from the bank.Testimony by Edmonds and others also underpins a U.S. Justice Department criminal investigation into the bank itself that people familiar with the matter say will be resolved in coming days. They said the bank is expected to pay around $1 billion to settle with the Justice Department and U.S. Commodity Futures Trading Commission. Among the alleged misdeeds is so-called spoofing, or planting fake orders into the market to steer others into buying or selling at prices that favor the bank. In authorities’ years-long crackdown on spoofing — which has included the conviction of two former Deutsche Bank metals traders in Chicago late last week — the expected JPMorgan penalty would be several times the size of previous settlements.Read More: JPMorgan Is Set to Pay $1 Billion in Record Spoofing PenaltyNowak and three others have pleaded not guilty and are seeking to have the charges against them dismissed. Lawyers for Nowak and Edmonds declined to comment. JPMorgan, which has said it’s cooperating with the investigation, declined to comment through a spokesman. The Justice Department and CFTC also declined to comment.In charging Nowak and others, prosecutors are testing an unusual application of a law formulated to battle mobsters, the Racketeer Influenced and Corrupt Organizations Act. Prosecutors say Nowak’s trading desk was a criminal racketeering operation within the confines of America’s biggest bank. Traders on Nowak’s desk engaged in spoofing as a core business practice, doing it more than 50,000 times over nearly a decade, they said. The Justice Department has famously used the RICO statute to bring down mafia bosses and drug gangs. It has used other statutes to extract penalties and guilty pleas from big banks accused of market manipulation. But it’s been decades since the government has attempted to apply the anti-racketeering law to members of a major bank’s trading desk, placing Nowak and others in crosshairs once trained on the likes of the Latin Kings and the Gambino crime family.This account is based on court filings, public records and interviews with more than a dozen current traders, former traders and others familiar with the situation who asked not to be identified speaking about an ongoing legal matter.Bear Stearns MarriageThe troubles at Nowak’s operation started in the depths of the financial crisis, arriving in the form of a novel trading strategy from a knot of new colleagues.Nowak had just completed a swift climb at JPMorgan. He’d joined the bank straight from Duke University in 1996 and traded natural gas options for a few years. Then he made his way to the precious metals desk. It was an influential spot. JPMorgan owns and stores tens of billions of dollars of gold and silver in its vaults. It’s also one of the top traders in markets where investors and speculators exchange tens of billions of dollars in futures contracts daily — sending price signals that are picked up by gold funds, pawn shops and Indian jewelry bazaars. Nowak rose to the top of the New York trading desk, and then, in 2006, he took over the London and Singapore operations as well. He was 32 years old.The financial crisis expanded Nowak’s brief further. JPMorgan’s takeover of the teetering Bear Stearns Cos. meant Nowak’s group would absorb Bear’s precious metals desk and some of its traders. Bear’s traders worked in midtown Manhattan, just across Madison Avenue from Nowak’s office.On May 27, 2008, the Bear deal was two days from closing. Nowak was still getting to know his future employees and their culture. That day’s Wall Street Journal ran the first of a three-day series about what went wrong at Bear: It was a brokerage, the paper wrote, “whose culture and fortune were rooted in the trading floor’s steely manipulation of risk.”That morning, across the street from Nowak, a Bear trader named Gregg Smith executed a 15-second series of keystrokes.8:39:56 a.m.: Smith enters an offer to sell seven contracts for silver futures. He asks $17.575 an ounce.8:40:06 a.m.: Smith places 13 more offers — not to sell, but to buy 91 contracts. They were at prices from $17.555 to $17.565, just below Smith’s unfilled sell offer.8:40:09 a.m.: Within less than seven-tenths of a second, Smith begins to get buyers for his seven contracts and starts canceling the 13 buy offers. Just then, Nowak received an instant message from a Bear Stearns manager across the street: “Smith just bid it up to … sell.”The timeline of that sale, in which about $600,000 worth of silver futures changed hands, is described in charging documents. The filings don’t say whether Nowak read the message or otherwise acknowledged the trade. But more than a decade later, the sequence was singled out by prosecutors as the beginning of what they described as an eight-year conspiracy.In the following months, Nowak brought over several of the Bear traders, including Smith and the manager who had written him the instant message. Smith’s trade was a preview of a technique that prosecutors say became widespread at JPMorgan.The 15-second sequence was also a response, prosecutors say, to an issue that had been vexing the JPMorgan crew — an upswing in pesky high-frequency traders.Troubles With AlgosFor generations, metals changed hands in open-outcry pits where hundreds of traders screamed prices and obscenities. Nowak, introverted and brainy, came along in time for electronic trading and the problems it posed. Firms and individuals with fast internet connections and proprietary algorithms were swarming in and out of positions to profit on small daily price moves.Traders at big operations like JPMorgan’s found that within a second of placing a bid, their price was often countered by high-frequency traders who would match and close a position before the traders had a chance to complete their deal. These algos not only snapped up trades but also created momentum in the market that pushed prices away from the traders’ targets.One way to outsmart them, current and former brokers and traders say, was to put up and remove an offer on the opposite side of the market. That would cause the algorithms to recalculate market supply and demand, leaving an opening for the traders to get the deal done at the price they wanted.Read More: Bloomberg’s QuickTake on SpoofingEarly on, some of Nowak’s traders were attempting to counter the algos by placing a single large order opposite the one they wanted filled, according to prosecutors. The Bear traders’ twist was to place multiple orders, at different prices, that in aggregate were substantially larger than the genuine order — a technique the government calls layering. The orders, made in rapid succession after the genuine order, would be canceled as soon as the genuine order was filled. Think of it like trying to sell a hamburger. You conjure a mob in front of your burger joint, creating the perception of demand. Once a real customer steps up and buys the burger, you make the mob vanish.The layering worked in futures markets in part because participants see a second-by-second barrage of offers to buy and sell, but not who’s making them. And whereas one big order might stand out, a lot of small ones might not. That made it important to warn colleagues when layering was in progress. One of the former Bear traders did just that for a new JPMorgan colleague in early 2009, according to prosecutors.“So you know its gregg bidding up on the futures trying to get some off,” the Bear alum wrote. “Incase you were watching some large bids come into market.”At that moment, Smith placed an order to sell seven gold futures while placing offers to buy 77. The activity was viewable for 59 seconds before Smith sold three of his contracts and canceled his swarm of buy orders.“Appreesh,” the colleague responded, “that worked!”Smith, a lead gold trader, executed some 38,000 layering sequences over the years, or about 20 a day, prosecutors said in filings. (Smith pleaded not guilty, and his lawyer didn’t respond to requests for comment.) Nowak himself primarily traded options, but he would dip into the futures market to hedge those positions. He tried his hand at layering in September 2009, according to filings, and went on to use the technique some 3,600 times.The government says the traders caused tens of millions of dollars in losses for those on the other side of the transactions and harmed market integrity. It says JPMorgan’s precious metals trading desk — which brings in as much as $250 million in annual profit — generated millions of dollars in unlawful gains.Lawyers for Nowak and Smith declined to comment about their defense strategies. But lawyers in other spoofing and manipulation cases have argued that the ongoing cat-and-mouse game between traders and algos is understood across the market and that the gains are small on minuscule market moves. In this month’s trial of the former Deutsche Bank AG traders, defense lawyers compared high-speed trading on futures markets to a competitive card game, saying canceling orders isn’t spoofing but rather a legal bluffing strategy. They also claimed the government cherry-picked trades, providing too little market context to establish manipulation. Nowak’s AcolyteNowak was an even-tempered manager who was hands-off yet approachable, several people familiar with his work said. When he saw his traders outside the office, they said, it was unlikely to be at a late-night bar. One trader, in an instant message cited in filings, noted that Nowak had come to his kids’ birthday parties. One of Nowak’s acolytes on the desk was Edmonds, a Brooklyn native with a degree from St. Johns University in Queens, New York. Edmonds started in JPMorgan’s back office and was brought to the desk in 2009. He sat next to a former pit trader who would often ask Edmonds to execute his trades, according to Edmonds’s testimony in a civil lawsuit. That trader, identified as a co-conspirator in the indictment, isn’t named or charged in the criminal case. Edmonds’s supervisors and more senior members on the desk showed him how to layer trades, he later told prosecutors, adding that it was understood on the desk that this was the way to trade precious metals futures.For as long as Nowak was on the desk, scrutiny was a constant. Gold and silver bugs — many of them individual investors who bought futures or physical gold and silver as a conservative investment play — claimed the bank was unfairly moving prices in spot and futures markets to benefit itself. Similar allegations were raised in civil lawsuits by people or firms that traded silver futures, such as the suit in which Edmonds provided testimony about the trading desk. For years, those cases went nowhere. And three times, starting in 2004, the Commodity Futures Trading Commission also looked into allegations of market manipulation of the silver market by JPMorgan. Nowak, who held leadership roles on the LME and the London Bullion Market Association, was asked to explain the bank’s trading. In 2010, he sat for two days of interviews with CFTC investigators, explaining the bank’s trading strategies.“To your knowledge, have traders at JPMorgan in the metals group put up bids and offers to the market which they didn’t intend to execute and then pulled them before they got hit or lifted?” one CFTC investigator asked.“No,” Nowak responded.The CFTC closed the third of those three inquiries in 2013 without taking action. JPMorgan has cited those CFTC investigations while defending against civil lawsuits, accusing plaintiffs of rehashing “implausible theories” of silver futures manipulation that were rejected by regulators.Screening for SpoofsFive years passed before Nowak’s operation came under the federal spotlight again. That was thanks to a federal prosecutor with a trove of data and, in Edmonds, a key cooperator.The prosecutor was Avi Perry, an assistant U.S. attorney in Connecticut with a Yale law degree. Perry didn’t set out to target JPMorgan’s operation so much as JPMorgan’s trading found him.Perry started hunting for market manipulation around 2018, as the Justice Department was upping its game in the area. For years, prosecutors had built market manipulation cases by following up on tips and pulling trading data on suspects. Now they were doing deep dives into raw data to uncover targets, parsing records filed directly with the exchanges.In the real-time scrum of futures markets, where offers are made and pulled all day long, it’s nearly impossible to discern potential manipulation. But the government had an edge. The data feed of the trades includes each trader’s exchange credentials, allowing investigators to sort for suspicious patterns and attribute it to individuals.Perry also had a valuable guide to the market. His lead FBI investigator, Jonathan Luca, previously worked as a gold and silver futures trader at Morgan Stanley. Together, they created a screen for precious metals trading data. The idea, according to two people familiar with the analysis, was to turn up sequences in which a trader placed and canceled a profusion of orders on one side of the market while executing a trade on the other. The bigger the mismatch between genuine and pulled offers, and the more a given trader did it, they said, the more it would be considered a red flag for potential spoofing.When they ran the screen, traders at JPMorgan stood out.Grappling With a LossPerry, at the time, was coming off a stinging loss in a spoofing case. In late 2017, his bosses at the Justice Department added him to the team preparing to try an indicted UBS Group AG metals trader. In his mid-30s, Perry hadn’t handled a spoofing prosecution. The case was already speeding to trial, and cracks were showing. The trader was indicted in Connecticut even though his trading occurred on exchanges in Chicago. Most of the charges were dismissed and the trader was acquitted. Defense lawyers and even some fraud prosecutors wondered if the government’s spoofing initiative was waning.But Perry’s bosses had him keep digging. In 2018 they recruited him for a job at the Justice Department’s fraud section in Washington, whose prosecutors have built some of the biggest U.S. corporate crime cases. With the trading analysis in hand, he went looking for individuals who might talk.Edmonds was notable even among the JPMorgan traders. At times he had placed orders with as many as 400 contracts on the opposite side of a genuine one.It’s unclear how Perry and the FBI approached Edmonds. But they could have done so without raising alarms inside JPMorgan. Edmonds had left JPMorgan in 2017 after declining the bank’s offer to relocate to Singapore, and by the fall of 2018 was working at another bank.Perry and his team talked to Edmonds at least twice in the weeks before he traveled to Connecticut to enter his secret guilty plea on Oct. 9, 2018, the day of the London party.Several months later, Perry secured the cooperation of one of the Bear traders who moved to JPMorgan. Pleading guilty, that trader said he personally manipulated trades while working from offices in New York, London and Singapore, and said spoofed trades were a fixture at the bank for nearly a decade.Even so, at Nowak’s office there was little sign of dark clouds. Although banks often place individuals on leave when legal action may be pending, Nowak and Smith remained at their desks well after the charges against Edmonds were made public in November 2018.Green Light for RICOTo prosecutors, the evidence fit the template for a racketeering conspiracy — a pattern of illegality over time, with individuals working together to further the goals of the allegedly criminal enterprise. There was limited precedent applying the RICO law to trading and finance, though. Racketeering charges were leveled against Michael Milken in 1989 but dropped when he reached a settlement with authorities. The statute was successfully applied in the early 1990s against eight traders in the Chicago Mercantile Exchange soybean pits.To guard against overuse or abuse of the statute, the Justice Department keeps a tight handle on RICO charges. The department’s organized crime and gang section gave Perry the green light.In 2019, Edmonds’s plea began to recede into the rear-view mirror. In May, Nowak and Smith hosted an intern, the quarterback for Nowak’s alma mater, Duke. That summer, Perry secured the government’s indictment of Nowak, Smith and a third trader. It was filed under seal in federal court in Chicago, where the trades took place.The charges were made public in September, and Nowak appeared in handcuffs in federal court in Newark, New Jersey — accused of conspiracy to participate in or conduct a criminal racketeering enterprise, attempted price manipulation, bank fraud, wire fraud, commodities fraud and spoofing. In addition to the half-dozen people who’ve been charged, the government documents referred to seven more individuals as unindicted co-conspirators. It’s not clear whether any of them have cooperated or what additional information they may have provided in the year since.Nowak’s arrest sent a shockwave through the the metals and proprietary trading world, several people in the industry said. On paper and by reputation, he was as clean as they came, they said, asking: If he could come under scrutiny, couldn’t anyone?Nowak’s trial is on pace for next year, according to filings in the case. The government should be able to use a JPMorgan settlement to its favor, said Michael Koenig, a former federal prosecutor who’s now a partner at Hinckley, Allen & Snyder and isn’t involved in the Nowak matter. The bank could be required to offer witnesses and testimony, he said.“The company — and all its information and all of its personnel — is now sitting at the prosecutors’ table,” Koenig said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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