Investor Sues the Silver Bullion Banks for Benchmark Manipulation

An investor has filed suit against the three firms that set the price of silver, accusing them of manipulation. The lawsuit, filed in the US District Court in the Southern District of New York, is noteworthy because similar accusations have been levied in the gold market and the process by which commodities prices are set has increasingly come under scrutiny.

The lawsuit was filed by J. Scott Nicholson, a Washington State resident, who is seeking class-action status for the suit. Bank of Nova Scotia "vigorously" denied the charges, according to an article from Bloomberg Businessweek, and the other two rate setters, Deutsche Bank and HSBC, declined comment. The three banks conduct the fix, or price-setting, once a day by conference call, according to an article from Reuters.

It is unclear if Nicholson has evidence to back his charges, but the complaint states that the defendants "have a strong financial incentive to establish positions in both physical silver and silver derivatives prior to the release of silver fixing results, allowing them to reap large, illegitimate profits."

Deutsche Bank said in January that it would withdraw from participating in setting the gold and silver benchmarks in London as it plans to cut 200 jobs in commodities trading. London Silver Market Fixing Ltd. said in May that it would stop administering the benchmark after Deutsche withdraws its participation in August.

The suit comes on the heels of similar suits in the gold market and a lengthy silver market investigation. The five banks accused in the gold fixing case deny the accusations. The five-year silver market investigation, conducted by the Commodities Futures Trading Commission, ended last September when it found no evidence of wrongdoing.

For more:
- read the Bloomberg Businessweek article
- read the Reuters article
- read the BBC article

Four-Year Silver Probe Set To Be Dropped

A four-year investigation into the possible manipulation of the the silver market looks increasingly likely to be dropped after US regulators failed to find enough evidence to support a legal case, according to three people familiar with the situation.

The Commodity Futures Trading Commission first announced that it was investigating “complaints of misconduct in the silver market” in September 2008, following a barrage of allegations of manipulation from a group of precious metals investors.
In 2010, Bart Chilton, a CFTC commissioner, said that he believed there had been “fraudulent efforts” to “deviously control” the silver price.

But after taking advice from two external consultancies, the first of which found irregularities on certain trading dates that it believed deserved more analysis, CFTC staff do not have sufficient evidence to bring a case, according to the people familiar with the situation.

The agency’s five commissioners have not yet formally determined the outcome of the investigation, leaving the possibility that staff could be instructed to dig deeper. A CFTC spokesman said: “The investigation has not reached its conclusion”. He declined further comment.

Ending the probe would infuriate some US silver investors, who claim that a group of large investment banks – in particular, JPMorgan – has conspired to drive the price of silver lower.
“I’m sure it will be met with some concern from a certain group of aggressive silver speculators,” said one person familiar with the investigation.

In a recent blog post, Ted Butler, a newsletter publisher and unofficial champion for the silver investors, accused the CFTC of being “negligent in failing to terminate the obvious manipulation ongoing in silver”.

The CFTC has analysed over 100,000 documents and interviewed dozens of witnesses since it began investigating the market in 2008, it said last year. The people familiar with the situation said the evidence included records from JPMorgan.

The conclusion of the investigation will come as a relief to JPMorgan. Although no company or individual was named in the CFTC investigation, the Wall Street bank has suffered a torrent of allegations from silver investors on the blogosphere.

One campaign exhorted sympathetic readers to “crash JPMorgan” by buying silver – based on the assumption, which JPMorgan has repeatedly denied, that the US bank has a large bet on lower silver prices.

In addition, a class-action lawsuit has been filed against JPMorgan. Lawyers for the bank have asked a judge to dismiss it, arguing that plaintiffs “fail to identify a single trade” showing manipulation.
Blythe Masters, head of commodities at JPMorgan, in an April interview with CNBC conceded that there had been “a tremendous amount of speculation, particularly in the blogosphere, about this topic”, but maintained that the bank had no large bets on silver prices.

“We have no stake in whether prices rise or decline,” she said. JPMorgan declined to comment on the CFTC investigation.

Previous CFTC silver inquiries in 2004 and 2008 found no evidence of wrongdoing.