JPM, HSBC Sued For Silver Market Manipulation, Reaping Billions In Illegal Profits

Tyler Durden's picture

Yesterday's announcement by CFTC commissioner Bart Chilton that he was fully aware of fraudulent efforts to persuade and deviously control silver prices may have been the straw that broke the gold and silver price manipulating camel's back on precious metal manipulation. Today, Brian Beatty and Peter Laskaris (Southern District Court of New York, cases 10-08146, and 10-01857) sued the two firms at the very top of the precious metal manipulation pyramid: JPMorgan and HSBC. The lawsuit, which seeks class action status, alleges that "between in or about March 2008 and continuing through the present, Defendants have combined, conspired and agreed to restrain trade in, fix, and manipulate prices of silver futures and options contracts traded in this District on the COMEX division of the NYMEX. Defendants thereby have violated Section 1 of the Sherman Act, 15 U.S.C ¶1. Also during the Class Period, individual Defendants have intentionally acted to manipulate prices of COMEX silver futures and options contracts. Such conduct violates Section 9(a) of the Commodity Exchange Act, 7 U.S.C. ¶13b." And so, the tidal wave of lawsuits by all those who may have ever lost money trading precious metals against JPM et al begins.

The lawsuit alleges that the means by which JPM and HSBC manipulated the market is as follows:

  • Defendants have effected their foregoing restraint of trade and manipulation through diverse means. These means themselves include lawful and unlawful acts.
  • Defendants have held large positions in silver futures and silver options.
  • Defendant have held a concentrated and substantial amount of the open interest in silver futures contracts
  • Defendants have made large trades at key times.
  • Defendants or others have made large "spoof" orders which appeared on the trading screens; "spoofing" is the submission of a large order which is not executed but influences prices and is then withdrawn before it reasonably can be executed.
  • Defendants have communicated with and/or signalled one another their trades.

In the suit, the plaintiff allege that JPM and HSBC in August 2008 held 85% of the net short position in silver and by the first quarter 2009 held $7.9 billion in precious metal derivatives.

Some amusing observations from the plaintiffs:

Prior to public complains and the government investigation of manipulation of COMEX silver futures prices that began in March 2010, silver prices greatly underperformed gold prices. Since the government investigation began, silver prices have greatly outperformed gold prices.

This "price signature" is precisely consistent with what would be expected of very reputable firms (like the JP Morgan Group Defendants and the HSBC Group Defendants) when their unlawful activities are threatened by government investigations and possible exposure, and compliance intercedes.

Laskaris and Beatty further allege that Defendants reaped hundreds of millions if not billions of dollars in profits from the conspiracy.

Damages sought by plaintiffs include damages that may be tripled, and various other remedies.

In the meantime, as this lawsuit seeks class status, we are confident many readers will enjoin the plaintiffs. Especially since, as is suddenly all too well known, the CFTC's bias to perpetually rule in favor of the commission has been exposed for all to see. Will the be the watershed case that finds two of the biggest market manipulators finally guilty?

Oh, and, with one more "conspiracy theory" about to be proven for fact, can the tin foil hat be taken off now?

Full filing: