Exposing "The Legend" - How Traders 'Spoofed' The Precious Metals Markets

Tyler Durden's picture

Following last week's admission by a former Deutsche Bank trader that he and many other traders conspired to manipulate the precious metals markets, court documents expose chat messages that show the level of rigging and how an uknown trader known as "the legend" taught them the "tricks from the... master."

The Deutsche Bank trader, David Liew, pleaded guilty in federal court in Chicago to conspiring to spoof gold, silver, platinum and palladium futures, according to court papers. Bloomberg notes that spoofing involves traders placing orders that they never intend to fill, in an attempt to manipulate the price.

Following an introductory period that included orientation and training, LIEW was eventually assigned to the metals trading desk (which included base metals and precious metals trading) in approximately December 2009. During the Relevant Period, LIEW was employed by Bank A as a metals trader in the Asia-Pacific region, and his primary duties included precious metals market making and futures trading.

 

...

 

Between in or around December 2009 and in or around February 2012 (the "Relevant Period"), in the Northern District of Illinois, Eastem Division, and elsewhere, defendant DAVID LIEW did knowingly and intentionally conspire and agree with other precious metals (gold, silver, platinum, and palladium) traders to: (a) knowingly execute, and attempt to execute, a scheme and artifice to defraud, and for obtaining money and property by means of materially false and fraudulent pretenses, representations, and promises, and in furtherance of the scheme and artifice to defraud, knowingly transmit, and cause to be transmitted, in interstate and foreign commerce, by means of wire communications, certain signs, signals and sounds, in violation of Title 18, United States Code, Section 1343,which scheme affected a financial institution; and (b) knowingly engage in trading, practice, and conduct, on and subject to the rules of the Chicago Mercantile Exchange ("CME"), that was, was of the character of, and was commonly known to the trade as, spoofing, that is, bidding or offering with the intent to cancel the bid or offer before execution, by causing to be transmitted to the CME precious metals futures contract orders that LIEW and his coconspirators intended to cancel before execution and not as part of any legitimate, good-faith attempt to execute any part of the orders, in violation of Title 7, United States Code, Sections 6c(a)(5)(C) and 13(a)(2); all in violation of Title 18, United States Code, Section 371.

 

...

 

Defendant LIEW's employer, Bank A, was one of the largest global banking and financial services companies in the world. Bank A's primary precious metals trading desks were located in the United States, the United Kingdom, and the Asia-Pacific region.

 

Defendant LIEW and other precious metals traders, including traders at Bank A, engaged in a conspiracy to commit wire fraud affecting a financial institution and spoofing, in the trading of precious metals futures contracts traded on the CME.

 

Defendant LIEW placed, and conspired to place, hundreds of orders to buy or to sell precious metals futures contracts that he intended to cancel and not to execute at the time he placed the orders (the "Spoof Orders").

And now, as Bloomberg reports, after pleading guilty to fraud charges last week and agreeing to cooperate, Liew has become a prime government witness for U.S. prosecutors investigating whether traders at the world’s biggest banks conspired to manipulate prices in silver, gold, platinum and palladium.

His chats with colleagues -- part of an FBI affidavit filed in Chicago and placed under seal -- provide a window into the investigation by the Justice Department, which began looking into such activities at a dozen of the biggest global banks two years ago.

"Tricks from the ...master," Liew typed in a chat after working with a colleague to move gold futures prices while Liew executed a trade. In the course of a year, Liew and his colleagues used fake orders to try to manipulate prices, an illegal practice called spoofing, more than 50 times.

 

In his court plea, Liew described working with others at his own bank and at two other operations. He refers to “The Legend,” without naming him, at another unidentified global bank. Many details are cloaked.

According to the documents, at least two senior colleagues taught Liew how small orders could be placed and then quickly pulled, pushing prices in a direction to benefit traders with client orders to fill. Within a couple years, he was teaching newer traders to do the same. In all, according to the filings, he attempted to move prices on Chicago’s CME more than 300 times before he left.

After trading silver futures on March 29, 2011, Liew wrote to the trader he called The Legend. "Look at silver … all algo play … basically I sold out … by just having fake bids," according to chats transcribed in the FBI affidavit.

 

By June 2011, Liew had begun teaching others the mechanics of spoofing, according to the FBI affidavit. In a chat with a trader from an unidentified trading firm, Liew explained how he used high-speed traders to move the market to his advantage. "I just spam … then cancel a lot … its actually stupid … cause im risking … but it gets the job done."

 

That August, Liew and a colleague discussed Dodd-Frank and their trading strategy in a chat, then engaged in spoofing to help Liew’s position in gold futures, according to the affidavit. "dodd frank gonna get me fired," Liew wrote.

 

Eight minutes later, Liew wrote, "I bought some gold for us … get ready .. to buy a bit more." The two then spoofed the market through a series of orders, according to the FBI account. Later, they boasted about their profits.

 

"u greedy for 50cents pumpkin … but Im greedy for $5 …lol," Liew wrote. His Deutsche Bank colleague replied, "I think we made … a lot … its ok … ahaha."

As we noted last week, Liew quite his job in July of 2012 to start a tech company, remarking on his personal blog that he was "uncomfortable with some of the things I witnessed/experienced."

Still we are sure that anyone uttering the word "rigged" around these markets will be chopped down to size by the mainstream, despite the reams of evidence (and facts), because all that matters is financial repression, precious metals suppression, and stock market acceleration.

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TheytookERjobs's picture

Bullish cryptocurrencies. Pms will have their time in the sun once stocks tank.

BaBaBouy's picture

This is the biggest News item out there that the Famous MSM Refuses o Cover...

This In NOT Rocket Science, Just check the Commi's Shorts...

http://www.cftc.gov/dea/futures/deacmxsf.htm

MalteseFalcon's picture

So one young Asian trader who "spoofs" the market into making small, intra-day movements is "the" source of PM market manipulation?

I think not.

Give Me Some Truth's picture

Memo to Justice Department: Might want to look a little higher - COMEX, Bullion Banks, Treasury, CIA, BIS, U.S. Fed, all central banks, the PPT, all first-world governments, presidents of nations, your own justice department, FBI, big news organizations that spread "precious metal bearish" news and pass on their own investigations, etc.

P.S. Quit kidding us. You don't want to know the truth. No, check that. You DO know the truth. You just don't want everybody else to know it.

Stuck on Zero's picture

Lesson: Spoofing bad. $500 billion in naked shorts good.

nope-1004's picture

Martin Armstrong proclaiming "futures markets are solid and cannot be manipulated" just proved himself to be either a .gov agent or a complete imbecile.

 

Give Me Some Truth's picture

The real puzzler is that this could be the "story of the century" if what is really happening was told. The Why. Identify who is involved in the manipulation. How it's done. You could expand into other markets that are now routinely rigged. You could probably identify wars and treaties that have been waged to keep suppressing sentiment for monetary metals. That this story is not told tells us that the "first recorders of history" (the press) are involved in suppressing the story. So the list of conspiritors - and those who should be shamed and exposed - also includes all the usual suspects in the MSM.

 

hannah's picture

i didnt read the article yet i know how the gold market is rigged...easy....the government and the banks manipulate the market. how....who fucking cares. the point is they do it....end of story.

Cashboy's picture

Even this doesn't make sense !

Because I have been reading; even on ZeroHedge; that the price of gold was set by 5 banks on a daily basis anyway; so why would this bank worker be trying to hype the price of gold when he worked for one of the banks that sets the daily price of gold.

Please explain to me ?

philipat's picture

Both the Fix AND spoofing are not the major part of PM manipulation, which takes place on Comex. The Bullion Banks are able to issue an infinite number of naked paper short contracts to sell into demand and stop the price from rising. This is non-existent paper Gold which the Banks will never deliver being sold to paper traders who will never take delivery. And that is the way the spot price of physicalk metal is set! Unbelieveable really. Of course, the futures markets were created by the BIS/Central Banks with the sole purpose of being able to manipulate the price of Gold without risking too much of their own real physical metal.

giggler321's picture

but that does not make sense either.  these bankers are greedy wanks, look what they done to other assets, like housing, even now production cars.  Anything they hold they push up, so if they hold real physical, they would naturally want it to rise.  It does not make sense for them to say, we've got x physical so lets keep the price down?? eh?

yvhmer's picture

Good observation. It does raise the question as to how much they really hold. It seems like an open escape valve. Keep the valve open in order for the system to let of steam.

Providing they can keep the valve open enough,  this does not seem bullish for gold. Or is it geared towards gold price relative to something else?

aqualech's picture

The price is being held down on behalf of those who are actively increasing their holdings of  physical.  You need to play a longer game.

Al Gophilia's picture

There's the dollar. It's their skimming device. You can't skim with gold. You can't offer unlimited credit with gold. They will skim until confidence is lost. Perhaps Bitcoin is the harbinger.

Give Me Some Truth's picture

Protecting the U.S. dollar - and the printing press for this fiat currency - is the goal of all these elaborate rigging/manipulation efforts.

Absent the ability to magically print dollars as needed, the entire status-quo system crashes. The entire "establishment" immediately is in peril.

All of this MUST be done in their view. Killing sentiment for the dollar's only competition is vital to this effort.

DisorderlyConduct's picture

Of course it makes no sense if you consider it from an asset valuation perspective. That's because banks primary asset is currency not bullion. They also hold debt denominated in currency units not bullion units. The whole need to suppress PM movement is about currency value not bullion value.

This trader and dozens like him are not *the* problem with PM valuation. They manipulated prices for fun and profit. But the real manipulation is from the ability of the market makers to naked short commodities. This is being used to create a false price discovery. Their only punishment is to settle in currency when they have to deliver. Basically this serves to make fiat currency = PMs, which is false on its face. Someone offers you gold in the future and delivers dollars = breach of contract in a world based in justice.

I imagine this trader and his buddies are bread and circuses for the masses while the broken system will remain unexamined.

Enjoy the artificially low PM prices in the meantime.

Give Me Some Truth's picture

No, "they" certainly do NOT want physical gold (and silver) to rise. This is the last thing they want. All of their important "assets" are denominated in fiat (specifically the U.S. dollar). The entire corrupt status quo - that benefits all of the members of the Establishment - is predicated on maintaining the printing press/borrow as needed system. 

So, yes, someone who hoarded tons of gold and silver could/would see immense gains if gold and silver prices were "set free." However, all of their fiat-denominated assets in their portfolio would crash. That is, "they" would lose a lot more than they gain. Plus, the system they are gaming (skimming from) would end. The Fed, the U.S. government, the "too big to fail" banks, Wall-Street, the military industrial complex, the neocons' agenda, the Welfare State, the EU, soverign nations - they ALL depend on "confidence" for fiat currencies remaining high. It has to be a given that dollars are the assets to hold and acquire.  (The opposite view is that gold and silver should be the ultimate safe haven. This view is kryponite to the Establishment).

If, say, Warren Buffet, suddenly sold all of his stock and bond portfilo and put the proceeds into gold and silver, this would immediately panic the Establishment and send others fleeing into history's traditional "safe havens." The Buffets and the giant pensions and insurance funds know this so they aren't going to take such action.

There's a Catch 22 here. The only people/organizations that COULD send precious metals soaring by buying physical in huge sums ... are the last people who would be inclined to do this. Anyway, "members of the club" know that they can do nothing that might possibly change "sentiment" for precious metals from the existing "attrocious" to "wildly bullish."

One last effort at re-stating this: The people who COULD blow up the (fiat) system dang sure do not want to blow up the system. This would be suicide for them.

DisorderlyConduct's picture

Well stated.

It ends up being a race for the exits. And maybe a sniper trained on the door for whoever is first... Scary.

But don't you think that eventually the tension will become so great that someone big will finally bolt? Maybe a Buffet type, maybe a sovereign fund. While these guys are on the dole via printing press gains, it ain't real until it's out of risk assets. Or will a popular movement force their hand - like the real money folks in Arizona? That could develop some momentum.

Give Me Some Truth's picture

We think alike. I agree with your "sniper" reference to the first person who bolts/panics. The Manipulators will have to make a quick and powerful example out of the first person or entity that goes the precious metals route.

 

I do think this is the scenario that will unfold though. Someone will panic first. It will be interesting to see how quickly after that the second "big player" also panics. If it gets to two of them, we will soon have 200 is my guess. This will be when everything changes. So "they" can't let the number get to 2. Of course so far they have stopped it from being even one, so they have been succesful. Everyone who could be first and opts to go "all in" on precious metals knows they will be kicked out of the club immediately and will not be able to keep their friends in high places.

 

 

JerseyJoe's picture

To your point, last night's close had silver shorted 1.030 Billion ounces.  

http://troyozgold.com/precious-metals-precis/

Meanwhile the Silver Institute estimates global mine supply was 885M and declining YoY.  

Very few miners and refiners front sell their silver...so who is selling?  And certainly not to this level. 

You answered it.  Blatant naked shorting by the cartel. 

BUt with mine supply forecasted to decline in the coming years...how will they cover?   The trend says they will just keep going deeper. 

They broke 1.1B ounces short just a few weeks back - an all time record.   They can't unwind this other than marginally - if they did the short squeeze would be epic.

aqualech's picture

They settle in cash.  The shorts are the same as the buyers, so they have deep pockets.  Obviously, they are not too worried about being held accountable in any event.  When have the big banks EVER been held accountable?  Not in my recollection/

secretargentman's picture

The problem for the riggers, as I see it, is that while they can spoof the supply in order to drive down what they would call "speculative demand", the actual physical demand only grows when the price is artificially low. Eventually the physical demand will overwhelm the physical supply, then the game is lost. Especially because once that happens the speculative demand kicks in big time. It's going to be rather spectacular.

Give Me Some Truth's picture

It is comforting that tens of thousands of private citizens (like yourself) get the "real story" of what is happening. We also get the "why."

 

That the Justice Department and Regulators (and press) couldn't connect a few dots and reach this conclusion is simply impossible. They know what is happening. They just can't investigate/prosecute/expose the real players.

loves the truth's picture

this is a fish they throw out to distract from the real criminals.. government

JerseyJoe's picture

For fun and profits.   They front run the fix to drive it up or down.  Watch the prices before option expiration near the end of the month.  They systematically rinse out as many deliveries as possible in order to keep the scam going.   Meanwhile JPM keeps buying and hording silver.  Why? 

Silver is the most shorted commodity on the planet with well over a year's mine supply sold.   There is the problem for the cartel, the short is so big, there is not enough silver in the world to cover.   They keep digging a bigger hole for themselves. 

It is coincidence that Bear Sterns collapsed right around the time that their massive leveraged silver short position had a billion plus margin call due to a price spike?   And then the rubble was handed to JPM who helped spike the price in the first place?   Look what JPM did to MF Global...same thing on a smaller scale.  

Fun and profits - easy when regulators let you get away with whatever you want. 

BTW this widespread spoofing occurred during the 5 year CTFC investigation of silver price manipulation and the found no evidence even though a mountain of evidence was handed to them?  Hmmm   Gee I guess they didn't try very hard.   They may have had an accident if they did. 

JerseyJoe's picture

BTW Here is an example of the problem as recycling of silver has declined significantly:

 

In 2014, 594.9 million ounces of silver were used for industrial applications, while over 215.0 million ounces of silver were committed to silver jewelry and 196.0 million ounces were used in coins and medals.

Demand exceeds supply by a significant amount...and supply is declining with a decline of base metal mining where 58% of silver comes from.

Give Me Some Truth's picture

Yes, that infamous CFTC "Investigation" needs to be put in quotes. How do we know they investigated anything? Who did they talk to? What questions did they ask? All they did was put out a press release. No one has ever seen any of the details of this alleged "investigation."

I know for a fact that they didn't even question Ted Butler, the man who first figured out the markets were rigged and has made it his life's work to expose this. How could you investigate alleged market rigging and NOT talk to the authority on the topic? Who investigates the "investigators?" 

No one.

 

comicon's picture

This article makes no sense

Scuba Steve's picture

Spread .... Man's gotta feed his family*yawn*

TwelveOhOne's picture

Furthermore -- it's not illegal for me to place an order and then change my mind and cancel the order before it is filled.

So -- what's the threshold that makes this behavior illegal?  Number of offers?  Number of canceled offers?  Within a certain time limit?  It seems so arbitrary.  Which means, these are rules designed to make criminals out of normal people (Congress is excepted though, as with insider trading...).

This is it's picture

Stupid kid. Come back home and get some caning. 

JerseyJoe's picture

Liew better stay away from windows.   The Cartel has a lot of clean-up on its hands - expect many PM traders to have accidents. 

Meanwhile the MS Biz news will quickly drive this news into the ground - just a one off - pay no attention!  Buy stock and STFU!  We have to keep this scam afloat at all costs because when million of good hard workin' 'Mericans wake up an realize that their pensions are too underfunded to support them and their paper wealth in bubbly bond, stocks and real estate all collapses in a pile of poop...TS will HTF on a big way.   The pitch forks will be in the streets looking answers from their "leaders."   (Leader is such a funny term for sociopaths.  See John McCain.)

When Greenspan was asked if there will be enough money to pay SS, he said in classic rarified Fed Speak (in essence), "There will always be enough money to pay SS, the question is whether money will buy anything."

 

Nunyadambizness's picture

TPTB cannot allow tS to HTF because their entire web will come unwound, and will leave them horrendously exposed.  Expect more of what you described "Nothing to see here, move along" and ALL of the stops to be pulled out to prevent the inevitable.  It's been coming for some time, but they keep pushing it off as long as they can...  

TwelveOhOne's picture

I learned recently that "pulling out all the stops" is an organ-playing reference, where they "bring into play every rank of pipes," thereby creating the fullest possible sound.

It certainly seems like we're living through a crescendo!

Calculus99's picture

I think we all know Douche Bank's respone to this -

1. We know nothing

2. It was the work of a lone wolf rogue trader

3. Douche Bank strives to operate with the highest ethical standards and respecting all laws

Douche Bank, if you're reading this, you don't even have to write the above, feel free to copy/paste in order to save time. 

comicon's picture

I doubt they could really have any impact. The one trading group that I know who might be able to impact markets like that is www.shepwave.com

 

Mon T's picture

No comparison. This kid looks like he is in high school. SW traders are from Goldman and have been in industry for several decades.

bookofenoch's picture

Why lookie!!! Shepwave shills hitting reply near the top to sell their junk and reply to himself with a shepwave alias! It must be Tuesday

Give Me Some Truth's picture

The biggest farce is that JPM is not named in any of these documents. They are quarterbacking the rigging for the government, Fed (perhaps China, which gets dirt cheap physical from all of this).

blargg's picture

Eliminate this and you still have COMEX. 200x paper than physical.

Give Me Some Truth's picture

Right. Any "investigation" into precious metals manipulation that doesn't zero in on the COMEX is a farce.

Kokulakai's picture

They stole to enrich their clients?

quasi_verbatim's picture

Just carry on stacking.

BlueHorseShoeLovesDT's picture

The Fed is the real "Legend"

Give Me Some Truth's picture

And a real audit would expose this. I've said a dozen times. Let's make it 13. If Trump really wanted to "drain the swamp" and nuke the Establishment, he would simply demand and sign "Audit the Fed." Then make sure it's a legit audit. Then publicize every word of the findings. The roaches would finally scatter in the kitchen light.

BTW. This. Ain't. Happening.

Which tells us everything we need to know.

spanish inquisition's picture

Guilty of spoofing outside of official channels.

milanolarry's picture

It makes no difference now. The Chinese, the Russian, the Indian and the Muslim..... all knows that the PM markets are rigged. They are too happy to see the prices of PM manipulated to an ridiculouly low level. They just scoop up as much PM as possible. When the last ounce of PM in LBMA / Comex is gone, the day of reckoning comes. They will find that a few years of imprisonment is nothing when compared will the mess they need to face.

esum's picture

when engaging in criminal activity always leave a written record and joke about it with your conspirators..... this makes you not only a criminal but a fucking asshole.... if you cant steal enough to buy a few politicians ans judges.... dont play the game cause youre nothing but a wack a mole to them...

20 plus trillion debt... and counting and gold goes nowhere until the dollar is set free.... then gold 50k...???

cryptocurrency will always run the hack or fraud risk... ok they did put lead coated in gold in the NY fed... and we all use worthless fiat.... and diamonds are a joke .... russia has warehouses floor to ceiling in moscow ... just like the cartels have warehosues floor to ceiling in dollars and iran prints c notes on a regualr basis... fork in bitcoin next week" rumor or fact