JPM Silver Rigging Case Back in Court

Appeals Court Overturns Dismissal in JP Morgan Silver Rigging Case

  • US Appeals Court overturns Dismissal in Silver Rigging Case against JPMorgan.
  • The Appeals court rejected Judge Engelmeyer’s claim that the plaintiffs did not prove JPMorgan made “uneconomic bids” in the silver forward’s markets.
  • New discovery may win the case against JPMorgan


Via Soren K. and MarketSlant | The New York 2nd U.S. Circuit Court of Appeals ruled yesterday that District Court Judge Engelmayer was in error when he dismissed the Silver price rigging lawsuits against JP Morgan. The appellate court felt that Engelmayer’s dismissal reasons amounted to “impermissible fact finding” and placed too high of a bar in concluding that plaintiffs had not adequately plead their case.

This reversal of the June, 2016 dismissal means the case will go back to the district court for further litigation. This also means the plaintiffs will ask for and receive more discovery. This can win the case for them.

The Lawsuit  Was Dismissed in June,2016: JPMorgan Chase & Co had won the dismissal of three private antitrust lawsuits, including from hedge fund manager Daniel Shak, accusing the largest U.S. bank of rigging a market for silver futures contracts traded on COMEX.The lawsuits accused JPMorgan of having in late 2010 and early 2011 placed artificial bids onto the trading floor, harangued employees at metals market COMEX to obtain prices it wanted, and made misrepresentations to a committee that set settlement prices. Our previous analysis from June 30th, is here on Zerohedge.

Why it Was Dismissed in June: U.S. District Judge Paul Engelmayer in Manhattan, however, said the plaintiffs, who also included traders Mark Grumet and Thomas Wacker, did not show that JPMorgan made "uneconomic" bids, or intended to rig the market at counterparties' expense. He also questioned the plaintiffs' use of Silver Indicative Forward Mid Rates ("SIFO") as a benchmark for determining proper levels for the spreads in their lawsuits.

In fact on April 21st, 2016 JP Morgan urged the judge quash the litigation. JPMorgan insisted allegations that the bank monopolized the market were too vague to support antitrust claims. They urged the judge to raise the bar for the plaintiffs' burden of proof.

The Appeals Court Overturns the Dismissal Yesterday: The appellate court held that the plaintiffs did in fact submitted evidence that did in fact reach a level warranting further investigation. Therefore, the case should not have been dismissed.

In quoting the law, the 3 judges stated:

A plaintiff need only allege enough facts ‘to raise a right to relief above the speculative level,’ and ‘state a claim to relief that is plausible on its face.’

They stated that Judge Enlgemayer’s requirements for such specifics were too high to reach, describing the proof bar being raised to “a level of detail not required to withstand a motion to dismiss”


In essence what Judge Engelmeyer asked of the plaintiffs was impossible to ascertain in those proceedings.  

Specifically: “Fact-specific questions cannot be resolved on the pleadings.”

Can JP Morgan Monopolize Silver? Yes

The appellate court noted that the plaintiffs' allegation of JP Morgan’s ability to control silver futures prices with reference to a particular market was proven correct. Thus,

"The District Court did not err in concluding that the Plaintiffs plausibly alleged a relevant market.”

This means that the plaintiffs showed plausibility that JP Morgan could control the far end of the Silver futures term structure via non-competitive bids.To traders, that means the JPM client who had to sell back month was faded way too low. [EDIT- And when one looks at the term structure from then, it is obvious that no true physical demand was in evidence based on the spot contango.- Vince Lanci]

Did JP Morgan Monopolize Silver?  To be Determined

The Appeals court did not say they whether or not JP Morgan exercised such ability to monopolize the Silver market. But the statement that they noted the power to do so was proven in the first hearing is significant in that it agrees with the District court’s findings. If it is proven that monopolistic power was exercised, then game over. And traders know, to have monopoly power and not use it means you get fired from a bullion bank. Why? Because if you don't do it, your competitor will.

Now What?

  1. The appellate court says the plaintiffs made a sufficient enough case for further investigation into a monopoly claim
  2. The findings of the appellate court will accompany the case file
  3. Judge Engelmeyer’s decision is removed and the case is remanded for further litigation and discovery

Monopoly and Motive

The facts will come out. Once SIFO and COMEX spreads are proven to be factually linked, the Sherman Anti-Trust case will be made. And once the aggregate position of all parties is known, motive can be exposed.  It may even help JP Morgan.

Look to the Curve: The net effect was back months dropped, and fronts month raised on the term structure. What is induced using empirical evidence is that non-competitive markets were made facing captive clients OTC. Non-competitive markets were also shown on the COMEX floor near the close. The question of "What motivated JPM to do this?" ultimately is answerable in knowing their positions at the time. There are multiple scenarios that produce the results seen in the curve attached. Almost none of them sensible or ethical.

Here is just one possible scenario.  A silver miner had to hedge forward and cover up front. JPM likely had this client cornered and faded their back month bids. The miner, having nowhere else he could go, hit them OTC, when they were much better bid on the floor. The floor locals were run over. Meanwhile no other Bullion dealer was involved on either end of the trade so far. If this is true, think about the lock down JPM had with that client.

MarketSlant's Analysis post the decision in June, 2016


Given the (lawsuits') failure both to explain why SIFO should track silver futures spreads, and to concretely plead that it did so consistently, a mere general correlation between these two is not sufficient to make SIFO a reliable benchmark such that deviations from it support a claim of irrational pricing animated by anticompetitive aims," Engelmayer wrote.

Analysis:  a poor job was done explaining the role of SIFO in spread pricing.

SIFO represents the spread between expirations of FORWARD physical contracts in silver. The futures spread markets are derivative of the SIFO spreads. SIFO represents the cost-of-carry for physical silver and is used in determining lease/borrow rates over periods of time. These are in-turn extrapolated and the dominant factor in determining futures spreads on COMEX. Comex spreads are a direct function of SIFO. Without SIFO there are no spreads. And since SIFO was a much bigger market than the Comex spread market. The pricing mechanism was not fully transaparent. It was in the hands of a few dominant cartel-like players, as it had been for 30 years.


Analysis: The demand was fabricated

The market was only partially backwardated. Spot was below the next 6 expirations. Translation: there was no massive demand for immediate delivery. There was only demand in months where the last remaining floor traders who took risk trading their own money had positions. JPM's own book was likely short and had to get liquidity to cover their own positions. We knew Shak from our floor days, and were trading spreads off floor when this happened. They should not have lost this case. Comex traders do not trade spot. Spot was under the backwardation. Smoking gun? No, but damning circumstantial evidence in the least. Blythe and JPM did a Mini Buffet trade in effect.


But for now it is fair to say "Based on information and evidence, we believe the Silver spread market was rigged your honor." And the Appeals court indeed, agreed that there was enough evidence to look further into this. Next comes the discovery and fact finding.

The sad part is, government is 20 years late. The US citizen has already been sheared for a generation losing billions. Banks have moved on to greener pastures. It is now safe to prosecute US buggy whip makers to mix a metaphor.

Good Luck