Black Eyed Bankers

Three weeks ago on 21st July following President Obama’s signing into law, Bart Chilton of the Commodities Futures Trading Commission the CFTC described how The Financial Regulatory Reform Bill would provide proposed a tough new financial regime aimed at preventing futures market manipulation and enabling the prosecution of fraudsters;



What was the impetus for such a loaded announcement? Sure the threat of another GFC caused by excessive risk taking is a frightening scenario, but another likely cause for this policy change was demonstrated in a little known March 25th hearing in Washington DC where major allegations of precious metals fraud by the world’s largest bank JP Morgan Chase were publicly aired. Commencing with this article, and as categorised by this author, the blog will review the concerns of the 2,889 public submissions to the precious metals hearing officially lodged with the CFTC between 22nd March and 17th May this year.

Financial services providers, commodity brokers, traders and banks including UBS one of the world’s largest investment banks, have all complained to the CFTC about alleged fraud in the silver and gold markets. Timothy Trott UBS Vice President of Investments, advisory and brokerage services has said he is ‘appalled’ to hear allegations concerned with alleged fraud and the lack of regulatory action on the precious metals markets. Whilst strongly urging investigation of the allegations and regulatory reform to position limits he expressed dismay at what appears to be ‘shameful activity by some’ on the exchanges.

While I do not look forward to MY industry having another black eye, I am also not in favor of unethical individuals participating in unsavory practices continuing to work unchallenged and with no regard for written guidelines and unwritten principals.

One of only 6 members of the $65 billion per day London Bullion Metals Association, UBS obviously sees a problem in what many assume are fair and just precious metals markets. When a member of the elite banking family is so critical of his 'own' perhaps there is more than image at stake. Where Mr. Trott steps back from actually repeating the allegations of the hearing, a banking industry colleague comes to the rescue. Bill Weigel Vice President of Central State Bank is unequivocal in naming not only the crime but also the prime suspect.

I believe my clients investing long term in silver have been systematically plundered...Why should JP Morgan have any limits to their silver trading? They recently reported $72.6 trillion in total derivatives…that they have the ability to manipulate the silver market should surprise no one. That the CFTC would do nothing to prevent the small investors from this power and abuse should surprise everyone including JP Morgan.

In sporting parlance, State Central Bank is a featherweight compared to JP Morgan (and HSBC) but they are hitting well and above their boxing weight. The core complaint concerns this; over the past few years at times opportune to themselves one or two banks have accumulated enough short silver futures contracts (up to 25% of the market) to successfully manipulate the commodity price of silver downward. As a simple way of explaining, the market effect is similar to that if a major home lender announced its intention to sell (or conversely buy) every property it held a mortgage over in your suburb. Although the regulator has made no specific reference to the allegation, the July 21st announcement only suggested current laws are inadequate to enable a prosecution. A leaked email in May indicated the Dept of Justice had commenced investigations into the silver fraud. However confusing the situation regarding state prosecution, for now we have to accept that the CFTC as they say are considering what rules may prevent such future market fraud.

There are two standout submissions to the hearing in this category with great words of wisdom for the regulator, and which by not identifying professional affiliation raise suppositions of the author’s obviously adequate credentials. Respondent Robert Redelmeier offers encouragement worthy of a regulatory and/or legal counsel.

You have heard and will hear many arguments. By law and custom, those with the strongest profit interests must defend those interests with polished argument. Your unenviable charge is to dissect those arguments and fill in counter argument for the absent profit-shorn American people… the CFTC was set up as an independent agency, not part of the Treasury, Dept of Agriculture, SEC, FRB or any other body. It was recognized that independence from these otherwise fine organizations is necessary because sometimes one or more might need to disappoint. Even bitterly so,

To understand more about who the CFTC may need to bitterly disappoint one should look to the well-informed Robert (J.?) Chase. He recommends a history lesson on a former CFTC Chairman who tried to warn of risks during the era of the famous market deregulators Reagan, Clinton, Greenspan and company.

Currently, according to the CFTC public data on bank participation (please see your web site http://www.cftc.gov/marketreports), a few large U.S. banks control a disproportionate net short, or selling, position in Comex silver futures of as much as 42%. That one fact is a large known concentration even if the few players can attempt to defend it for their own profitable agenda…(If we don’t learn from the past, we are destined to repeat it. Research one of your former CFTC Chairman, Brooksley Born and her battle to control risky transactions)…The hope is you, Mr. Chairman can get the solid support you need from your fellow commissioners to make good on your sincere pledge to prevent excessive speculation in metal and energy markets as well as the unregulated derivative market.

This reviewer found an excellent Frontline documentary video freely available online regarding the brave disappointed regulator and her nemesis. Some of who are still walking Washington's corridors of power.

Regarding specific rules to curb ‘excessive risk taking’ and prevent future manipulation of the market, most of the 26 submissions in this category discussed position limits and requested position limit change to avoid concentrated ownership. Some simply agreed with the Chairman’s statement from earlier this year that limits should be applied equally to all commodities trading while others just encouraged the investigation. 13 submissions specifically requested position limits ranging between 1000 to 1500 ( and 1@1000-2000) contracts. Kenneth McCoy forwarded a reasonable argument that limits based on proven and available supply of the commodity rather than open interest would allow more efficient market discovery pricing. Finally it will probably come as a surprise to most except perhaps JP Morgan and HSBC to discover only one submission to the hearing from professional or corporate representatives against regulation. Retired economist Roger Clites urges the regulator (as a famous retired Central Bank Chairman once cheered) that markets ‘should run themselves’. After the allegations of the hearing, one wonders where exactly the precious metals markets would run themselves if allowed?

Submissions to the precious metals hearing from the professional and/or business community indicate that despite the total neglect shown by the financial media and lack of specific comment by the CFTC on the matter, key members of the financial community heard shock whistleblower testimony from the precious metals hearing alleging JP Morgan are accountable for arguably the largest precious metals fraud in history- the downward manipulation of the COMEX silver market. Some of the business community were amazed at bullion bank representative Jeffrey Christian revealing there is only 1/100th of real silver and gold available to back precious metals futures transactions. Some noticed despite the fact that Ted Butler champion of the 25-year public campaign for the very reform to be discussed at the hearing, and on whose insistent allegations up to three CFTC silver enquiries have been held was not invited to testify, and some noticed despite the fact that live streaming of the hearing was interrupted for Bill Murphy Chairman of precious metals action group GATA's testimony. Professional and corporate observers of the CFTC hearing probably wonder if and when those responsible for the plunder and profit-shearing of Central State Bank, UBS and ABN AMRO clients not to mention others, will be called to account. They probably don’t understand why they are being asked again to write to the commission regarding position limits when they have already done so. Many will hope but that is not guaranteed that JP Morgan and HSBC will not be exempt from the new rules, or eventually be allowed to simply forgo existing concentrated non-compliant futures contracts. Although notice has been given of steps forward, there is a long way to go before the confidence in the regulator and the financial markets they oversee, is restored.

For ease of access the table below contains direct links to each of the 26 professional, business and corporate submissions to the hearing accessible from a public server by clicking the authors name. Alternatively the files can be found on the CFTC website in date received PDF files of up to 548 submissions long.