JPM Silver Manipulation Explained

Edmundo,

I've been waiting for the actual complaint to be released for public purview by the US Southern District of Manhattan as I wanted to read the complaint before posting about this. I'm also surprised that this little tidbit took a whole week to break here on WSO, but that's what happens when you wait for all the facts to come in before posting.

The most interesting claim of note here though is the RICO charge, as that's what the supposed case of market manipulation falls under. RICO, Racketeer Influenced and Corrupt Organization, charges are no laughing matter. In order to fall under the RICO statute, at least two of the 35 known crimes considered to be RICO charges must have been engaged upon by the defendants (Which is why I wanted the complaint in the first place). I know we're talking securities fraud, collusion to defraud the markets, insider trading and a few other good charges, but the entire list definitely is something I want to read when it comes out.

I'm sure you already know this, but the first non-crime family to get hit with RICO was Michael Miliken. He was able to plead to lesser offenses, but this definitely isn't the first time RICO has been charged like this.

RICO opens a whole can of worms, too. There's no statute of limitations in a RICO case, so prosecutors can conceivably go back as far as they want to make the case. This could be interesting, but I have a feeling they'll get a slap on the wrist and the whole thing will go away.

Gents,

I posted a while back about the 500 Euro bill and it's propensity of use amongst the organized crime syndicates of Europe. Though headquartered in London, HSBC (for our less informed readers) stands for, The HongKong and Shanghai Banking Corporation and been suspected of a landslide of shady activity throughout the years involving both the CCP and several large Triads. Last year a story came out about Wachovia washing money for the Mexican mafia .

Please let one of these banks take a RICO hit. I don't care if everybody calls me a hypocrite, but if the government can actually step up and have the balls to do it's job, which is to REGULATE...period. I will be right there in their corner. This shit has got to stop, we have NEVER had such corrosively colluded markets. Enough already.

Eddie, I don't have a dog in this fight, but I'd be careful about exposing yourself or Patrick to a defamation or libel lawsuit by speculating too heavily and being too certain about folks' intent. Let's aim a little more for Edward R. Murrow than Bill O'Reilly when it comes to our analysis and jumping to conclusions. I will agree that this kind of alleged behavior doesn't belong in the financial industry, though I'll note that this could have just as easily been done from Bermuda or another place where the SEC and other regulatory authorities have no jurisdiction.

I'm not sure it makes sense to be sending folks to jail, but if something like this happened under your nose, there's probably a preponderance of the evidence- though not 100% proof- that you're either crazy, stupid, or criminal. Either way, there's a good chance you need to take a nice, long vacation from the industry and lose significantly more than you would have stood to gain had the scheme paid off.

Please let one of these banks take a RICO hit. I don't care if everybody calls me a hypocrite, but if the government can actually step up and have the balls to do it's job, which is to REGULATE...period. I will be right there in their corner. This shit has got to stop, we have NEVER had such corrosively colluded markets. Enough already.

You know a country's in deep trouble when some of the smartest, wisest folks are engaging in behavior that might suggest they're crazy, incompetent, or criminal.

Just curious, IP, but what did I say that you thought could be considered defamatory or libelous?

First of all, I sincerely appreciate the concern. I'm always sensitive to accusations of libel and defamation, not because I fear lawsuits or being "outed" (believe me, I've revealed enough about myself on this site that anyone with more than a passing curiosity could probably figure out who I am if they were so inclined, it wouldn't require subpoenaing apache logs), but because libel and defamation are unprofessional and the mark of an amateur.

That said, that the banks manipulated the market for silver is not in dispute. So my saying that I have no doubt that they did (nor could any reasonable person) is not just one man's opinion but a statement of fact. When you have cornered 85% of any market, you are manipulating the prices of the underlying commodity. Evidence of this is the fact that silver shot up 80% almost immediately after their exit from the market. From there it becomes a question of intent, as I stipulated (and covered my ass, lol).

Guys, I can't stress to you enough how important it is to me that you call bullshit on me when you think I've said something that crosses a line or is lacking fact or evidence. I'll be the first to admit when I'm wrong.

Edmundo Braverman:

Guys, I can't stress to you enough how important it is to me that you call bullshit on me when you think I've said something that crosses a line or is lacking fact or evidence. I'll be the first to admit when I'm wrong.

Yut!!

Edmundo Braverman:

Guys, I can't stress to you enough how important it is to me that you call bullshit on me when you think I've said something that crosses a line or is lacking fact or evidence. I'll be the first to admit when I'm wrong.

Eddie, I'm calling BS on you to the extent you're asserting something you seem to be claiming is 100% true without having the proof to back it up. The typical definition of market manipulation is that it also carried criminal intent. The definition you seem to be using is that a guy picking up a huge position in silver and who happens to move the market in the process has committed market manipulation, when in reality, he might not have done anything wrong.

I'll agree with you that it looks like there's a slightly greater than 50% chance you're right- and that there's another 20% chance that these guys are too foolish or crazy to work in this industry. But we're playing with jail time for some folks here here and it's best not to make assertions unless you've got hard evidence.

Mark, I think you might be confused about exactly what I'm asserting, and if that's the case I've done a poor job explaining my position.

If 25% of the total open interest of any futures contract is a single participant's short position and that position comprises 85% of the net short positions in that commodity, that market participant is manipulating the market lower, or at the very least preventing it from going higher. That's all I'm asserting. They manipulated the market with a massive short position. And that's not me talking, that's the CFTC.

All the figures cited are easily verified through volume and open interest records.

If you thought I was implying that I was 100% certain that there was criminal collusion between JPM and HSBC, then my post was poorly written, and for that I apologize.

I agree with 3M. This kind of stuff will never stop unless a bank gets smoked.

I would have said this already, but our internet was kicked offline for a bit... so here it goes.

Edie and IP,

Forgoing the ongoing question of blogging and web board discussion, as that's a whole seperate issue still being resolved, from a legal perspective, we can speculate all we want without being acusatory. That is exactly what this discussion is, speculative at best. We haven't discussed things that are confidential (ie knowing how the banks will defend themselves against this allegation versus how the plaintiff is handling his case) and are discussing information that this freely available. Libel and Defamation suits have extremely specific criteriea that need to be met before a lawsuit can be filed, particularly when it comes to issues of public record. Additionally, we are defensable in what we say, in that:

1, we are discussing our opinions on the matter 2, we are discussing this and are protected by the Mistake of Fact doctrine, as we are, for the most part, viewed as ordinary people. We're discussing news articles and quotes that are available in public record, making our discussion protected by said doctrine, as we are relying on a reputable source for our information (ie a Bloomberg or Reuters news report) who are expected to have fact checked before publishing the article. This is important as there is no mens rea proving that we were being libelous given the facts we were presented as true. 3, we are discussing the matter under the Fair Comment doctrine as well. The Fair Comment doctrine concerns itself with the discussion of matters of public interest, such as this, and effectively states that if a resonable person could form an honest opinion on a matter of public interest, and honestly believes in their opinion, regardless of how logically unsound it may be, provided that a resonable person could entertain such an opionion, it's considered protected.

IP,

As to DBL, I also don't think people are smarter than they were in the 80s, I think they have a slew of different tools at their disposal, however unlike Drexel back in the 80s, this case involves historical data and trades that had to be reported and are still held on record, making this one of the more interesting non-Mob RICO cases to be filed. One of the reasons, by the way, why Drexel didn't get charged with the RICO because they pleaded to lesser offenses. However, if they did get hit with a RICO Charge, it would have destroyed the business. They would have had to post a peformance bond for upwards of a $1 Billion USD that would superscede all of their other obligations, namely the 96% of capital it had outstanding that was used to fund its obligation. The other thing is that if they were charged with a RICO violation, they would have no longer been able to secure credit and financing because of the structure of RICO laws preventing them from getting credit from banks. That last bit makes this unusual, as I have never heard of a major bank get this charge filed against them. I wonder how this will affect their ability to borrow or lend going forward.

MMM,

Yes, agreed. If HSBC or JPM are found as having violated RICO, I would be very afraid if I were part of the Gold Syndicate, otherwise known as the LMBA. This silver manipulation case becomes even more absurd because you now have the question of whether the collusion and manipulation in the Gold Markets via the LBMA, of which both HSBC and JP Morgan are full members of. The only reason I bring this up is you can bet your ass that there will be ramifications based around these RICO charges if they are successfully tried.

Happy,

As expected, this should have happened earlier, but you know how the government works. As Eddie said, RICO doesn't have a Statue of Limitations, so the two year wait could have been all investigatory. To answer your question seriously though, lets look at the entire financial crisis as a whole. No one in Washington wanted to get involved when the going was good, their accounts were up and people were buying homes they shouldn't have. As long as people made money, our government overlooked the problems of the markets when they should have been correcting them, but that's what happens when the lobbiests are in bed with the politicians. I can't help but think of the Friends of Angelo and Casino Jack when I look at the problems that should have been fixed but werent due to the lobbies. That's why they don't act sooner.