No Golden Egg for Stocks

J.P. Morgan did not respond to multiple calls seeking comment.

The suit was filed in the U.S. District Court of Eastern Louisiana by New Orleans-based Blanchard & Co., the largest retail dealer of gold coins and bullion in the U.S.

The lawsuit claims Barrick used off balance sheet accounting to dump billions of dollars worth of gold on the market in an effort to suppress the price of gold and weaken its competitors. Among other (unnamed) bullion banks, J.P. Morgan is accused of providing "crucial assistance" to this effort, according to Blanchard.

"The same type of accounting maze that hid Enron's debts made it possible for Barrick to manipulate the price of gold without the checks and balances that come from public scrutiny," Blanchard's chief executive officer, Donald Doyle, said in a statement. The lawsuit also claims the J.P. Morgan-enabled efforts by Barrick to depress gold prices "irreparably harmed" its business by dampening demand for its product and leaving it holding bullion that is worth less than it otherwise would be.

Blanchard's press release makes much of how J.P. Morgan and Barrick allegedly did all this in private, which prompts the question: How does Blanchard know about it and what kind of evidence has it compiled?

To that point, a Blanchard spokesman referred me to the company's request for an injunction, a copy of which is available at www.savegold.com.

The filing describes how Barrick grew from a relatively small mining company in 1983 to its current status as the world's second-largest gold producer, largely via acquisition. This transformation was chiefly the result of Barrick's "Premium Gold Sales Program," which the lawsuit describes as "unlike any hedging program as that term is commonly understood."

The program contains both highly favorable financial terms provided by J.P. Morgan and provisions allowing Barrick to "indefinitely" postpone the date it has to deliver gold to repay what it has borrowed for the purpose of hedging, according to the complaint. "Barrick, in combination with J.P. Morgan and other bullion banks, can dump millions of ounces of tangible central bank gold into the spot market at any time without risking the company's financial future," the filing alleges. "Such conduct is highly favorable to Barrick, weakening its competitors and allowing it to acquire additional [gold mining] reserves at bargain prices."