NEW YORK (
) -- A pair of lawsuits filed last week against
reveals a growing conspiracy theory in the silver and gold markets that large banks are working in tandem with the U.S. government to suppress the real cost of some precious metals.
A lawsuit filed by trader Brian Beatty alleges HSBC and JPMorgan "conspired to suppress and manipulate" the price of Commodity Exchange Inc. (COMEX) silver futures and options contracts." A separate suit filed by Peter Laskaris, another trader, makes similar claims. Spokeswomen for both banks declined to comment on the lawsuits.
The suits were filed the day after Commodity Futures Trading Commission Commissioner (CFTC) Bart Chilton urged the Commission to push for prosecutions in a two year investigation of the silver market,
The Wall Street Journal
reported Wednesday. The report also stated the CFTC was investigating allegations JPMorgan "was involved in manipulative silver trading."
Chilton complained of "repeated" and "fraudulent efforts to persuade and deviously control" silver prices, according to the report, though he did not disclose the names of the parties he was concerned about.
The allegations against the banks are not new, but were made publicly in front of U.S. regulators in March by a group whose views are far from the mainstream.
The Gold Anti-Trust Action Committee (GATA) spoke before the CFTC in March, also accusing HSBC and JPMorgan Chase of manipulating silver prices on the COMEX.
Both banks have "large manipulative short positions on the COMEX," GATA Chairman Bill Murphy told the Commission,
dated March 18 and published on the CFTC website. Murphy delivered the comments as part of a presentation before the CFTC March 25, according to a CFTC spokesman.
Some of Murphy's comments, and other data and allegations posted on GATA's website, appear in similar form in the two lawsuits. Beatty's suit, for example, makes repeated reference to a whistleblower it identifies only as former employee of
in that firm's London office. The lawsuit claims the trader sent the CFTC emails "predicting the price suppression of COMEX silver futures and options contracts." It also claims the trader "publicly disclosed his cooperation with the CFTC and released his emails" in March.
Economist Joseph Stiglitz
GATA disclosed what appear to be the same emails on its website March 25, sent by a trader named Andrew Maguire, and the
New York Post
a few days later
with an interview with Maguire, identifying him as "a former Goldman Sachs trader working at the London Bullion Market Association." A Goldman Sachs spokesman declined to comment on whether Maguire ever worked for Goldman, and Maguire could not be reached.
Hollis Salzman, attorney for Beatty at Labaton Sucharow LLP, would not comment on the identity of the whistleblower. However, GATA Secretary and Treasurer Chris Powell, who says GATA consulted with the plaintiffs, wrote via email that the unnamed trader in the Beatty lawsuit is Maguire.
Salzman, however, wrote via email that "the lawsuit is not affiliated with GATA," adding "I do not know
GATA Chairman Bill Murphy and our lawsuit is brought on behalf of Mr. Beatty and the class members he seeks to represent."
GATA's views go well beyond HSBC and JPMorgan, however. Murphy told the CFTC "certain bullion banks, like JPMorgan, Chase Bank, and Goldman Sachs...were working closely with the U.S. Treasury Department and Federal Reserve in a gold cartel, part of a broad scheme of manipulation of the currency, precious metals, and bond markets," according to the remarks posted on the CFTC website.
Upon hearing GATA's argument on its website that "the International Monetary Fund has instructed central banks to lie about their gold reserves,"
Nobel prize-winning economist Joseph Stiglitz, a frequent critic of the IMF, expressed some skepticism. "Without knowing anything about this, it's more likely a group of gold nuts, of which there many," he said of GATA.
Stiglitz had his doubts about whether two big banks might be capable of cornering the silver market, though he conceded that he does not have a good handle on how liquid the market is.
But John Shapiro, former head of commodities at Morgan Stanley, says the silver market is less liquid than many other major commodities.
"Due to the limited depth of the silver market, large positions can at times have an impact. Such an impact, by itself, is no indication of any intent to manipulate the market. Nevertheless, the limited depth could present such an opportunity to one who was so inclined," Shapiro wrote in an email exchange.
GATA and its adherents, many of whose views can be easily be found on message boards for
, and similar sites, appear to have focused their ire on HSBC and JPMorgan because those banks are the custodians of popular exchange-traded funds the
SPDR Gold Trust
iShares Silver Trust
According to the prospectus for GLD, "the gold that underlies Gold Shares is held in the form of allocated 400 oz. London Good Delivery Bars in the London vaults of HSBC Bank USA. Their safekeeping methods have stood the test of time for centuries, as both individuals and institutions (including many governments) continue to store their gold in the London vaults. We have tremendous confidence in the Custodian's efforts to ensure the safety of the Trust's gold bullion."
GATA views such claims with suspicion, to put it mildly. In the latest version of the old conspiracy theory that there is no gold in Fort Knox, they argue the banks don't actually have the gold and silver they claim to have.
"GATA is not an investment advisory organization and I'm not one personally. However, if people ask us we are inclined to point out to them that perhaps most of the gold and silver that investors think they own is probably just a paper claim and does not actually exist," Powell says.
Powell and GATA argue JPMorgan and HSBC have the "the world's biggest
short positions in gold and silver, which we consider an outrageous conflict of interest."
Echoing a claim by GATA, the Laskaris lawsuit states that as of the first quarter of 2009 HSBC and JPMorgan "owned more than 96 percent of all precious metal derivatives held by U.S. banks (excluding gold) with a combined notional value of $7.9 billion."
The shorting by these banks is intended to keep people from catching onto the scheme as fears about governments printing more and more money to offset ballooning deficits send the prices of gold and silver ever higher, says Richard Greene, portfolio manager at hedge fund Thunder Capital Management in Clearwater, Fla. and a GATA proponent.
"The building down the block is on fire. Let's go over and break the fire alarm on the side of the building and then the fire department won't know that the building's burning," Greene says, adding"if gold and silver were at their legitimate free market prices, silver would probably be well in excess of $100 (per ounce) and gold would probably be in excess of three or four thousand dollars (per ounce) right now."
On Monday, silver was trading below $25 per ounce, while gold was at about $1365.
Silver has gained ground on gold in recent months, a dynamic the Laskaris lawsuit attributes to the CFTC investigation.
"After public complaints and government reviews of those complaints about manipulation in the silver markets began in March 2010, Defendants somewhat changed their behavior," the complaint states. "As Defendants cut back on their unlawful activities, prices of silver futures traded on the COMEX dramatically increased."
However, other commentators on the precious metals markets, such as Richard Ilczyszyn, Senior Market Strategist at Lind-Waldock, attribute the recent rise of silver to investors looking around for an alternative to gold.
"Anybody who is looking for metal exposure is looking for something that hasn't made any particular move," he says.
Written by Dan Freed in New York
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.