Lawsuit Regarding the London Gold Fixing

A class action lawsuit was filed on March 4, 2104 in the US District Court, Southern District of New York, Manhattan.  The caption is Maher v. Bank of Nova Scotia, 14-cv-01459, U.S. District Court, Southern District of New York (Manhattan).

The articles can be found on a google search, see here, for example.  

http://www.bloomberg.com/news/2014-03-04/barclays-deutsche-bank-accused-of-gold-fix-manipulation.html

I went to the pacer site and pulled the complaint.  I breezed through it quickly.

At this point, I am pretty far from impressed.  In fact, I am much closer to WTF?

The lawsuit has a single class rep who bought some futures on the Comex.  The legal theory is straight antitrust, based primarily on the claim that the LBMA's twice a day price fix is somehow a violation of the Sherman Antitrust Act and the Clayton Act ("contract, combination or conspiracy on restraint of trade").  The sole facts plead consist of empirical evidence of price moves, hardly persuasive, along with a recounting of the manner in which the five bankers set the fix.  Again, this is hardly going to keep this case in Federal Court and I expect a timely 12(b)(6) motion will be filed and granted.

Where is the link between the fix and the price smashes we all see all the time?  Sure the charts paint some statistically improbable moves, but where is the proof linking the LBMA to all of this.  Where are the witness' allegations confirming that the price fix was set at a point to restrain trade, or that information was leaked in advance, or set at specific price points to front run the market?  Just because we see manipulation on a chart does not automatically link that manipulation to the acts of the largest bankers choosing a price twice a day.  Remember, buyers and sellers can buy or sell at whatever price they want.  It's not like they all got together and restricted supply to increase the price or flooded the market with supply to crush the price.  You know, like the bullion banks do all the time by selling naked shorts . . .

Anyhow, using the rationale from the complaint, then under this theory, then maybe I can sue Chevron for antitrust gasoline price manipulation at the pump because two owners of local gas stations have coffee at Starbuck's every day then right after that they set the price of gas at their pumps?  See how silly this seems?

Sorry to disappoint, but I was hoping for more.

If anyone has questions, I can go into some more detail in the comments tonight and tomorrow.

122 Comments

AlienEyes's picture

ACE !

#1  smiley

Keep Stackin' !

California Lawyer's picture

Drive By Shooting

boomer sooner's picture

Thanks CL

Thanks CL

imfd's picture

Is this a frivolous lawsuit ?

Could this lawsuit detract from future lawsuits that might be constructed upon firmer ground ?, it seems odd that someone who may have the wherewithal to file a case like this, might also be lacking enough knowledge to make sure that the case has merit. Big talk from me, I know the law is a serpentine beast and I also know I know nothing.

AlienEyes's picture

Trying to sue banksters at

Trying to sue banksters at this point reminds me of a Bob Dylan song, "Blowin' in the Wind".

Ah, make that "Pissin' in the Wind" instead.

Mudsharkbytes's picture

I'd say

sixth, but this top ten stuff is gettin' old. 

California Lawyer's picture

Imfd - No

I would not say the lawsuit is frivolous, which to a lawyer means totally lacking in legal merit that could result in a claim of malicious prosecution against the lawyer for filing the lawsuit.  In such case, the standard to prove lack of merit means that no reasonable lawyer would have filed the case.

The concept of the lawsuit is perfectly acceptable, but the execution is not well taken at all.

Some time back I had a good conversation with another blogger here that part of any lawsuit claiming manipulation is the requirement that a person must show damages.  That, the person must show legal harm.

How can a person who buys a quantity of physical gold/silver say that he or she was harmed?  This person can claim that price was manipulated.  Ok, fine.  But where is the harm?  The person either paid too much or too little, but the transaction occurred at arms length on the open market.  The fact that both buyer and seller referenced an arbitrary price, set by stodgy banksters in a smoke-filled, wood paneled old room, then exchanged fiat for metal, to this I say yawn.  So what?  The one who paid too much says manipulation, while the other says it was a great deal.

Neither had to reference the spot price, right?  They could have referenced something else and ignored spot price, couldn't they?  The fact that there is a spot price implies that others may be willing to trade at that price, thus providing some evidence of reasonableness to the terms of the deal, giving both participants to the deal some assurances that price terms are in the ball park.

Secondly, let's say I bought silver at $45 (which I did by the way, doh!), and now I choose to sell some at $21.50.  Did price manipulation cause my loss (the difference between $45/oz. vs. $21.50/oz.)?  Or, did something else?  Why did I have to sell?  Does that mean that I can sue Maytag for making me sell my silver to buy a new fridge, and claim that Maytag caused me to lose $19.50/oz.  

Similarly, if silver were trading at $45/oz. right now, could I not sue JPM for them making me not buy silver when it was at $20/oz., claiming that their price suppression scheme scared me into not buying the dip?

See how difficult this becomes without proof of actual insider knowledge?  

If the CFTC were a real player, then position limits would be enforced, there would be no naked shorting, there would be mandatory delivery, there would be no closed loop and certainly no fractional games between allocated vs. non-allocated, and there would be on line, transparent identification of the holders of every single position.  If someone tried to make a move, the market would react, and perhaps act like a real market.

But, until that happens, then it is not wise to argue a legal cause and effect relationship between prices on a chart and some activity between players, no matter how much we wish it to be exposed and eliminated.

Hammer's picture

Excellent analysis. I had

Excellent analysis. I had mentioned this case earlier and posted I reckoned they didn't have a "snowball's chance in hell."

Carry on.

JY896's picture

Wannabe wizeguy frontrunning a REAL lawsuit?

This guy knows (or at least believes) that the Fix is indeed manipulative. See recent literature claiming to prove this. Our plaintiff is basically buying a call on the event that either regulatory action or a suit with much more substantive evidence proves his claim, and he gets to either settle or be awarded favorable judgment on that basis? As long as lawsuit is not frivolous, he has relatively lost little -- assuming he is not concerned about antagonizing LBMA.

Louie's picture

Discovery?

CA
Any chance that the lawyers filed the suit hoping to get the opportunity to put some bankers under oath and compel them to give testimony?

Louie's other though is this might just be another MOPE trying to get people to jump into gold. You know "Gold is manipulated down so buy now before it explodes. "

4 oz's picture

Sometimes ya just feel like Singing...

Hmmmm...Donno...Sometimes ya just need to sing...

El Gordo's picture

Turd caused me to buy...

...the $40+ silver in my portfolio.  I think he was in on this price manipulation scheme.  Can we add him as another defendant in this suit?  Or maybe it was the President with all of his reckless spending, or maybe it was the Bernake running the printer on the red line full time.  Or maybe it's just that I'm an idiot - maybe I could even sue myself.

JY896's picture

Honorary Turdite nomination and podcast guest suggestion

@Turd -- check this out.

The pair of researchers behind the academic paper on gold 'Fixing' recently featured on Bloomberg:

Gold Fix Study Shows Signs of Decade of Bank Manipulation

"Unusual trading patterns around 3 p.m. in London, when the so-called afternoon fix is set on a private conference call between five of the biggest gold dealers, are a sign of collusive behavior and should be investigated, New York University’s Stern School of Business Professor Rosa Abrantes-Metz and Albert Metz, a managing director at Moody’s Investors Service, wrote in a draft research paper.

“The structure of the benchmark is certainly conducive to collusion and manipulation, and the empirical data are consistent with price artificiality,” they say in the report, which hasn’t yet been submitted for publication. “It is likely that co-operation between participants may be occurring.”

Her bio page is here , his is here  

It seems this dynamic duo has been following many of the same research directions we like to think and talk about on TFMR (and ZH, and any community which questions the MOPE). My favorite title: THE LESSONS FROM LIBOR FOR DETECTION AND DETERRENCE OF CARTEL WRONGDOING.

Even more on-topic and almost as catchy:  How to Keep Banks From Rigging Gold Prices

Mentioned in that article, a potential next item for your reading list:

The Gold Cartel: Government Intervention on Gold, the Mega Bubble in Paper, and What This Means for Your Future, Dimitri Speck (Amazon page here)

"In The Gold Cartel, seasoned commodity analyst Dimitri Speck illustrates in detail how central banks have secretly manipulated the price of gold in an effort to calm financial markets and control inflation. Using quantitative analysis of historic gold market patterns, the author shows how and when central banks intervene in gold markets, and how this has affected price movement and impacted the global financial markets, leading to the creation of a mega-bubble.

Since the abolition of the gold standard in 1971, the indebtedness of the global economy has increased rapidly and has now reached levels way beyond comprehension. What are the mechanisms that have led us to this mega-bubble? Is it possible to avoid a catastrophic outcome like deflation or hyperinflation? And how does this relate to the gold markets? This book has the answers."

Rosa's body of work:

Albert:

Rosa & Albert -- hats off, much kudos. Please move to a ground-floor residence, and drain (better yet, dismantle) any hot tubs.

Maximillion's picture

Establishing manipulation

Here in the UK our Fiat notes state 'I PROMISE TO PAY THE BEARER ON DEMAND THE SUM OF TEN POUNDS'. The deliberate omission is defining what physical asset the TEN POUND weight, or other physical entity, the promise refers to. I cannot therefore go to court and claim it means ten pounds of silver, or even 10 grams, as my subjective valuation of something will always be mine alone, whereas the objective valuation created by the promise to pay ten pounds 'of something physical', whilst negating the necessity of court action, would also limit the free creation of Fiat paper.

The whole basis of any suit can only focus on the way in which the price is controlled, through the trade of many times more paper promises than the amount of physical that actually exists, ie large players selling far more than they can actually ever acquire and therefore blatantly selling something that they physically don't own and never will due to the volumes offered for sale. And therein lies the answer as to why a suit can never succeed. As long as Fiat money is not tied to anything tangible it has no physical, factual value, other than the subjective value an individual chooses to place on it.

jolidacrown's picture

Quite Immature really ...

... group think.

Mantis's picture

Frustrating that the case is

Frustrating that the case is so inept!

..which gives me a flimsey excuse to share a classic Vic n Bob sketch :D

Hammer's picture

When you don't have the

When you don't have the reserve currency anymore, it goes real quick, about 40 years and counting quick

Value of £1 drops 91% in 40 years

The pound isn’t what it was, in fact it now takes a tenner to buy what a quid would have in 1973. We look at what’s risen in price the fastest

http://uk.finance.yahoo.com/news/value-of-%C2%A31-drops-91--in-40-years-112405791.html

"There is no doubt that the value of money has fallen dramatically since 1973 as a consequence of the substantial rise in the general level of prices. It is likely to be reduced significantly further over the next 40 years even if inflation is kept firmly under control,” said Ashish Misra, Head of Investment Policy at Lloyds Bank Private Banking.

How prices of everyday items have changed

Item

1973 price

2013 price

% change

Draught lager, per pint.........£0.14.....£2.87............1948%

Vehicle fuel: ultra low sulphur diesel, per Litre

..............................................£0.08.....£1.41............1727%

Detached house, UK average

...........................................£16,980.....£305,391.....1699%

Bread: white loaf, sliced, 800g

............................................£0.11........£1.30...........1082%

Butter: home produced, per 250g

..........................................£0.13..........£1.42...........992%

Coffee: pure, instant, per 100g

.........................................£0.28..........£2.67...........853%

Sugar: granulated, per Kg

.........................................£0.11...........£0.93..........787%

Eggs: size 4 (55-60g), per dozen

........................................£0.33...........£2.78..........743%

Sausages: pork, per Kg

.......................................£0.58...........£4.84...........735%

Self raising flour:per 1.5 Kg

......................................£0.15.............£1.19...........724%

Carrots, per Kg

......................................£0.11.............£0.91...........723%

Milk: Pasteurised, per pint

....................................£0.06..............£0.46..........667%

Apples, dessert, per Kg

....................................£0.28.............£2.02...........622%

ivars's picture

It pays off to take Crimea and more

http://rt.com/politics/putin-rating-boost-crimea-122/

Quote:

According to an early March poll the Russian President’s rating remains at its highest in the last two years and researchers list the Sochi Olympics and moves for a political settlement of the Ukrainian crisis as possible reasons.

Almost 68 percent of Russians approve of the work of President Vladimir Putin, reads the report published by the WCIOM All-Russian Public Opinion Research Center. The respondents named two major events as having an effect. 53 percent say it's the ongoing political crisis in Ukraine, including the situation on the Crimean Peninsula. 42 percent say the main event of the past few weeks was the successful completion of the Sochi Olympics, and the preparations for the Paralympic Games.

A similar poll conducted in late February also indicated that public support for the Russian President was at the same level of just below 68 percent. This is the highest index since May 2012 when Putin’s inauguration boosted public support to 68.8 percent.

DeaconBenjamin's picture

Maximillion

 'I PROMISE TO PAY THE BEARER ON DEMAND THE SUM OF TEN POUNDS'.  The deliberate omission is defining what physical asset the TEN POUND weight, or other physical entity, the promise refers to.

Amen.  That's why I refuse to refer to British money as sterling -- it hasn't been sterling since 1919.

Turd Ferguson's picture

Thanks, CaL

MODERATOR

Very much appreciated.

This is the only PM site that I know of that actually has its own Attorney General.

Mantis's picture

With this ten pound note

Its mental

With this ten pound note I promise to pay ... a ten pound note.

Its like saying with this bananna I promise to pay a bananna.

Wheres the promise in that? Its a broken promise to pay precious metal thats what

ancientmoney's picture

@ Cal, Turd re: the only site with its own . . .

Attorney General.  Yes.  And its own Court Jester . . . .

dgstage's picture

New Snowden leaks reveal more about scope of the Surveillance St

New Snowden leaks reveal more about scope of the Surveillance State

New Snowden leaks reveal more about scope of the Surveillance

​Thanks CL, great article.

California Lawyer's picture

Quick Replies

Louie: the plaintiff has to survive dismissal motions first, which is not likely.  I'm not sure about the second point, though.  More likely, this firm that filed the lawsuit is hoping to survive long enough to get to the class certification stage, but such hope is misguided.

JY: great idea for the guest post!

TF: thank you for the opportunity to contribute.

Speaking of Attorney General . . . as a side note, I was hoping to weigh in on the 9th Circuit gun ruling, but I have just been swamped.  In the meantime, Kamala Harris, the CA Attorney General, is jumping into the ring trying to get the court to overturn the ruling.  There are some procedural timelines coming up, so I will keep abreast and write something when I can.

nixy's picture

The new £5 note is to bear

The new £5 note is to bear the Churchill quote  "I have nothing to offer......"

not quite " I promise to pay...." is it?

Funny?  Ha fucking Ha.

http://www.telegraph.co.uk/finance/currency/10020432/Sir-Winston-Churchill-to-appear-on-new-5-banknote.html

Dr Jerome's picture

Putin action shots

In our fun and games last weekend comparing Zero to Putin public PR photos, we left out the most important one

How much does that bar weigh? Can anyone remember seeing an American president posing like this with gold bars?

achmachat's picture

one pound sterling...

... a real pound of sterling silver.... would be more than 288 USD at current spot price.

nixy's picture

Well CF, if no-one was

Well CF, if no-one was harmed, why does the BoE declare it (manipulation of foreign exchange markets) to be wrong.

"The Bank of England does not condone any form of market manipulation in any context whatsoever."

http://www.bankofengland.co.uk/publications/Pages/news/2014/044.aspx

The true root of the problem is fractional reserve banking. Banks are LEGALLY allowed to  create 'money' out of thin air......yet they fool borrowers they have to repay.......even though they were lent NOTHING.

It is called fraud...... it is UNLAWFUL yet LEGAL.

We would not be here now discussing this stuff if this fraud had been made a hanging offence many years ago. Money would have honest value.

turnoffthewater's picture

Cal Lawyer

Firstly, thanks for your work and posting your views on the gold fixing lawsuit. While I understand you're busy and aren't we all, I have always wondered how JPM could be a shareholder in the FED and yet play as a bank/investment house at the same time, could that be considered collusion? When you have time would really like an interpretation of the law. Oh wait a minute, JPM is above the law, right? No that was Gensler or Holder said they were to big to prosecute. Thanks in advance.

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