As you may have heard by now, the latest civil suit against JPM for silver manipulation was dismissed late last week. Though this is disappointing, in hindsight it is hardly surprising, given the continued and deliberate malfeasance of the CFTC.
LEGAL SUMMARY by CALawyer, Esq.
Resident Legal Expert and Attorney General of Royal Turdistan
I have carefully read the Court’s Opinion which granted JPM’s Motion to Dismiss the silver manipulation case, which case had been pending in the United States District Court, Southern District of New York.
The caption information is here:
Case 1:11-md-02213-RPP Document 127 Filed 12/21/12 Page 1 of 41
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
IN RE COMMODITY EXCHANGE, INC., SILVER FUTURES AND OPTIONS TRADING LITIGATION
ROBERT P. PATTERSON, JR., U.S.D.J.
Summary of My Analysis:
Re Court’s Ruling on JPMorgan’s FRCP Rule 12(b)(6) Motion to Dismiss for Failure to State a Claim
I am setting forth my take on the Court’s ruling. I am not surprised by the ruling, because in hindsight, I can see fairly clearly that JPM had the winning hand from the get go. I feel rather inept for not figuring this out earlier, but, the argument is rather simple:
(1) Congress is tasked with regulating commerce, and created the CFTC to regulate commodities futures and options, including silver [ https://www.cftc.gov/About/MissionResponsibilities/index.htm ];
(2) The CFTC is not part of Congress, nor part of the Executive branch, but is an independent agency; however, it is still part of the Executive Branch, tasked with regulating futures and options [ https://wiki.answers.com/Q/Whats_the_difference_between_an_executive_age... ].
Other independent agencies are the CIA, SEC, FCC, FTC, NASA, and on and on. Some call this the fourth branch of government, but in reality, all federal “agencies” are just tentacles of the same federal government octopus exerting control over all of us all the time.
(3) The federal government, in general, through its proxies and institutions like the Federal District Courts, ALWAYS acts to protect itself, to include never acting to shrink itself, to disgorge power, to decentralize, to neuter its capabilities or scope of influence, etc.;
(4) In the balance of power arrangement with the three co-equal branches of government, Executive, Legislative, and Judicial, the Judicial branch typically defers making a Constitutional decision when there are other options to dispose of a case;
(5) Here, there is a govt agency DIRECTLY charged with dealing with the exact issue before the court, and is ACTIVELY doing so, namely, whether JPM engaged in fraud and manipulation with respect to silver futures and options. Look at the CFTC mission statement [ https://www.cftc.gov/About/MissionResponsibilities/index.htm ]:
“Congress created the Commodity Futures Trading Commission (CFTC) in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States. The agency's mandate has been renewed and expanded several times since then, most recently by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
In 1974 the majority of futures trading took place in the agricultural sector. The CFTC's history demonstrates, among other things, how the futures industry has become increasingly varied over time and today encompasses a vast array of highly complex financial futures contracts.
Today, the CFTC assures the economic utility of the futures markets by encouraging their competitiveness and efficiency, protecting market participants against fraud, manipulation, and abusive trading practices, and by ensuring the financial integrity of the clearing process. Through effective oversight, the CFTC enables the futures markets to serve the important function of providing a means for price discovery and offsetting price risk.
The CFTC's mission is to protect market users and the public from fraud, manipulation, abusive practices and systemic risk related to derivatives that are subject to the Commodity Exchange Act, and to foster open, competitive, and financially sound markets.”
(6) The “expert” govt agency, the CFTC, found no manipulation in either of the two prior manipulation investigations, nor was any found in the ongoing investigation;
(7) Since the govt agency best charged with investigation is doing it, and found nothing then nor now, then why should the Court involve itself in another agency’s business? [Remember, the Court does not view the CFTC as a corrupt, captured shill agency like we all view it.]
(8) In short, because the Complaint essentially argues that something is amiss that the “expert” govt agency has not found, then the Court is not likely to step in and muddle around;
(9) The situation would be different if the Complaint alleged that the CFTC commissioners were corrupt, that is, were allowing fraud and manipulation despite proof of it occurring, in which the Court may very well step in and allow the case to proceed. Remember, this is not the stage of the lawsuit where a judgment is made; rather, the Court is only asked to decide whether the Plaintiffs have alleged facts sufficient to make out a plausible rather than just possible case. If the Court agreed with the Plaintiffs, then discovery would commence, and then the massive lawyering with depositions, document productions, etc., would begin.
The argument would be that the CFTC is corrupt, and that the Court needs to protect the market because the CFTC will not.
[This is NOT a compelling argument, because it is asking the Govt to fix itself, which it will never do, ever. It does not exist to shrink, or to devolve power, or to decentralize power. It will never act to harm itself, ever. Only a collapse/revolution will fix the system, and history has shown this solution over and over again. So, the Plaintiff’s, embarking on a noble effort for sure, have run up against an impossible task. The only other way I see to fix the mess is for a market solution by another sovereign. If market participants do not believe the system is fair, then another system will emerge for sure, eventually.]
Anyhow . . .
(10) But, the Complaint made no such allegations of corruption of the CFTC, and the whole case is basically asking the Court to do what the CFTC has done and found nothing, as well as what the CFTC is currently doing;
(11) The Court is not apt to nor will it do the CFTC’s job;
(12) So, to summarize, the Complaint asks the Court to do the CFTC’s job, the Court says no thanks, and that is that.
(13) From a more conspiratorial bent, to me anyway, that explains why the CFTC has not issued a ruling yet on their ongoing investigation of alleged silver manipulation. If the CFTC delays a ruling, then, like here, the Court is going to defer to the CFTC, because the CFTC is the “expert” govt agency directly charged with this task, not the Courts.
(14) Procedurally, the next step is that the Plaintiffs can ask the Court for another chance to allege some facts, but the Court’s denial of the Motion to Compel discovery sheds some light on the potential outcome of that effort.
(15) If the Court is denying discovery, then what additional facts can the Plaintiffs allege?
(16) Will the Plaintiff’s appeal the ruling to dismiss the case? Why would they not? They have invested so much time and effort to date, why would then not take the case up to the Court of Appeal? This is high stakes, so the Plaintiffs’ attorneys will almost certainly appeal, so this case is not over, but the discovery effort is certainly dead for now.
(17) Absent discovery, this case becomes a legal, procedural question, BORING!
(18) Look for the CFTC to either end the manipulation inquiry with no finding [likely], or to continue the delay pending the final ruling on this case [unlikely].
The analysis of the Court’s Order is below.
Summary of Arguments and Order:
On September 12, 2011, Plaintiffs filed a consolidated class action complaint (“the
Complaint”) claiming that Defendants J.P. Morgan Chase & Co., J.P. Morgan Clearing Corp., J.P. Morgan Securities Inc., and J.P. Morgan Futures Inc. (together, “JPMorgan” or the “JPMorgan Group Defendants”), as well as twenty unnamed “John Doe” Defendants (collectively, “Defendants”), violated Sections 9(a) and 22(a) of the Commodity Exchange Act, 7 U.S.C. §§ 13(a), 25(a), and Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. (Compl. ¶¶ 1-2, 22-29, 199-210, ECF No. 85.) The Complaint alleges that Defendants violated these acts by combining, conspiring, and agreeing to manipulate the prices of silver futures and silver options contracts traded on the Commodity Exchange Inc. (“COMEX”) on June 26, 2007 and also between March 17, 2008 and October 27, 2010 (together, the “Class Period”). (Id. ¶ 1.) The
Complaint further alleges that, as a result of Defendants’ unlawful conduct, Plaintiffs, a
proposed class of individuals who transacted in COMEX silver futures and options contracts during the Class Period, “lost money and were injured in their property.” (Id. ¶ 21.)
On December 12, 2011, the JPMorgan Group Defendants filed a motion to dismiss the
Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Defs. Mot. to Dismiss, ECF No. 91.) While argument was pending on the motion to dismiss, Plaintiffs filed a motion to compel limited discovery on April 17, 2012. (Pls. Mot. to Compel Ltd. Disc. (“Mot. 1 Case 1:11-md-02213-RPP Document 127 Filed 12/21/12 Page 1 of 41to Compel”), ECF No. 104.) For the reasons stated below, the motion to dismiss is GRANTED and the motion to compel is DENIED.
Discussed at pages 2-15 of the Order. I am not going to recite them again. Anyone who wants to look, go to Pacer, look up the case number, and go to the end of the docket. The Order is document 127. The Order is probably posted somewhere online by now as well, but I did not go try to find it.
What I will set out here are the basics. The Court outlined the concept of Comex silver futures and options contracts, calling this subject matter “esoteric,” and used an example. Notably, there was no discussion of the concept of “naked” shorting, though.
The Court mentioned that the CFTC was created in 1974 to regulate the futures and options markets in the USA:
“In 1974, Congress established the Commodity Futures Trading Commission (the
“CFTC”) as an independent government agency to regulate commodity futures and option markets in the United States. See 7 U.S.C. § 1 et seq. The CFTC is charged with protecting market users and the public from fraud, manipulation, and abusive practices in the commodity futures marketplace. Id. Should the CFTC suspect an attempted or perfected manipulation of the silver futures market, the CFTC has broad authority to investigate and, if appropriate, to pursue enforcement actions. Id. §§ 7, 13(a)(2).”
Starting in 2004, there were complaints to the CFTC about silver manipulation. There was no mention of the Hunt Brothers and that mess, though.
The Opinion discussed how the CFTC formally launched silver price manipulation investigations three times, that the first two resulted in a finding of no manipulation, and that the third investigation, started in 2008, is ongoing and has not resulted in a finding of manipulation.
[At this point of my reading of the Court’s Opinion, it was CRYSTAL CLEAR to me that the Judicial Branch, here, United States District Court for the Southern District of New York, is DEFERRING to Congress through its creature the CFTC, and is basically setting the stage upon which the Court tells everyone: “If there is a problem here, it is the CFTC’s, not ours; go tell it to the CFTC.
For the non-lawyers in the crowd, here is the law so one can understand the parameters guiding the Court’s ruling.
To survive a motion to dismiss, a complaint must plead “enough facts to state a claim to
relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). In considering whether a plaintiff has “nudged [his] claim across the line from conceivable to plausible,” id., a court must accept all factual allegations in the complaint as true and must draw all reasonable inferences in favor of the complainant, Ruotolo v. City of New York, 514 F.3d 184, 188 (2d Cir. 2008); see also supra n.1. “Nevertheless, the court need not accord legal conclusions, deductions or opinions couched as factual allegations a presumption of truthfulness.” In re Amaranth Natural Gas Commodities Litig. (“Amaranth I”), 587 F. Supp. 2d 513, 528 (S.D.N.Y. 2008) (internal quotation marks and alterations omitted); see also Harris v. Mills, 572 F.3d 66, 72 (2d Cir. 2009) (“[A]lthough a court must accept as true all of the allegations contained in a complaint, that ‘tenet’ is inapplicable to legal conclusions, and threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”) (internal quotation marks and citations omitted).”
As to the first argument, that of which pleading standard applies (Rule 8 vs. Rule 9), the Court did not make a ruling. Instead, the Court said the Plaintiffs did not meet the relaxed pleading standard of Rule 8 in any event:
“Upon review of the allegations presented in the Complaint, the Court declines to make a determination at this time as to which pleading standard should apply to Plaintiffs’ claims. See In re Platinum & Palladium Commodities Litig., 828 F. Supp. 2d 588, 598 n.5 (S.D.N.Y. 2011) (dismissing complaint because claims were not sufficient under either the Rule 8(a) or Rule 9(b) pleading standard). As the following analysis sets forth, even under Rule 8(a)’s more permissive standard, the Complaint fails to plead factual allegations sufficient to allow the Court to draw “the reasonable inference” that Defendants are liable for the misconduct alleged. Cf. Iqbal, 556 U.S. at 678. Rather, the Complaint merely pleads facts that could be “consistent with” Defendants’ liability and “stops short of the line between possibility and plausibility of ‘entitlement to relief.’”
As to the first claim, that JPM violated the Commodities Exchange Act, the Court stated, then examined the four elements that the Plaintiffs needed to show to state a claim.
“The Commodity Exchange Act prohibits any person from “manipulat[ing] or
attempt[ing] to manipulate the price of any commodity.” 7 U.S.C. § 13. While the term
“manipulate” is undefined in the Act, “the CFTC and the courts have developed a four-factor test to determine whether a defendant has manipulated prices.” See Platinum & Palladium, 828 F. Supp. 2d at 598 (internal alterations omitted). A court thus considers whether (1) the defendant possessed the ability to influence market prices; (2) the defendant specifically intended to influence market prices; (3) the alleged artificial prices exist; and (4) the defendant caused the artificial prices to exist. See id.; see also In re Cox [1986-1987 Transfer Binder], No. 75–16, Comm. Fut. L. Rep. (CCH) ¶ 23,786, 1987 WL 106879, at *4 (CFTC July 15, 1987).”
The Court found that the Complaint alleged sufficient facts to meet the first element: “The Complaint alleges that JPMorgan “frequently held large COMEX silver short positions that were as large as the other three largest COMEX traders combined.” (Compl. ¶ 86.) The Complaint also states that, “from August 5, 2008 forward, JPMorgan held approximately 20-30% of the total short open interest in all COMEX contracts” and “32-40% or more of the entire short open interest.” (Id. ¶ 86; see also id. ¶¶ 74-79.) In light of these factual allegations, it is plausible that JPMorgan had the ability to influence prices in the silver futures market. Cf. Parnon Energy, 2012 WL 1450443, at *10 (discussing the various ways a market participant may influence market prices). Moreover, JPMorgan declines to challenge that it possessed the ability to influence market prices. “
The Court found that Plaintiff’s did not allege sufficient facts to show element 2, that is, that JPM had intent to manipulate: “Moreover, as the CFTC explained in its 2004 Report, “commercial firms may legally hold futures positions for hedging or speculative
purposes. The mere holding of speculative positions by either commercial or non-commercials is neither a violation of the CFTC or NYMEX rules, nor evidence of manipulation.” (Davidoff Decl. Ex. A at 7.) Thus, Plaintiffs’ general and conclusory allegation about JPMorgan’s unusual deliveries is not factually sufficient to plead that Defendants acted with the purpose or conscious object of causing or affecting a price or price trend in the market. Cf. Harris, 572 F.3d at 72 (“[A]lthough a court must accept as true all of the allegations contained in a complaint, that ‘tenet’ is inapplicable to legal conclusions, and threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”)”
Note how the Court defers to the CFTC. The Court is basically saying that correlation is not causation. The Court is saying that even though JPM has a large short position, and COULD manipulate the silver market, the Plaintiffs have not shown any facts to prove that JPM manifested an intent to do so. Price swings alone are not good enough. This finding by the Court is pure hogwash.
But, note how the Court puts it back upon the CFTC: “as the CFTC explained . . . the mere holding of speculative positions by either commercial or non-commercials is neither a violation of the CFTC or NYMEX rules, nor evidence of manipulation.”
See how there can never be a case then, because how can there ever be proof of intent to manipulate when JPM can ALWAYS claim that their market positions are just hedging? Absent an insider confirming the manipulation scheme, there is no way to prove up a case. The Court says so right here: “For these reasons, Plaintiffs fail to meet Rule 8(a)’s requirement that a statement of facts do something more than “merely create a suspicion of a legally cognizable right of action.” See Twombly, 550 U.S. at 555. The Complaint here does not include factual allegations sufficient to support the reasonable inference that Defendants acted with the purpose or conscious object of causing artificial to exist silver futures prices or an artificial price trend on the COMEX market.”
As to the third element of artificiality of prices, the Court found the Complaint lacking. Once again, the Court deferred to the CFTC. Intuitively, we all know that in order to determine whether a price is artificial requires a comparison to a real price. So, which price is used when all markets upon which a price is known are manipulated? What is the true price?
The Court states the rule: “Artificial prices are those prices that do not reflect the forces of supply and demand in the market or do not otherwise comport with contemporaneous prices in comparable markets. See In re Sumitomo Copper Litig., 182 F.R.D. 85, 90 n.6 (S.D.N.Y. 1998); In re Cox, 1987 WL 106879, at *8-9. When determining if artificial prices exist, a court may consider the underlying commodity’s normal market forces, historical prices, supply and demand factors, price spreads, and also the cash market for the commodity at issue. See Sumitomo Copper Litig., 182 F.R.D. at
90 n.6; (see also Pls. Mem. at 16 n.16).”
The Court notes that the Complaint argues “artificiality” of silver future prices by trying to compare silver price changes to those of gold. The Plaintiffs’ effort here is less than adequate, but I say how could Plaintiffs argue artificiality when the only market prices that are out there are themselves the product of manipulation? Prices are fake because JPM manipulates prices. JPM manipulates prices because prices are fake. See?
I see the problem, duh, but the Complaint failed to detail how silver prices historically track gold prices, that they trade in tandem, BECAUSE THEY ARE MONEY, and when silver diverges in price from gold that leads to an inference of manipulation. Oh well, maybe they can fix it in the next go around if they get the chance . . .
Note also the deference to the CFTC and their sham of comparing prices between the Comex and the LBMA, that bastion of fairness and transparency, to prove the “real” price: “Here, Plaintiffs claim “artificiality” on the basis that, on June 26, 2007, on August 14-15, 2008, and, between March 17, 2008 and March 25, 2010, COMEX silver futures prices “outperformed” or were “substantially” different from “the benchmark of gold prices that was used and approved by the CFTC” in its 2008 Report. (Pls. Mem. at 16 (citing Compl. ¶¶ 9, 14- 15, 87).) But Plaintiffs raise these allegations without first explaining why COMEX silver futures prices should be compared solely to “the benchmark of gold prices.” Indeed, both the 2008 and 2004 CFTC Reports state that the CFTC “routinely” compares the price at which silver futures are traded on COMEX (as a division of NYMEX) with the prices at which silver futures are traded in the London Bullion Market (LBMA) and that it is the LBMA which provides “the benchmark value of silver in the marketplace.”“
So, the Court defers to the CFTC and their argument that the true price is from the LBMA. Ha, what a farce:
“Furthermore, in the 2008 CFTC Report concluding that there had been no manipulation of the silver futures market between 2005 and 2007, the CFTC stated that
“the basis difference” between NYMEX futures prices and LBMA futures prices for this period “ranged between plus and minus 5%, . . . although on a few occasions the basis was as much as 15%.” (Davidoff Decl. Ex. B at 8.) During the Class Period at issue here, the average basis difference between NYMEX and LBMA prices was also approximately 5%, (see Decl. of Amanda Davidoff in Supp. of Defs. Reply Mem. (“Davidoff Reply Decl.”) Ex A (“Standardized LMBA-NYMEX Silver Basis Jan. 3, 2005 through October 27, 2010”), March 26, 2012, ECF No. 103), and this fact undercuts Plaintiffs’ claim about artificial silver prices on COMEX during this period.”
The Court further trashes Plaintiffs by again deferring to the CFTC as to price comparisons between the other precious metals, and by trotting out another straw argument, silver as an industrial metal, then concludes that Plaintiffs have shown no artificiality: “Accordingly, the Complaint’s allegation that prices for silver—which, unlike gold, is an industrial metal—did not mirror the exact rate of price fluctuations for gold is not sufficient to support Plaintiffs’ claim that artificially manipulated silver prices existed on COMEX during the Class Period.”
The Court calls out the Plaintiffs for making a circular argument: “Plaintiffs also fail to make any showing as to how the alleged reduction of JPMorgan’s dominant short position was tantamount to a “manipulative effect.” Again, just because JPM COULD have manipulated price, the Court did not leap from there to the conclusion that JPM DID manipulate price by reducing their short position.
The Court dispensed with the final “artificiality” argument [illegitimate supply factors], pointing out that this final “artificiality” argument was really a “causation” argument, and rejected it anyway: “ Plaintiffs’ final argument that artificial prices existed during the Class Period relies on allegations of “multiple, different illegitimate supply factors.” (Pls. Mem. at 17-18.) According to Plaintiffs, these factors “include (a) the large short position held by JPMorgan; (b) specified uneconomic trades explicitly alleged to have been made by JPMorgan at specific times of day on specific days on the COMEX; and (c) the classic manipulative device of deliveries by the dominant short, JPMorgan.” (Id.) These conclusory allegations, however, relate to Plaintiffs’ theories of causation, not to their claims of artificial prices.”
The Court rejected the “large short” position argument, once again, deferring to the CFTC: “More specifically, the first illegitimate supply factor that Plaintiffs cite—“the large short position held by JPMorgan,” (Pls. Mem. at 18)—is not, by itself, sufficient to support a claim of artificial prices or potentially manipulative pressure because JPMorgan’s short position on COMEX was known and permitted by the CFTC, (see Compl. ¶¶ 71-87, 129-30).
This argument is maddeningly circular! Does this not drive one crazy!? Here, this Court says that a large short position is potentially manipulative, but since the CFTC allows it, it cannot support an argument of artificiality. However, when the CFTC implements position limits, another Court throws out the position limits because there is no showing that position limits prevent manipulation. WTF?! Does anyone else see the futility in seeking Federal Court assistance as to stopping the Comex fraud?
The Court rejected another argument: “Plaintiffs’ second argument about illegitimate supply factors is similarly weak. (See Pls. Mem. at 18.) The allegation that large unspecified and “uneconomic” trades were taking place on the COMEX during the more than two-and-a-half year Class Period is too general to plead the existence of artificial prices.” To plead this better would require facts showing that JPM is acting at the behest of the Fed govt to artificially suppress silver prices to support the fiat FRN scheme. Who is going to testify to this? <crickets> Exactly.
The final artificiality argument failed as well: “Plaintiffs’ final “illegitimate supply factor” allegation—that Defendants used “the classic manipulative device of deliveries by the dominant short, JPMorgan,” (id.)—also does not show that JPMorgan created artificial prices. As discussed supra, the sections in the Complaint upon which Plaintiffs rely (see Pls. Mem. at 18 (citing Compl. ¶¶ 2-12, 68-87, 96-120, 121-28, 130, 138-74)), to support their claim of an illegal supply factor on the basis of “unusual deliveries” fail to identify the timing or volume of any delivery by JPMorgan during the Class Period, and without these additional factual allegations, Plaintiffs’ illegal supply factor claim is insufficiently pled, (see Op. & Order, Section V.A.3(b)).”
Here, how are Plaintiffs supposed to get facts regarding “unusual deliveries” without being given information from JPM through discovery? So the Court denies Plaintiffs the right to dig into this very factual information which could prove unusual deliveries and prove this element, then has the temerity to claim that Plaintiffs have not plead this element sufficiently? This is a no win situation. This is also a clear statement that the Court has no intention of allowing Plaintiffs to make out their case by turning lawyers loose with discovery of JPM.
Finally, as to the fourth element of causation, the Court found the Complaint did not plead facts to show that even if JPM had the ability to manipulate prices, and even assuming that there were artificial prices, that nevertheless, JPM’s conduct CAUSED any price artificiality:
“The causation element requires that a defendant be the proximate cause of the price
artificiality. See In re Cox, 1987 WL 106879, at *12; see also DiPlacido v. CFTC, 364 F. App’x at 661-62. Here, Plaintiffs argue two theories of causation: causation by JPMorgan’s large short position and causation by JPMorgan’s large uneconomic trades.”
The Court rejected the first argument, which in hindsight, is EASY to call. The Plaintiffs are just making a circular argument from a logic leap without proof. We all know it, believe it, but one cannot just say that JPM has a large short position, and therefore, they caused the market price to be fake. Here is the Court’s language:
“Under their first theory, Plaintiffs point to allegations in the Complaint of the approximate size of JPMorgan’s short position at certain dates and the percentage that the position constituted in the silver futures market. (See Pls. Mem. at 19-20 (citing Compl. ¶¶ 3-7, 51, 55-87, 110-20, 131, 133).) Plaintiffs then ask this Court to infer that “[b]ecause JPMorgan held such a large dominant short position, it is difficult to imagine anyone else, working alone, who had the ability to cause such large declines in prices which, clearly, benefitted JPMorgan at least three times more than it benefitted any other trader.” (May 21, 2012 Letter from Pls. to the Court at 3 (emphasis added).) However, the “imagination” required to link these conditions, without corroborating factual allegations as to trades, sworn affidavits, or other evidence is tantamount to impermissible speculation on the basis of sheer possibility. Cf. Iqbal, 556 U.S. at 678 (While “[t]he plausibility standard is not akin to a probability requirement, . . . it asks for more than a sheer possibility that a defendant acted unlawfully.”)”
The Court rejects Plaintiffs arguments, claiming that Plaintiffs should have set forth “specific factual allegations.” But, how are Plaintiffs supposed to get these insider facts, unless they get source documents, which the Court said that Plaintiffs cannot have access to?
Look at this unfairness, requiring Plaintiffs to prove information exclusively within the knowledge of JPM, and that once again, the Court is deferring to the CFTC: “Plaintiffs’ second theory that JPMorgan caused artificial prices by making large uneconomic trades on June 26, 2007, August 14-15, 2008, and at other times during the Class Period is no more successful. First, without more specific factual allegations as to the amounts and to the timing of certain trades, Plaintiffs’ claim that JPMorgan submitted an unknown number of “sell orders” when silver prices were high and an unknown number of “purchase orders” when prices fell, (see, e.g., Compl. ¶¶ 55, 58), indicates no more than normal, rational market participation by JPMorgan. Indeed, the CFTC’s 2005-2007 investigation considered the trades made on June 26, 2007 and determined that the market was free of manipulation at that time. (See Davidoff Decl., Ex. B at 1.)”
And here: “ Secondly, the portions of the Complaint that discuss the August 14-15, 2008 silver price fluctuations rest on the conclusion that JPMorgan “must have” caused the fluctuations and high trading volume because no other “information coming to the silver market” explained the price behavior at that time. (Compl. ¶ 115.) The Complaint’s descriptions of other uneconomic trades allegedly made during the Class Period similarly fail to allege specific conduct that might be reasonably attributed to JPMorgan.” Again, on this, note how correlation [price fluctuations] does not equate to causation [JPM caused price fluctuations] strictly because of the absence of some other explanation. How else are Plaintiffs supposed to prove causation without getting the details of the actual JPM trades? Who is going to be able to put all of this together if not JPM employees testifying under oath, and being forced to explain trades and positions?
The Court rejected the “whistleblower” allegations, too. No surprise there. Where is this witness or witnesses? Why was there no declaration from an insider, setting this all front and center? Were the witnesses too afraid to go on record? Are there even any witnesses? Who knows? I said as much here to Mr. Ferguson as well, namely, that making an unsourced claim is risky, because it calls one’s credibility into account. In court, we lawyers are trained to focus on cross examination. Without it, there is no reliability upon what is being stated, absent blind faith. One who withstands cross examination is more believable, simply that.
Here is what the Court said:
“Moreover, the statements made by the unidentified “market professional,” (Compl. ¶¶
121-23), by the unnamed “whistleblower,” (id. ¶¶ 125-26), and by the “bragging” JPMorgan traders, (id. ¶ 176), are not sufficiently factual to show that JPMorgan was the proximate cause of the price fluctuations during the Class Period. The unidentified market professional, for example, is alleged to have brought a series of trades to the attention of the CFTC, but the market professional is not alleged to have named JPMorgan as a party to these trades. (See id. ¶ 122.) Indeed every one of the market professional’s statements are made in the passive voice alleging that, “there was heavy selling of silver and gold;”“[t]here were large sellers who came into both the gold and silver markets to drive the prices down;” and so on. (Id.)”
And there is more here: “By comparison, the unnamed whistleblower who contacted the CFTC in November 2009 does specifically name JPMorgan, but only to assert conclusory and speculative allegations that JPMorgan and its co-conspirators “manipulate[d] and suppress[ed] the price of COMEX silver futures and options contracts.” (Id. ¶ 123; see also id. ¶¶ 124-127.) The Complaint alleges no other information about this whistleblower or about the details of the manipulation that the whistleblower is purported to have observed. Indeed, the whistleblower’s statement is itself speculative as to JPMorgan’s role in the causation: “[h]ow would th[e price fluctuations] be possible if the silver market was not in the control of [JPMorgan and its co-conspirators] . . . . ?” (Id. ¶ 127 (alterations made in Complaint).)”
And here: “For the reasons discussed supra, the statements by the “bragging” JPMorgan traders are also insufficient to support the allegation that JPMorgan caused artificial prices in the COMEX silver futures market. (See Op. & Order Section V.A.3(b).) The Complaint alleges no information about the date or the language of the remarks deemed to be “bragging;” the identity of the traders who made these remarks; which of the many trades that took place over the two and-a-half year Class Period were the subject of the traders’ bragging; and no information about whether the traders were acting at the instigation of JPMorgan to move silver prices on the market. Cf. Harris, 572 F.3d at 72 (stating that “legal conclusions, and threadbare recitals of the elements of a cause of action, supported by mere conclusory statements” are not entitled to presumption of truth).” Once again, the Complaint claims that there are witnesses to all of this; yet, not a single person, date, or linkage to JPM is made. Why not? Who is being protected? Are these truths, or rumors? The Court said in essence, “we do not have to treat unsourced information as real, and instead, we treat it as useless.” I say that too, because there is NO WAY to cross examine an unsourced statement by some nameless person. So why did the Complaint not set this person or persons forth, and go into details? Maybe they will take another crack at it?
The Court similarly rejected the Saxo bank platform argument too, finding no credible sourcing for the allegations, and rejected them as speculation. Discovery here would be nice, but absent an insider, willing to go on record, there is no way to connect this to JPM at this point in time.
Thus, the Court found this: “Accordingly, neither of Plaintiffs’ theories is sufficient to show plausibly that any actions by Defendants were the proximate cause of artificial prices on the COMEX during the Class Period as required under Rule 8(a). Cf. In re Cox, 1987 WL 106879, at *12 (“If the multiple causes [of an artificial price] cannot be supported out, or if the respondents are not one of the proximate causes, then the charge of manipulation cannot be sustained.”)”
The Court then summarized the ruling dismissing the claim: “the Complaint merely pleads facts that might be “consistent with” Defendants’ liability and it “stops short of the line between possibility and plausibility of ‘entitlement to relief.’” So here we are: we know that JPM COULD be manipulating silver prices, that there are facts all of which are consistent with such conduct, BUT, right now, there are just not enough facts to show that JPM ACTUALLY IS manipulating silver prices. So how are Plaintiff’s supposed to find out more facts unless the Court allows discovery? Dead end.
As for the Plaintiffs’ claim of aiding and abetting, since there is no proof of JPM’s intent to manipulate, there can be no claim for aiding and abetting: “As a matter of law, where a complaint fails to allege the requisite intent of any primary actor to manipulate a market, that complaint also fails to state a claim for aiding and abetting liability in violation of Section 22 of the Commodity Exchange Act. See Platinum & Palladium,
828 F. Supp. 2d at 599. Here, Plaintiffs have failed to state a claim for market manipulation by a principal, (see supra, Section V(A)), and thus have also failed to state that Defendants are liable for knowingly aiding and abetting a market manipulation.”
As for the Sherman Act claim, the Court threw this one out as well. “Under Section 1 of the Sherman Antitrust Act, “[e]very contract, combination[,] . . . or conspiracy, in restraint of trade or commerce . . . is declared to be illegal.” 15 U.S.C. § 1. To state a claim under Section 1, a plaintiff must provide plausible grounds to show that the “challenged anticompetitive conduct stems from independent decision or from an agreement, tacit or express.”
Once again, the Court focused on the lack of proof of an actual conspiracy, noting that despite some factual detail, the Complaint lacked any semblance link to JPM or proof of any conspiracy. “The Complaint fails to state sufficient factual allegations as required
by Twombly to show the existence of an actual conspiracy to manipulate the price of COMEX silver futures and options. Cf. Twombly, 550 U.S. at 556-57. Plaintiffs’ claim that Defendants violated Section 1 of the Sherman Antitrust Act is therefore dismissed.”
So, there you have it.