At some point, certainly, the concept cannot be lost on law enforcement officials that the banking cartel selling massive paper futures, naked or not, are perhaps violating the law. I say this somewhat in jest, because also at this point, there is clear evidence of the banking cartel taking massive, concentrated, short positions on the Comex, something the CFTC could, but won’t, do anything about.
Is the banking cartel engaged in fraud by selling naked shorts? The simple answer is not likely.
One way to look at the shenanigans on the Comex are through the prism of lawyers’ eyes, using state common law, such as fraud, deceit and misrepresentation. On the surface, it seems that the cartel banks engage in fraud on a daily basis, as they naked short the metals, causing massive price declines, which they then close out for huge profits at the bottom, only to do it again and again at opportune times like when the FOMC minutes are front run and the cartel banks make guaranteed profits. This is unfair, particularly to the longs that unwittingly buy the cartel’s paper, only to watch waterfall declines and stop runs, wiping out the pitiful longs, time and time again.
In the law there are several types of fraud.
In California, “fraud” and “deceit” are defined in California Civil Code sections 1572, 1709, and 1710. Civil Code section 1709 defines “deceit” generally as, “One who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers.” Civil Code section 1710 specifies four kinds of deceit:
“A deceit, within the meaning of [section 1709], is either:
The suggestion, as a fact, of that which is not true, by one who does not believe it to be true [intentional misrepresentation of fact];
The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true [negligent misrepresentation of fact];
The suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact [concealment or suppression of fact]; or,
A promise, made without any intention of performing it [promissory fraud].”
Subsection 2 of section 1710 covers negligent misrepresentations, whereas subsections 1, 3 and 4 cover intentional misrepresentations.
The tort of deceit or fraud requires: “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974; see also Molko v. Holy Spirit Ass’n (1988) 46 Cal.3d 1092, 1108. Sometimes the tort of fraud or deceit is stated with four elements instead of five: (1) a knowingly false representation by the defendant; (2) an intent to deceive or induce reliance; (3) justifiable reliance by the plaintiff; and (4) resulting damages. See Service by Medallion, Inc. v. Clorox Co., (1996) 44 Cal.App.4th 1807, 1816.
A representation must ordinarily be an affirmation of fact, as opposed to an opinion. Under the Restatement Second of Torts section 538A, a representation is an opinion “if it expresses only (a) the belief of the maker, without certainty, as to the existence of a fact; or (b) his judgment as to quality, value, authenticity, or other matters of judgment.” Mere “puffing,” or sales talk, is generally considered opinion, unless it involves a representation of product safety. Hauter v. Zogarts (1975) 14 Cal.3d 104, 112.
“A misrepresentation need not be oral; it may be implied by conduct.” Thrifty-Tel, Inc. v. Bezenek (1996) 46 Cal.App.4th 1559, 1567. Moreover, false representations made recklessly and without regard for their truth in order to induce action by another are the equivalent of misrepresentations knowingly and intentionally uttered. Yellow Creek Logging Corp. v. Dare (1963) 216 Cal.App.2d 50, 55.
“A ‘complete causal relationship’ between the fraud or deceit and the plaintiff’s damages is required. ... Causation requires proof that the defendant’s conduct was a “‘substantial factor’” in bringing about the harm to the plaintiff.” Williams v. Wraxall (1995) 33 Cal.App.4th 120, 132.
However, taking a careful look at the required elements to prove fraud, at least here in California, leads to a reasoned conclusion that the cartel banks are not engaging in fraud, because there is no misrepresentation taking place. They are simply selling what someone else is buying. That they are doing it in a managed pattern with superior knowledge to those hapless victims taking the opposite side of their transactions, is not fraud. There can be no fraud without justifiable reliance on the misrepresentations. Even if one wanted to make out a case of concealment fraud, none of the cartel banks are in a relationship that would give rise to a claim for concealment, because absent a suitable relationship, there is no actionable claim of concealment fraud that can be made.
Hence, the only way to make a case for fraud, would be if the cartel banks sold a short, that they could not deliver, thus knowingly making a promise with no intention of performing. Then, the Comex would step in and let their remedies work per the Comex rules. The buyer of the short would demand a remedy for the cartel bank failure to deliver. The remedy is not in kind, that is, delivery of metal; rather, the remedy is payment in fiat. After that, if the Comex wanted to punish the bank for selling a naked short, well, they could, and how would that matter to the buyer of the metal that did not get delivery? Further, the buyer could initiate a state court action and sue the cartel bank for fraud, that is, misrepresenting that they had a quantity of metal that they were selling when instead they had no such metal, thus engaging in common law fraud. But again, the remedy to the defrauded buyer would not be getting metal in exchange for being defrauded. The only remedy would be payment of fiat, after a judgment (or settlement, if the parties to the lawsuit wanted to resolve the case short of trial).
Hence, even if the banks were knowingly selling unbacked paper metal, there is no likely result that is going to end up in metal changing hands.
So, in this context, since the primary governing agency is unwilling or unable to stem the apparent manipulation of paper metal, through the primary and obvious means intended, some of us wondered if other laws or concepts might apply to show the illegality of what the cartel banks are doing.
Indeed, there are other laws, right on the books, that have been used before, to stop these illegal practices dead in their tracks, in areas of commerce other than on the Comex. One such concept are the laws known as antitrust laws, under the Sherman Act and Clayton Act. It is illegal for anyone to enter into a “contract, combination or conspiracy in restraint of trade.”
How hard would it be for someone, anyone, in the justice department, or in any of the 50 states Attorney Generals’ offices, to initiate a Sherman Act or Clayton Act antitrust action against any one of the cartel banks? Why are the banks off-limits on the very type of conduct that the Sherman Act was designed to curtail?
Mr. TF analyzes the COT report regularly, and in so doing, the positions of the cartel banks are without question, proof of massive, concentrated shorts. This “combination” is by definition, part of the conduct that the Sherman Act is designed to make illegal. It does not have to be a purposeful conspiracy, it only need be a combination.
The concept is crystal clear. Take for example, two gas stations on opposite corners. If each station owner sat down at breakfast, and made an oral promise that both would raise prices by ten cents, and if they then did both raise prices, then they both would be in violation of the Sherman Act, for entering into a combination in restraint of trade, that is, to artificially increase the price paid by consumers for their products.
It is a no-brainer.
But why no action by any law enforcement?
Answer that question and one is enlightened, and understands why we stackers stack.