Banking Cartel, Fraud, and Antitrust - Where is the Enforcement Action?

40
Tue, Nov 17, 2015 - 10:58am

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.

About the Author

  40 Comments

Barfly
Nov 17, 2015 - 11:02am

First?

Ha! On a California Lawyer post no less. Good article.

indiana rod
Nov 17, 2015 - 11:06am

Where Is The Enforcement Action?

Answer. There is none.

The CFTC had a four year "investigation" of the silver market. Chairman Gary Gensler and Commissioner Bart Chilton both said things weren't quite right in the silver market.

Now Gensler, Chilton and the chief enforcement officers are all gone. The bankers have a green light to do whatever they want.

CPE
Nov 17, 2015 - 11:07am

Thx

Cal

Also, this seems the appropriate forum for a call to arms in support of freeing the Honorable Jon Corzine from prison. Who's with me? I mean the poor guy is old and doesn't deserve to rot away in a small cell...

canary
Nov 17, 2015 - 11:12am

Next Happy Tuesday....

December 22nd....After the FOMC.

4 oz
Nov 17, 2015 - 11:13am

lol, okay...here it comes.....

Retirement savers will get the option to participate in a new type of retirement account next year, the myRA.........Introducing the myRA. The myRA is........guaranteed by the government never to lose value. There is only one investment option, a Treasury savings bond....

https://www.aol.com/article/2015/11/16/how-retirement-benefits-will-chan...

Nov 17, 2015 - 11:16am

Thank you CaL

This is ABSOLUTELY TREMENDOUS. Great stuff. Thank you for taking the time to write it up.

lakedweller2
Nov 17, 2015 - 12:05pm

@Cal

Fraud and/ or theft can also be a criminal action. What does the "California Criminal Code" have to say about fraud, theft by deception, and similar actions. I would think those statutes would read similar to the civil code. The goal is jail. Law enforcement will only investigate criminal offenses. That is the way to go as the SEC and possibly the CFTC have no criminal authority. Going back to read again and see if you are citing criminal authority or cases . Sorry in advance if I misread.

Nov 17, 2015 - 12:13pm

@ Lakedweller

The concepts are the same for both criminal fraud or civil fraud. The difference is in the burden of proof. Even if the dunces at the CFTC felt they could not prove their enforcement case to the standard of beyond a reasonable doubt, civil law is equally available which only requires proof by a preponderance. This means that there need only be some evidence that tips the scales, as contrasted with criminal law which takes much more proof to remove all reasonable doubt.

lawyer35
Nov 17, 2015 - 12:20pm

frustrating as hell

To know that we are dependent on the action (or inaction) of the SEC/CFTC. Great article.

Peter S
Nov 17, 2015 - 12:43pm

California lawyer

California Lawyer,

I'm also an attorney in California. My personal opinion is that Wall Street, and all of the so-called regulators and complicit legislators are liable for crimes against humanity here, with no immunities (government or otherwise), and no statutes of limitations. And will be so held, once the American people finally decide to put a stop to all of this.

It's simply a question of whether we have any survival instinct left at all. I believe that we do . . .

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