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

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


Nov 17, 2015 - 3:52pm


No apology necessary, enjoying the dialogue.

Nov 17, 2015 - 3:47pm


I totally misread your post. Yes, you have a good point. The forfeiture funds can be used to go different ways within government. As an office, our DA was a former police officer who wanted the funds to go back to the agency that made the case. Of course, our city managers were aware of this and cut police budgets accordingly. Not much funding or forfeitures involved as relatively small towns. Could pay for some computers or weapons etc, but nothing world changing. Most agencies under funded and undermanned. Big year maybe $100000. Since we were in a small area, a big case would be interdiction of a bunch of drugs but the money was in some other state. I haven't read the statute for years as retired 6 years ago but there probably has to be some law enforcement tie to use of the forfeiture. . Can't just put a pool in the Mayor's back yard.

Sorry for not reading your response closer.

Nov 17, 2015 - 3:30pm


Apologize for typos and other screwy words. Typing from iphone and keeping foot elevated due to broken toe. Swells when at computer .

Nov 17, 2015 - 3:29pm


You misread what I wrote. You brought up the "fruits" of criminal activity being the civil assets being forfeited.

I took your reasoning regarding the fruits of criminal activity and applied it to criminal activity by law enforcement. What I mean is that when the there is zero repercussion to law enforcement officers that abuse their position and take civil assets for personal or departmental gain then it's moral hazard.

A way to remove this moral hazard is to decrease property taxes (the millage rate) by the amount of civil assets seized. This removes the incentive for the police to seize assets for gain.

It also has the added benefit that the police have a budget entirely controlled by the citizens instead of a budget controlled by the citizens in part the padded via forfeited assets.

You shall know a tree by its fruit

Nov 17, 2015 - 3:28pm


I can't help you with tax forfeitures. Different apple or orange. I guess those are duties of the Sheriff when the government needs force to enforce Civil matters. Don't think the Sheriff is doing anything but responding to direction from civil authorities. Really not a criminal action but resulting from state enforcement of an independent from police civil action. Different laws ...civil property arguments unless the winner of the action committed a criminal act the banks completing fraudulent foreclosure real estate documents and forgeries for personal gain. Massive criminal action... Never pursued by Fed or States

Nov 17, 2015 - 3:23pm


If you didn't do it, you go to a criminal trial before a jury of your peers, represented by counsel, with the standard of proof, Beyond a Reasonable Doubt. If you think all of those things are rigged including the DAs office, the witnesses, GJ selection, Jury Selection and Defense Attorney. ..then I would strongly get on board of impeaching everyone...that's all that is left but revolution.

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Nov 17, 2015 - 3:05pm


preponderance of evidence means the police said it's so. They said you did it, you said you didn't, who does the judge believe? And if you dare to argue, you will be held in contempt and not let out until the judge thinks you're sorry. That being said, we're just a few years away from autonomous drones whose manufacture are not readily apparent. At that juncture, I expect all this asset forfeiture stuff to end when people 'deploy the drone' on the pirates and afterward call 911. No idea what happened, Officer. Are we safe here?

Nov 17, 2015 - 3:05pm


Reread what I wrote. No criminal conviction, property returned. If proves not to be returned..unless a codefendant, then re-file.

Added: in all cases , there has to be a civil trial, or a forfeiture agreement of the defendant or a dismissal by one of parties, ordered by the Court. If a trial, the State must prove by a preponderance of the evidence a nexis to the crime or that the property is criminal proceeds of a criminal act The decision is by the Court. If the defendant elects a Civil Trial with a Jury , the admissible portions of the entire criminal case are also admissible in the Civil Forfeiture trial. Never had a convicted person request a civil trial with a "Jury" but they often wanted the Judge to make the decision.

added: some of the thinking on it is that the property concerned is the "fruits" of criminal acts. Say a bank robber gets $50000 from an armed robbery and gets caught shortly thereafter. We give the money back to the bank. What about a burglar that takes your wife's wedding ring. You want it back from the burglar or the pawn shop. With the drug dealer, no telling who or what was the basis of getting $50000 to buy contraband. But you know it is being used for an illegal purpose. Do you let the dealer keep the money or do you have him prove the source of the funds and some other "legal purpose" ( other than the one he was caught doing with the money).

further added: most drug dealers get State appointed attorneys as they never have any property in their name and therefore qualify. If they wish to hire an attorney based on their contraband funds, then their attorney can easily read the file and make a determination as to whether he thinks the Court, under forfeiture laws, would return the funds after civil trial. Rare defense attorney that would rely on Court making a favorable decision if it was obvious in the case file of his potential clients guilt. Or as so many Defense Attorneys admit when they file their Motion To Withdraw in hired cases, "My client and I can"t communicate". (Client won't pay up front)

Nov 17, 2015 - 2:52pm


Re: added - interesting line of reasoning. I think if that shoe fits then it should fit both feet. What are the "fruits" of civil asset forfeiture for law enforcement? I've read that it's a nice padding for the budget for things that the taxpayers haven't found important enough to fund through property taxes. Perhaps this whole matter would evaporate if the "fruits" of civil asset forfeiture went directly toward a reduction in the millage rate on property taxes - i.e. the more lawfully seized the lower the property taxes collected. Then law enforcement has zero perverse incentive to go shopping amongst the sheep. And the voter/taxpayer can rightfully size the police force budget each year. You know, the budget that doesn't include MRAP's and grenade launchers for Mayberry.

Peter S
Nov 17, 2015 - 2:31pm

legerde - civil asset forfeiture abuse


Agreed on the vile abuses of civil asset forfeiture "law" and practices, even when used against people who have likely or assuredly done bad things.

However, there is a meta-issue here. That is, corruptly procured laws, legal entitlements, judicial decisions, administrative regulations or proceedings, or "enforcement" actions. If there is a foundational principle of the law, it is that corruptly procured legal claims are void ab initio. I fully expect that the American people will regard much of our existing "law" in the coming years as void ab initio due to this principle. Any just and moral society must do so, if it wants to set things to right.

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