In markets stacked against small investors, only the most egregious offenses ever see the light of day. Only a handful of these even see the inside of a courtroom.
In the coming year, we may see one of the rare cases when a David stands up against a Goliath and has the right stone to bring it down.
Since 2014, a long shot court case has been slowly chugging through Manhattan courtrooms regarding a long-running scheme to manipulate silver prices by some of the biggest banks around.
The lawsuit, targeting Deutsche Bank, Bank of Nova Scotia, HSBC, and later UBS, alleged that the banks, which oversee the century-old silver fix, have been manipulating the physical and COMEX futures market since January 2007.
The methods involved may have amounted to nickels and dimes, but the potential losses for small investors were staggering.
The alleged conspiracy started by 1999, suppressed prices on roughly $30 billion of silver and silver financial instruments traded each year, and enabled the banks to pocket returns that could top 100% annualized, the plaintiffs said.
No one expected much to come of it, in spite of compelling evidence. After all, the combined legal budgets of these banks dwarf anything a class-action lawsuit can muster.
However, no one expected the lead defendant to break ranks. Because of that move to unilaterally settle, the case is now poised to blow open.
The Turncoat
This year saw two big breaks for the plaintiffs, both centering on Deutsche Bank.
In an April announcement, it agreed to settle its portion of the lawsuit for what would be $38 million.
The terms of the settlement weren’t immediately disclosed. Only that it was negotiating a formal settlement agreement that would be submitted for approval by the U.S. District Judge overseeing the litigation.
Then the formal settlement negotiation letter to the court from Deutsche’s lawyers went public, and shocked everyone. The settlement letter stated:
“In addition to valuable monetary consideration, Deutsche Bank has also agreed to provide cooperation to plaintiffs, including the production of instant messages, and other electronic communications, as part of the settlement. In Plaintiff’s estimation, the cooperation to be provided by Deutsche Bank will substantially assist Plaintiffs in the prosecution of their claims against the non-settling defendants.”
This was huge. This information is exactly what everyone assumed would never see the light of day, thanks to blank checks given to teams of lawyers to bury and suppress any and all information that would give the plaintiffs any standing in court.
Smoking Gun
Following Deutsche Bank’s move, nothing much came from the litigation until October. The judge then released a 61-page decision to determine if the case could move on.
While she removed UBS from the settlement, she also did the unexpected by allowing investors to pursue antitrust and manipulation claims against Bank of Nova Scotia and HSBC, clearing the way for the silver manipulation price-fixing litigation to proceed.
The best efforts of the bank’s lawyers weren’t enough to force a dismissal, but apparently it was close. As the judge stated in the decision:
“Plaintiffs clear the plausibility standard, albeit barely, with respect to their price fixing and unlawful restraint of trade claims under Section 1 based on allegations that the Fixing Members conspired opportunistically to depress the Fix Price between January 1, 2007 and December 31, 2013.”
Now, the plaintiffs were finally able to pursue the discovery phase of the lawsuit, allowing them to use the information they gained from Deutsche Bank’s records.
Just this Wednesday, it became evident that they’ve hit the mother lode. In papers filed to the court, the lawyers sought to revive previously-dismissed claims against UBS while adding Barclays, BNP Paribas, Standard Chartered, and Bank of America Corp as defendants.
All stem from information gained from 350,000 pages of documents and 75 audio tapes that Deutsche Bank produced.
The documents clearly show traders were coordinating trades in advance of the daily phone call, manipulating the spot market for silver, conspiring to fix the spread on silver offered to customers, and using illegal strategies to rig prices.
“Plaintiffs are now able to plead with direct, ‘smoking gun’ evidence,’ including secret electronic chats involving silver traders and submitters across a number of financial institutions, a multi-year, well-coordinated and wide-ranging conspiracy to rig the prices,” the plaintiffs said in their filing. The new scheme “far surpasses the conspiracy alleged earlier.”
Vindicated At Last?
Back in April, in the latest in a series of articles covering the lawsuit, I expressed doubt on what will come of this in the end.
There is still the possibility that the banks will settle and bury the evidence. However, that is looking increasingly improbable with the plaintiffs pursuing five new banks.
There is also the possibility that the plaintiffs cleared several hurdles, only to falter on whatever comes next.
However, the fact that this case became a class-action lawsuit and has proceeded this far revives some hope that, at long last, silver joins the ever-growing list of the tools of entrenched insiders used to fleece small investors proven to exist.
People were incredulous about Libor manipulation, citing sterling reputations and professionalism.
As it turns out, it amounted to an estimated $880 trillion of world markets being manipulated. Basically, it affected every loan and mortgage in the world, and it took years to unravel.
Even after that, the mainstream media scoffed at gold manipulation, which was exposed as well.
Now those who have been ridiculed for years about their calls to action are much closer to being vindicated.
Andrew McGuire certainly comes to mind. He publicly called out JP Morgan and HSBC-gamed COMEX trading in silver in April 2013, two days in advance of the manipulation.
He has been widely ignored and mocked since. Hopefully, the last laugh can make up for some of the abuse.
Of course, all of this may ultimately amount to cold comfort for us all. In a world where everything is manipulated, penalties are a fraction of profits, and regulatory capture is complete, there is always something else to game.
Let’s hope the people and courts warm up more and more to these types of lawsuits and help counter the legion of lawyers brought to bear.
Let’s hope the core of the Glass-Steagall comes back stronger than ever, revamped for the 21st century.
But let’s not forget that the system is still rigged, and the next big manipulation is undoubtedly happening right now, enriching the few over the rest of us.
