Yesterday, Commodity Futures Trading Commission (CFTC) chairman Bart Chilton announced two separate lawsuits filed in a Manhattan federal court alleging JP Morgan Chase & Co. (NYSE:JPM) and HSBC Holding Inc. (NYSE:HBC) profited from their manipulation of the silver futures market.
The class action lawsuits, brought by Brian Beatty and Peter Laskaris, allege that from around March 2008 to the present JP Morgan and HSBC have “combined, conspired and agreed to restrain trade in, fix, and manipulate prices of silver futures and options contracts” in violation of the Commodity Exchange Act. Some believe these lawsuits could spark an avalanche of litigation against precious metal market manipulators. The lawsuits allege that defendants colluded on the silver market and notified each other of large trades, amassing massive short positions and using massive positions to flood the market with a disproportionately large numbers of orders. Beatty, who traded silver contracts during the period in question, claims he was hurt by this collusion.
In August 2008 JPM and HSBC held 85% of the net short position in silver, and on August 14-15 2008, the price of silver suffered an 18% drop. Laskaris was hurt by alleged the alleged artificial market in silver for a one year period from June 2008 to June 2009, and claims that when the public began complaining about silver market manipulation, the second-place metal went from underperforming to outperforming gold. JP Morgan Chase & Co. (JPM) and HSBC Holdings Inc. (HSBC) have long been big players in a silver market dominated by a select few firms. The Wall Street Journal reported that less than four market players, including JPM and HSBC, hold around 25% of all net bearish positions in silver, and that in recent months banks have reduced such holdings. This could be the tip of the iceberg in the precious metals market; gold could be the next high profile domino to fall.