Stranger Than Fiction – Ted Butler


by Theodore Butler, Silver Seek:

Yesterday, the Department of Justice and the Commodity Futures Trading Commission announced yet another settlement, both criminal and civil, for “spoofing” and market manipulation in COMEX precious metals, this time against Merrill Lynch, a unit of Bank of America. The infractions occurred hundreds of times starting at least in 2008 and continuing through 2014. While Merrill Lynch and Bank America settled criminal charges via a deferred prosecution agreement and a $25 million fine, separate criminal charges are pending against a number of former individual traders.

Considering that a straight criminal charge and/or conviction could easily have resulted in, effectively, putting Merrill Lynch out of business (many cities, states and government entities are forbidden from doing business with convicted felons), Merrill and BAC got off easy. For the umpteenth time, price manipulation is the most serious market crime possible and Merrill just dodged a bullet that could have been fatal.

Not so lucky, of course, were the many victims of Merrill Lynch’s criminal activities who are unlikely to collect a penny for the long-running gold and silver price manipulation. Apparently, this is what comes of high-level corporate crime in the US – a wrist slap of a fine, a dubious trophy on some prosecutor’s mantle and an avoidance of the real issues.

What makes this all stranger than fiction is that the settlement covers nearly the exact time period that the CFTC (with DOJ involvement according to the late Bart Chilton) was involved in a formal five year investigation into a COMEX silver investigation which ended in 2013 with no findings of wrongdoing. Neither the CFTC nor the Justice Department could find anything wrong with silver (or gold) back then, but now each can recite chapter and verse about all the wrongdoing that took place at that time. What are the odds that the CFTC could have been inundated with more allegations of a silver manipulation than any other complaint in its history and for it to conclude repeatedly those allegations had no substance, only to come back years later saying plenty was wrong? Thanks for nothing.

Strangest of all is that the regulators are doing everything possible to avoid the 800 pound gorilla in the room – the real precious metals manipulation being run by JPMorgan since it acquired Bear Stearns in 2008.  You know, the one by which JPM was the largest futures contract short seller on the COMEX and then used the resultant depressed prices to accumulate massive amounts of physical gold and silver. Next to what JPMorgan has done over the past decade, the spoofing charges are relatively child’s play.

I will admit that spoofing (the entering and immediate cancellation of large orders solely intended to manipulate prices in the short term) was so repetitive and serious enough to result in the complete surrender by Merrill Lynch and Bank of America to everything alleged by the DOJ in return for the prize of “only” a deferred criminal prosecution agreement. And it is good that spoofing has finally been cracked down on as those of us who complained about it for years would attest. But spoofing is only one of many tools used in the real price manipulation run by JPMorgan.

One thing is certain – the DOJ has the means, should it so choose, to truly crack down on anyone for spoofing or market manipulation, including JPMorgan (since it has an ongoing case on that aided by a criminal guilty plea by a former trader).  Complicating matters for JPMorgan is that, unlike Merrill, it already has in place an outstanding criminal deferred prosecution agreement with the DOJ from the Madoff scandal (how many such agreements are allowed before you are considered a stone-cold crook?).

There can be no doubt that the Justice Department went light on Merrill and Bank America to avoid the consequences and aftermath of a straight criminal finding, as was possible under the law.  How would it impact the financial system and serve the public good to, effectively, put either out of business? That goes in spades for JPMorgan. But whereas spoofing is largely a thing of the past, JPMorgan still looms large in the much more significant ongoing silver and gold manipulation – or at least it has until very recently.

The Nov 6 announcement by the Justice Department of a criminal guilty plea by an ex-trader from JPMorgan for spoofing and market manipulation, as well as there being an ongoing investigation of same did not immediately bring an end to JPM’s real manipulation (contrary to my hopes and expectations at the time). I say this because on the rally in gold and silver prices that commenced a week after the DOJ’s announcement and that lasted until the end of February, JPMorgan did as it always had done on every silver and gold rally over the past 11 years, namely, sold short enough in COMEX futures to cap both rallies. Gold and silver prices then declined into the end of May and JPMorgan bought back all of its added COMEX short sales at a profit – the same as it had done continuously since early 2008. And yes, JPMorgan continued to accumulate physical silver as well.

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