Well, well, well. Something very interesting happened this past week: the US Department of Justice filed charges against three top traders working on JPMorgan’s precious metals desk for manipulating metals prices over the past decade.
Finally, the gold and silver bugs who have been shouting of blatant manipulation in metals prices (and often being ridiculed or labeled conspiracy theorists) are being vindicated. One question that comes to mind is whether the CFTC, who is tasked with regulating futures markets where the manipulation took place, and who found no wrong doing during its investigations into the manipulation, inept or complicit? Either way the CFTC serves no purpose. But I digress…
Additionally, and perhaps more noteworthy, the DOJ described the JPM metals desk as a criminal organization and invoked the RICO Act (Racketeer Influenced and Corrupt Organizations) against the bank. The RICO act is a law typically used against mafia and organized crime syndicates. The act allows prosecution and civil penalties of individuals distinct from the organization. So, the charged traders will be facing jail time and civil penalties if convicted. The RICO act is often used to pressure defendants into cooperating (read: snitching) to gather evidence, uncover additional crimes, and prosecute higher-level bosses in criminal organizations.
The U.S. has rarely invoked RICO law in big bank cases. Its use suggests that JPMorgan may face deeper legal jeopardy, going beyond the several individuals who have already been prosecuted.
Former prosecutors agreed the move was bold, with at least one questioning whether the Justice Department was overreaching. Others said the use of RICO was merited given the complexity and duration of the manipulation, echoing the U.S. official who announced the charges Monday morning.
“Based on the fact that it was conduct that was widespread on the desk, it was engaged in in thousands of episodes over an eight-year period — that it is precisely the kind of conduct that the RICO statute is meant to punish,” Assistant Attorney General Brian Benczkowski told journalists.
“We’re going to follow the facts wherever they lead, whether it’s across desks here or at any other bank or upwards into the financial institution,” he added.
While, I’m not holding my breath for Jamie Dimon or any other major players’ heads to roll, this is certainly interesting, and something to keep an eye on. It’s possible this could uncover the manipulation was sanctioned by the Federal Reserve to suppress the value of precious metals, which are sound moneys in direct competition with the US dollar which the Fed is rampantly devaluing via quantitative easing, and JPM was merely acting as an agent. That would be damning, and hopefully at least start the conversation about dismantling the Federal Reserve in earnest. But that’s probably wishful thinking — Buy Bitcoin!
By the way, I suspect the Federal Reserve to be involved in metals manipulation for the following reasons. Over the past decade, there have been multiple massive market sell orders which have crashed the price of gold and silver. Several of these market sell orders were for $2B+ in notional value of gold futures contracts. Sometimes these massive market sell orders were executed on Sunday evening during very thin trading. This is very odd, nay even suicidal, behavior that no rational market actor would make.
To wit, no normal, sophisticated asset manager (which they would have to be to be dealing in billion dollar sums) would dump an order that large on the market at once. No way. The manager would realize a much worse average execution price on the sale than had they liquidated the position in many sell orders over several days or weeks. Furthermore, asset managers have a fiduciary duty to seek best execution, and would be liable for damages to clients had they sold a very large position by dumping it on the market.
Thus, whoever sold $2B in gold futures is clearly not seeking good execution, and therefore not an economic entity driven by normal profit and loss. (Sure, it could be a distressed seller or a fat finger, but when the same thing happens repeatedly over a decade? And for such massive size? I don’t think so). Instead, it seems these dumps were designed to crash metals prices. Who is the only market participant not acting in accordance with rational market incentives of profit and loss, but rather acting in accordance with an agenda and wants lower metals prices? That’s right: central banks, and in particular the Federal Reserve. But I digress again…
What will come of all this? Who knows. But it seems to be a step in the right direction. And it should lead to appreciating precious metals prices, which will be a boon for the investors seeking a safe haven. Don’t forget, gold is sound money. And while gold is in direct competition with Bitcoin, and ultimately I believe Bitcoin will demonetize gold because it is simply a better, harder form of money — indeed, the best money the world has ever known! — in the near to intermediate term, gold and Bitcoin are allies which both help the masses protect themselves against extraordinary systemic risk and the ravages of central bank policy.
Also interesting: Ted Butler, one of the worlds foremost precious metals analysts, believes JPM to have used the ongoing manipulation to accumulate one of the largest physical silver positions in history, 850 million ounces, and an additional 25 million ounces of gold. If JPM is allowed to realize egregious profits from their physical metals positions after convictions of manipulation, it will be one of the most horrendous black-eyes on our justice system and financial system ever.