Silver price manipulation case against JPMorgan

Every now and then we receive questions about JPMorgan and the allegations that the company suppresses the price of silver. In our Q&A section we answered some of those concerns by replying to a question about JPMorgan and silver manipulation. In that answer we wrote the following:

Despite a (…) lawsuit accusing JPMorgan and HBSC of jointly controlling “over 85% of commercial net short positions”, a position inherited mainly from the liquidated Bear Stearns business, the CFTC seems inclined to  drop any case it has against JPMorgan , making this the third case in a row that has not found proof of wrongdoing.

This actually happened last year and the CFTC didn’t find any substantial evidence of foul play on the part of JPMorgan after leaving out HSBC from the case.

Additionally, a group of 44 plaintiffs submitted to the U.S. District Court for the Southern District of New York a class-action complaint accusing JPMorgan of the manipulation of the silver market. This lawsuit was turned down by Judge Robert P. Patterson Jr. on Dec. 21, 2012.

The complaint itself claimed JPMorgan had “combined, conspired and agreed to restrain trade in, fix and manipulate prices of silver futures and options contracts” and that it had “intentionally acted to manipulate prices of COMEX silver futures and options contracts.” This would have been done primarily through an enormous short position inherited from Bear Sterns. Supposedly, “JPMorgan frequently held 24-32% of the open interest in all COMEX silver futures short contracts (…) trading.”

The plaintiffs mentioned numerous cases when, in their opinion, JPMorgan had intentionally influenced the price of silver, particularly had caused substantial sell offs. The supposed manipulation would have caused significant losses on the part of the plaintiffs, particularly because of the depreciation in silver and because of margin calls that forced investors to close off their long positions.

The overall period during which the alleged manipulation would have taken place was on “June 26, 2007 and between March 17, 2008 and October 27, 2010.” The suit mentions dates of sudden price drops, such as June 19, 2008, June 24-25, 2008, May 17-18, 2009, June 9-10, 2009 and many more.

In spite of the level of detail presented in the listing of supposed manipulative actions, the case was rejected by Judge Patterson as one providing only “conclusory allegations.” This basically means that the plaintiffs presented possible situations of manipulation in the silver market but did not provide substantial evidence that the manipulation in fact had taken place.

Because there is no precise definition for price manipulation within the U.S. legal system, the courts usually refer to a four-step test in order to determine whether any manipulation has in fact taken place. In these four steps the court checks if:

  • The Defendant has the ability to influence prices.
  • They display intent to do so.
  • There is an “artificial” price other than the price that would have been set without manipulation.
  • The Defendant is the cause or one of the causes of that “artificial” price.
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