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class action invokes RICO against JP Morgan, HSBC
By C. Powell, annotated/edited by FM Duck
Wed Nov 03, 2010
Banks Alleged to Have Used Naked Short Selling to Rig Market
NEW YORK, NY – As we at FM Duck have been telling you for years, 4 to 8
major bullion banks on Wall Street have been monopolizing and manipulating
the precious metals market for many years, controlling up to 85% of the gold
and silver futures markets by a method called “naked short selling.”
What is “naked short selling?”
First, selling short is the opposite of buying long. That is, Ma and Pa
Kettle standard investors usually buy stocks at what they think are low
prices, hoping that the stock prices will go up in the future. In this
manner, they hope to earn more profits in dividends and when they sell their
stock for higher than they purchased. This is called going long. Easy
peezy, lemon squeezy, unless you guess wrong.
As Ma and Pa Kettle get more sophisticated – or perhaps more dumb – they
may decide to place orders to sell stock first, and then buy it back later,
hoping said stock values go down. Technically, they are trying to sell high
first, and then buy low later, sort of the reverse of going long. This is
referred to as “shorting a stock,” or “short selling.”
So far, so good.
But then, in steps the crooks who have changed the mechanics of selling
short so they can game the system. Here’s how it works.
In the old days, when somebody shorted a stock, a piece of signed paper
was physically delivered to a central clearinghouse to ensure that said
shorted stock did, indeed, exist on the buy side. That is, the shorted
stock had to already have a buyer who was going long. The shorts and buys
had to really exist and balance.
Then, the big banks on Wall Street and the SEC and the CFTC decided that
trades could execute faster if the shorts could just verbally or
electronically state that they were shorting without actually sending a
piece of paper to a clearinghouse to
that an equal amount of longs existed. And so they did. They
short-circuited the old paper trail process for a new electronic trust-me
process. This new process has been termed “naked short selling” because all
too often the short is standing there butt naked without any clothes on,
i.e. no offsetting longs.
In this clever manner, those big short sellers who want to cheat the
system can short more stocks than what really exists, and then buy later to
make huge profits from those non-existent stocks. In short, no pun
intended, the major bullion banks have been shorting more stocks than exist
in the entire market through “naked short selling.”
The second problem with “naked short selling” is that when you buy a
stock, the company typically sends you a notice of the number of stocks you
own, and you get to vote your shares for which corporate officers you want
running the company. In “naked short selling,” big investors are receiving
and voting according to non-existent shares that they really do not own, and
thus can control, even bankrupt a company. This, too, is fraud, of course,
and must be dealt with by the SEC.
As reported at
GATA by C. Powell:
Chase & Co. and HSBC Securities Inc. face charges of manipulating the market
for silver futures and options in violation of federal commodities and
racketeering laws, according to a new lawsuit filed Tuesday in the U.S.
District Court for the Southern District of New York.
The suit -- which alleges violation of the Commodity Exchange Act and the
Racketeering Influenced and Corrupt Organizations (RICO) Act -- alleges that
the two banks colluded to manipulate the market for silver futures starting
in the first half of 2008 by amassing huge short positions in silver futures
contracts they had no intent to fill, but did so to force silver prices down
to their benefit.
The suit was filed on behalf of Carl Loeb, an independent investor in silver
futures and options, by Seattle-based Hagens Berman Sobol Shapiro LLP, a
class-action and complex litigation firm.
‘The practice of naked short selling has long been a serious issue on Wall
Street,’ said Steve Berman, co-counsel and managing partner at Hagens
Berman. ‘What we know about the scope and intent of JP Morgan and HSBC's
actions in this short-selling scheme dwarfs any other similar attempt to
manipulate a commodities market.’
According to the complaint, JP Morgan amassed a sizeable short position in
silver futures and options in part through its March 2008 acquisition of
investment bank Bear Stearns. By August 2008 JP Morgan and London-based HSBC
controlled more than 85 percent of the commercial net short position in
silver futures contracts.
The suit alleges that, starting in early 2008, the two banks began
manipulating the silver futures market by accumulating unusually large
‘short’ positions and then secretly coordinating enormous sales of silver
futures contracts on the Commodity Exchange, which is known as COMEX and is
part of the New York Mercantile Exchange.
According to the lawsuit, JP Morgan and HSBC used a variety of methods to
coordinate their manipulation of the market for silver futures contracts,
signaling when to flood the COMEX market with short positions, which caused
the price of silver futures and options contracts to crash.
The suit describes two ‘crash’ events that were set in motion by JP Morgan
and HSBC, one in March 2008 and the other in February 2010, after defendants
had amassed large short positions. In the wake of both events, the suit
alleges, COMEX silver futures prices collapsed.
‘We believe that JP Morgan and HSBC's scheme was carefully conceived and
coordinated to maximize their profits at the expense of innocent investors
who believed that they were trading in a market free from manipulation,’
The complaint also contains allegations that in September 2008 the U.S.
Commodity Futures Trading Commission launched an investigation that would
eventually consider allegations made by a London-based, independent metals
trader named Andrew Maguire that the silver futures market was being
The complaint alleges that Maguire disclosed to the CFTC on Feb. 3, 2010,
that he received a signal from the two banks of their intent to drive down
the prices of silver futures two days later, on Feb. 5, 2010. Maguire's
information was correct and the price of silver dropped dramatically between
Feb. 3, 2010 and Feb. 5, 2010.
In addition, the lawsuit states that both JP Morgan and HSBC still maintain
highly concentrated holdings in short positions in silver futures and
options, giving both banks the ability to continue manipulating the price of
Plaintiffs' attorneys have asked the court to certify the case as a class
action and enjoin JP Morgan and HSBC from continuing their alleged
conspiracy and manipulation of the silver futures and options contracts
Attorneys also ask the court to award damages and attorneys' fees to the
Seattle-based Hagens Berman Sobol Shapiro LLP represents whistleblowers,
investors, and consumers in complex litigation. The firm has offices in
Boston, Chicago, Colorado Springs, Los Angeles, Phoenix, San Francisco and
Washington, D.C. Founded in 1993, HBSS continues to successfully fight for
investor rights in large, complex litigation. More about the firm and its
successes can be found at
So what does all this mean to you, the small to medium investor in gold
and silver? Remember that the 4-8 major bullion banks on Wall Street are
members of the Federal Reserve central banks, some sitting on the Board
making America’s monetary decisions. So just when you try to protect
yourself from the hyper-inflation of the Federal Reserve printing up
trillions of dollars in paper money out of thin air, by your purchasing of
gold and silver, you discover that the very same inflators of our currency
are controlling and manipulating the precious metals market to screw you
over again as you try to protect yourself from their initial monetary Ponzi
In short, the central bankers screw you coming and going.
And not only that, their hyper-inflation shoves you into a much higher
income tax bracket to taxflate even more of your earnings.
As we have stated over and over in these columns, the KEY TASK for the
new Congress is to (1) audit the Fed, and then (2) abolish the Fed. We do
not need a central bank. What America needs is to return to a 100%,
non-fractional reserve, gold and silver standard. Until that happens, we
will wallow around in a global Depression for many years. Freedom to choose
one’s choice of a medium of economic exchange is the equivalent of freedom
of speech, economic speech. And this is already protected in the First
Amendment of our Bill of Rights. – FM Duck
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