Investigation into Possible Silver Market Manipulation Likely to be Dropped

By: Alice Young
Alice Young
Alice joined the Invezz team after motherhood convinced her to make a career change from actuary-ing. She brings a… read more.
on Aug 7, 2012

The US Commodity Futures Trading Commission (CFTC) is likely to drop a four-year investigation into the alleged manipulation of the silver market, the Financial Times reported on 5 August 2012. And while the potential conclusion of the investigation will most probably infuriate some precious metals investors, it will surely be a relief for JPMorgan (JPM), with the US investment bank being one of the groups accused of silver market manipulation.

As noted on the CFTC website, in September 2008, the Commission announced the existence of an investigation regarding possible “unlawful acts in silver markets”. The FT reports that the investigation was instigated by allegations of manipulation from a group of precious metals investors. US silver investors claimed that large investment banks, including JPMorgan, had conspired to drive the price of silver down.

!m[](/uploads/story/235/thumbs/pic1_inline.png)In November 2011, the CFTC announced that its staff had analysed over 100,000 documents and interviewed dozens of witnesses and obtained expert advice. Yet, the FT reports that according to three people familiar with the situation, the CFTC had failed to find sufficient evidence to support a legal case. Those acquainted with the investigation also noted that the documents analysed by the CFTC included records from JPMorgan.

Still, the US regulator has not yet formally concluded the investigation, meaning that Commission staff might yet be instructed to proceed. Meanwhile, Bart Chilton, a CFTC commissioner told Reuters in an e-mailed response to the FT report that he expected the Commission to act on the silver investigation in September or October. “I continue to believe, consistent with my previous statements and information from the public, that there have been devious efforts related to moving the price of silver”, he said, as quoted by Reuters.

If the CFTC does indeed drop the investigation, it will be a relief to JPMorgan. The bank has suffered numerous allegations from silver investors on the blogosphere, although no company or individual was specifically named in the CFTC investigation. The FT notes that one campaign in particular appealed to investors to “crash JPMorgan” by buying silver, based on the assumption that the company had a large bet on lower silver prices, an allegation denied by the investment bank.

In the beginning of April 2012, Blythe Masters, JPMorgan’s head of global commodities, said in an interview with CNBC that his company stored significant amounts of commodities such as silver on behalf of customers, but that the bank had no stake in whether silver prices rise or decline. “It’s not part of our business model. It would be wrong and we don’t do it”, she pointed out, as quoted by CNBC.
Although, according to the FT article, the CFTC staff did not have sufficient evidence to bring a case, perhaps it is too early for JPMorgan to celebrate. “The investigation has not reached its conclusion,” a CFTC spokesman was quoted as saying by the FT.
In addition, as reported by Reuters, Mr Chilton noted that there have been silver and gold market anomalies outside the silver investigative window, which have raised and continue to raise market concerns.

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