Manipulation investigations may have legs

... the Swiss competition watchdog just became the latest to enjoin the ongoing gold manipulation probe when as Reuters reported, it launched an investigation into possible collusion in the precious metals market by several major banks, it said on Monday, the latest in a string of probes into gold, silver, platinum and palladium pricing.
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... just like in LIBOR-gate, just like in FX-gate, it is the biggest rat of all, Swiss megabank UBS, that is about to turn on its former criminal peers.

As Bloomberg reported earlier "UBS was granted conditional leniency in Swiss antitrust probe of possible manipulation of precious metal prices, a person with knowledge of the matter said."

Bloomberg adds that the "bank may face lower fine than six other banks and financial firms suspected in probe or may avoid penalty altogether, person says."

Why would UBS do this? The same reason UBS did so on at least on two prior occasions: the regulators have definitive proof it is involved, and gave it the option to turn evidence and to rat out its cartel peers, or face even more massive financial penalties.

UBS promptly chose the former, and took the opportunity to minimize yet another key civil (and criminal) market manipulation charge against it, especially after it was already branded a "criminal recidivist" between Libor, FX and, of course, the tax evasion scandal: one more manipulation scandal and the bank could well lose its license to operate in NYC.

Which simply means that now the official countdown on the announcement of what will be revealed as the biggest gold-manipulation and rigging scandal in history, has begun.

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In a surprising development, a group of plaintiffs in an antitrust litigation case against Deutsche Bank, HSBC Bank plc, the Bank of Nova Scotia, and UBS AG, have just announced that Deutsche Bank is in the process of negotiating the formal terms of a settlement agreement with the plaintiffs. Deutsche Bank, HSBC and Scotia are the only members of the London Silver Market Fixing Limited, a private company that had operated the London Silver Fixing auctions until mid August 2014, after which time that auction was superseded by the LBMA Silver Price auction.

The case (# 1:14-md-02573-VEC) is being overseen as a class action suit by federal judge Valerie E Caproni in the US District Court for the Southern District of New York. A large number of different plaintiffs had taken similar actions and the cases were consolidated into one class action suit. The plaintiffs allege in the suit that Deutsche Bank, HSBC and Scotia colluded to fix the price of silver futures by publishing false silver prices, so that they, as members of London Silver Market Fixing Company would benefit (from the price movements).

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In a shocking development for the remaining defendants and the entire future of the current LBMA Silver Price auction, owned by the LBMA, administered in London by Thomson Reuters and calculated by the CME Group, the letter states that:

“In addition to valuable monetary consideration, Deutsche Bank has also agreed to provide cooperation to plaintiffs, including the production of instant messages, and other electronic communications, as part of the settlement. In Plaintiff’s estimation, the cooperation to be provided by Deutsche Bank will substantially assist Plaintiffs in the prosecution of their claims against the non-settling defendants.”

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Coming on the heels of the unresolved and unexplained fiasco that is the LBMA Silver Price auction and the broken promises by the London Bullion Market Association (LBMA) about greater auction transparency and wider participation in the new Silver auction (...) it seems difficult to envisage that the LBMA Silver Price can survive in its current form, with its current participants, of which 2 of the remaining 5 participants are HSBC and Scotia. It will also be interesting to see what the Financial Conduct Authority (FCA) will say about this development with Deutsche Bank, especially in light of the fact that HSBC and Scotia are now participating in a ‘Regulated Benchmark’ (the LBMA Silver Price), where price manipulation can be criminally prosecuted.
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... Reuters reported that Deutsche Bank has also reached a settlement in US litigation alleging the bank conspired to fix gold prices. In other words, hours after admitting it was rigging the silver market, it did the same for gold.

Some more headlines:

• Reaches settlement in U.S. litigation alleging it conspired to fix gold prices.
• Plaintiffs' lawyers, in filing, say Deutsche Bank has signed a settlement term sheet
• Plaintiffs' lawyers say are negotiating formal settlement agreement that would be presented for judge's approval later
• Plaintiffs' lawyers say settlement contemplates a monetary payment by Deutsche Bank
• Gold settlement follows similar accord involving alleged silver price-fixing that was disclosed on Wednesday

Most importantly, as the actual settlement reveals, Deutsche has agreed that in addition to once again providing "valuable monetary consideration" which will be paid into a settlement fund, that like in the silver settlement it will provide "cooperation in pursuing claims against the remaining Defendants."
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The silver case is In re: London Silver Fixing Ltd. Antitrust Litigation, 1:14-md-02573. The gold case is In re: Commodity Exchange, Inc. Gold Futures and Options Trading Litigation, 14-md-2548, U.S. District Court, Southern District of New York (Manhattan).

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Late Friday, reports hit Reuters that the CFTC would soon levy fines for "spoofing and price manipulation in the futures markets". Well, just a few minutes ago, we got the news release. You can read it all here:

http://www.cftc.gov/PressRoom/PressReleases/pr7681-18

However, to save you some time, here's the most important section:

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An ex-J.P. Morgan Chase trader has admitted to manipulating the U.S. markets of an array of precious metals for about seven years -- and he has implicated his supervisors at the bank.

John Edmonds, 36, pleaded guilty to one count of commodities fraud and one count each of conspiracy to commit wire fraud, price manipulation and spoofing, according to a Tuesday release from the U.S. Department of Justice. Edmonds spent 13 years at New York-based J.P. Morgan until leaving last year, according to his LinkedIn account.

As part of his plea, Edmonds said that from 2009 through 2015 he conspired with other J.P. Morgan traders to manipulate the prices of gold, silver, platinum and palladium futures contracts on exchanges run by the CME Group. He and others routinely placed orders that were quickly cancelled before the trades were executed, a price-distorting practice known as spoofing.

"For years, John Edmonds engaged in a sophisticated scheme to manipulate the market for precious metals futures contracts for his own gain by placing orders that were never intended to be executed," Assistant Attorney General Brian Benczkowski said in the release.

Of note for J.P. Morgan, the world's biggest investment bank by revenue: Edmonds, a relatively junior employee with the title of vice president, said that he learned this practice from more senior traders and that his supervisors at the firm knew of his actions.

Further, Edmond's case stemmed from an "ongoing investigation" run by the FBI's New York field office, the Justice Department said.

Edmonds pleaded guilty under a charging document known as an "information." Prosecutors routinely use them to charge defendants who have agreed to cooperate with an ongoing investigation of other people or entities.

His sentencing is scheduled for Dec. 19. Edmonds faces up to 30 years in prison but is likely to receive less time than that. The guilty plea was entered under seal Oct. 9 and unsealed on Tuesday.
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Bank of Nova Scotia has set aside C$232 million ($168 million) to cover the cost of winding down its historic precious-metals unit as well as a potential settlement of U.S. investigations into the unit’s trading activities.
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The bank has been caught up in regulatory scrutiny of banks’ precious-metals trading and one of its former traders last year pleaded guilty to trying to manipulate prices through spoofing.

Scotiabank, which had previously disclosed that it was being investigated, on Tuesday said it was “engaging in settlement discussions with the applicable authorities” in relation to probes from the Commodity Futures Trading Commission and the U.S. Department of Justice into its activities in the metals markets.

The C$232 million that Scotiabank set aside in the fiscal year to date was related to both the investigations and the “costs related to the wind-down of the metals business,” the bank said.

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Fooling competitors in financial markets is no different than bluffing in a high-stakes card game, according the lawyers for two former Deutsche Bank AG traders on trial for allegedly manipulating precious-metals prices.

“Whether gin rummy, bridge or poker, you’re allowed to hide your cards” and bluff to win, defense attorney Michael McGovern told jurors Tuesday at the start of the trail in Chicago of James Vorley and Cedric Chanu.

The former traders, who pleaded not guilty, are charged with fraud and conspiracy in the latest prosecution of a “spoofing” case brought by the U.S. since the so-called “flash crash” a decade ago. Vorley and Chanu are accused of issuing multiple trade orders between 2008 and 2013 that they canceled before executing in a bid to influence gold and silver prices.
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The case is U.S. v. Vorley 18-cr-35, Northern District of Illinois (Chicago).

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The world of precious metals trading continues to get murkier as one former Deutsche Bank AG analyst told a Chicago jury earlier this week that he was taught how to manipulate gold and silver prices by the two successful senior traders he worked with for about three years.

During his testimony in court, David Liew said that after joining the bank’s Singapore office, he began making “spoof” trades the way he was taught by Cedric Chanu and James Vorley. He added that Chanu and Vorley often placed buy and sell orders they never intended to execute, a strategy intended to influence prices so they could reap illegal profits.

The latest testimony is just part of the government’s case against the two Deutsche Bank AG traders who are facing charges of fraud and conspiracy that span a five-year period between 2008 and 2013. Vorley and Chanu are accused of manipulating precious metals markets by placing and canceling orders before they can be filled; the illegal move is referred to as “spoofing.”

“I saw Mr. Vorley and Mr. Chanu do it,” said Liew who is the prosecutions top witness.

Liew pleaded guilty to spoofing charges and is cooperating with the government in return for leniency. In his testimony, he said that he sat next to Chau in the Singapore office from 2009 to 2012. They regularly communicated with Vorley in London through video chats.

Liew described one situation on Aug. 26, 2020 in detail, where he helped Vorley push up gold prices.

Liew said he placed an order to sell 15 futures contracts, valued at around $1.8 million based on prices at the time; meanwhile Vorley placed an order to buy 80 contracts, which would have been worth about $9.9 million. When the gold price rose, Vorley canceled his buy order and Liew executed his sell order, Liew said.

Although spoofing is illegal, Liew said that they were “so commonplace” among his co-workers that he figured it was okay.
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JPMorgan Chase & Co. is poised to pay close to $1 billion to resolve market manipulation investigations by U.S. authorities into its trading of metals futures and Treasury securities, according to three people with knowledge of the matter.

The potential record for a settlement involving alleged spoofing could be announced as soon as this week, said the people who asked not to be named because the details haven’t yet been finalized. The accord would end probes by the Justice Department, the Commodity Futures Trading Commission and the Securities and Exchange Commission into whether traders on JPMorgan’s precious metals and treasuries desks rigged markets, two of the people said.

A penalty approaching $1 billion would far exceed previous spoofing-related fines. It would also be on par with sanctions in many prior manipulation cases, including some brought several years ago against banks for allegedly rigging benchmark interest rates and foreign exchange markets.
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It couldn’t be determined whether New York-based JPMorgan will face additional Justice Department penalties in court. Previous spoofing cases have been resolved without banks or trading firms pleading guilty to criminal charges. However, when prosecutors filed cases last year against individual JPMorgan traders they painted a grave picture of its precious metals desk, saying it operated as an illicit enterprise within the bank for almost a decade.

The government’s settlement with JPMorgan is not expected to result in any restrictions on its business practices, said one person familiar with the negotiations between authorities and the bank. It is anticipated that JPMorgan will admit to wrongdoing.

Spokespeople for the Justice Department, CFTC, SEC and JPMorgan all declined to comment.
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The U.S. Supreme Court has refused to review the convictions of two former Deutsche Bank precious-metals traders for manipulating gold and silver prices with "spoof" trade orders.

The nation's highest court without comment turned away appeals from James Vorley and Cedric Chanu, who were each sentenced to one year and one day in prison for wire fraud.

Prosecutors said that from 2009 and 2013 Vorley and Chanu placed large orders to buy or sell futures contracts in order to affect their price, with no intention of ever executing the trades. Once the price shifted, the men canceled their original orders and executed different ones to take advantage of the price movement. ...

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