Two separate lawsuits filed in federal court in Manhattan Wednesday allege that the two banks [J.P. Morgan and HSBC] manipulated silver futures by “amassing enormous short positions,” according to a report from Dow Jones Newswires.

The Commodity Futures Trading Commission has been investigating allegations of price manipulation in the silver market since 2008.

A Bloomberg report today stated “The investor, Peter Laskaris, alleges that starting in March 2008, the banks colluded to suppress silver futures so that call options, or the right to buy, would decline, and put options for the right to sell would increase, according to the complaint filed today in federal court in Manhattan. The collusion was also intended to maintain prices at levels at which some options would expire as worthless, Laskaris claims.

The banks placed so-called spoof trading orders, or the “submission of a large order ” according to the complaint.”

It is alledged the banks used their large positions to effect the market by “flooding” it with a disproportionate number of orders which are not executed but influences prices, and is then withdrawn before it reasonably can be executed. They “reaped hundreds of millions of dollars, if not billions of dollars in profits from their unlawful and manipulative suppression of the prices”.

The Commodity Futures Trading Commission began probing allegations of price manipulation in the silver futures market in September 2008.

Commissioner on the Commodity Futures Trading Commission Bart Chilton. Photographer: Brendan Hoffman/Bloomberg

At a hearing in Washington yesterday, CFTC Commissioner Bart Chilton said there have been “fraudulent efforts to persuade and deviously control” silver prices and that violators should be prosecuted. [His full statement can be read at http://www.cftc.gov/PressRoom/SpeechesTestimony/CommissionerBartChilton/chiltonstatement102610.html.]

A seperate suit was also filed today “on behalf of investor Brian Beatty, and naming the same banks as defendants, claims a whistleblower contacted the CFTC last year and reported the banks’ conspiracy to suppress prices of silver futures to profit from “enormous” short positions in silver futures.”

The respective plaintiffs, Brian Beatty and Peter Laskaris, each said they traded COMEX silver futures and options and contracts, and lost money because of the alleged manipulation.

The cases are Beatty v. JPMorgan Chase & Co et al, U.S. District Court, Southern District of New York, No. 10-08146, and Laskaris v. JPMorgan Chase & Co et al in the same court, No. 10-08157.

The lawsuits were filed one day after the Commodity Futures Trading Commission proposed regulations to give it greater power to thwart traders who try to manipulate prices.

“Going back to the early 1980s, silver has been an extremely volatile market,” said Bill O’Neill, managing partner at Logic Advisors, an Upper Saddle River, New Jersey investment firm specializing in commodities. “I often describe it as a speculative playground. You have to be a big boy to play.”

According to a Reuters article “Only once in its 36-year history has the CFTC successfully concluded a manipulation prosecution, in a 1998 proceeding concerning prices for electricity futures.”

By Gainesville Coins – www.gainesvillecoins.com

The Advantage of Physical Assets

Precious metals have long been treasured both for their beauty and rarity. As a result, these metals have been used by many civilizations as a store of wealth, and in some cases, a foundation for currency.

Historically speaking, these stores of wealth have not experienced the kind of boom and bust cycles present in other forms of investment. This observed stability exists for several reasons. First, precious metals such as modern bullion have intrinsic value. The fact that precious metals consist of something that actually has value makes them more stable than fiat currency which is made of near-worthless paper.

In addition, these metals in many cases have practical applications. Modern industrial processes make use of metals such as gold and platinum for their unparalleled conductivity and use in manufacturing electronics. Moreover, in the case of economic turbulence, when investors do seek investments other than those vulnerable to market fluctuations, they wisely turn to the stability of precious metals. This increased demand has the effect of increasing their values, making them an even better investment.

Finally, when precious metals are minted as collectable coins such as the popular Gold Eagle or Gold Buffalo, they are sought after not only for their intrinsic value, but for their rarity as a collectable item. Again, because there is a fixed supply of any one coin, increased demand for such an asset increases its value. It is for these reasons that for hundreds of years, gold and silver coins have enjoyed a remarkable history of defining purchasing power and backing international finance. For more on this subject, see our article addressing the superiority of precious metals.

Technology and Precious Metals

The influence of the Internet on the trade of precious metals has been vast. It is no longer necessary for collectors to buy and sell coins only locally. The Internet has several venues through which to vend or purchase these assets to buyers or sellers around the world. (more…)

What do you do when a gold seller fails to deliver or the merchandise you received was not as described when you ordered it?  Who can you contact for help when you don’t receive payment for gold you’ve submitted to sell?

In two recent cases, “Howard” in Mississippi wired $20,000 several months ago to a California coin and bullion dealer to purchase gold coins, and “Richard” in Virginia sent $150,000 to the same dealer.  With the recent run-up in bullion prices they both would have made a nice profit, except they still have not received any gold from the dealer.  Howard laments, “All I’ve gotten is the run-around.”

“If you don’t know gold coins, you’d better know your gold coin dealer,” is the advice to collectors and investors from three nonprofit organizations: the American Numismatic Association (www.money.org), the Industry Council for Tangible Assets (www.ictaonline.org) and the Professional Numismatists Guild (www.pngdealers.com).

“There are many reputable, professional numismatists in the United States,” the three organizations emphasize.  “Before you make a purchase or offer something for sale, do your homework and check the dealer’s credentials.  For example, contact the Better Business Bureau to check the company’s BBB rating or if the company is even accredited by the BBB.”

A listing of Better Business Bureau accredited and rated companies nationwide can be found online at www.bbb.org.

The dealer that received the combined $170,000 in unfulfilled purchase orders from “Howard” and “Richard” had an “F” rating from the BBB.

Typically, dealers who are unresponsive to reasonable requests from customers seeking resolution of disputes are not involved in the mainstream of numismatics, but may advertise in prominent, mainstream news media.

Based on the experiences of the ANA, ICTA and PNG, and in consultation with law enforcement agencies, the three organizations suggest that buyers or sellers of gold coins who encounter problems consider taking these actions:

• Make copies of all correspondence, receipts and transactions and if possible have copies of advertisements or the dates and times ads were broadcast.
• Always contact the company directly to try to resolve the dispute.  Ask for the manager or company owner.
• Take thorough notes of your conversation(s).

If the problem is still not resolved after a reasonable amount of time, contact the Customer Service and/or Advertising Departments of the news media organization(s) that published or broadcast the company’s advertisements and let them know about the problems.

The ANA, ICTA and PNG advise: “It’s your money, so do your homework before placing an order, and if there is a problem then don’t just sit back and wait.  Be persistent in your efforts to resolve the dispute. Follow up with the company you did business with and the agencies where you’ve filed a complaint.  You may also want to consult with an attorney.” (more…)