A Crack In The Dike?

Tuesday’s announcement by the Department of Justice of a guilty plea by a former trader of JPMorgan for systemic “spoofing” and price manipulation of gold, silver, platinum and palladium traded on the COMEX and NYMEX futures exchanges (owned by the CME Group) sure seemed like a very big deal to me for a number of reasons. The infractions occurred from 2009 to 2015 and the trader admitted to engaging in a conspiracy to commit market manipulation on hundreds of occasions, with the knowledge and consent of his immediate supervisors. Please take the time to read this, as it is remarkably plainspoken.

https://www.justice.gov/opa/pr/former-precious-metals-trader-pleads-guilty-commodities-fraud-and-spoofing-conspiracy

First, let me get some personal feelings out of the way. I’ve received a number of comments to the effect of how this vindicates my long held belief that JPMorgan is the silver (and gold) crook of crooks. The truth is that I don’t consider it vindication (yet), but I will confess to a feeling of relief upon reading the complaint, as I believe it greatly reduces the chances of JPMorgan suing me for openly calling them the crooks that they are. To be sure, my fear of being sued was never really a personal fear, but how it might affect my wife and family. Correctly or incorrectly, I feel a great burden has been lifted.

That aside, the announcement by the DOJ was remarkable in many ways, not the least of which is that this is a criminal case which involves jail time and not a civil case which only involves monetary fines. Also, the announcement makes clear that this is very much an ongoing investigation and it’s hard to see how there won’t be further fall out for JPMorgan, since it’s obvious the guilty trader was doing what others were doing at the bank. It’s also hard for me to see how a trader involved in systemic criminal market activity in coordination with other traders at the bank doesn’t equate to systemic criminal activity by the bank itself. Notable, of course, is that of all the blizzard of spoofing and short term price manipulation cases brought recently in silver and gold, this is the first to zero in on traders at JPMorgan.

I am struck by the DOJ’s announcement not mentioning the CFTC, although I may be reading too much into that. Interestingly, the guilty plea covers the time the CFTC had a supposed formal investigation in place into a silver market manipulation as a result of the concentrated short position of JPMorgan revealed in the August 2008 Bank Participation Report; a five year investigation that went nowhere. There’s no question in my mind that the CFTC handles JPMorgan with kid gloves as a result of some type of free get out of jail card emanating from the Bear Stearns takeover of March 2008. The DOJ, much to its credit, doesn’t appear to be part of any such arrangement. That’s not to say that the CFTC won’t be involved as the DOJ pursues this case, just that it’s odd at this point that this is an exclusive DOJ production.

Spoofing is the blatantly manipulative practice of entering large orders and immediately cancelling those orders with the sole intent of artificially moving prices. As far as market crimes go, spoofing is obvious and lacking in any possible redeeming features, much like the mugging of old ladies. It’s a testament to the CFTC’s and CME Group’s complete regulatory ineptitude that spoofing has existed for as long as it has. With that in mind, let me point out what the DOJ’s guilty criminal plea doesn’t involve.

As much as the guilty plea points the finger at JPMorgan’s inherent corruption in its precious metals dealings, unfortunately, it only scratchers the surface. Spoofing and other short term illegal trading tricks are only tools used to enable the real price manipulation that is occurring in full view. The real manipulation is the ongoing fraud of prices being set by paper positioning on the COMEX and elsewhere between the nitwit managed money traders and the corrupt commercials, led by JPMorgan. It is nothing short of infuriating that the regulators – and I include the Department of Justice here – can’t or won’t see that spoofing, as bad as it is, is only an enabling tool to a much larger crime.

Spoofing does artificially move prices in the very short term and should have been banned outright many years ago; but to stop at spoofing is to miss the real crime. Spoofing isn’t responsible for the long term suppression of prices that has absolutely devastated precious metal investors and mining companies. But spoofing has been an integral tool in inducing the managed money technical fund traders to buy and sell because it gives the commercials the ability to rig prices up or down through the moving averages that dictate the technical funds’ behavior. That’s evident in the observation that the vast majority of spoofing cases involve traders for the banks. As dumb as I believe the technical funds may be, they’re not dumb enough to spoof and set off phony moving average penetrations to induce themselves into buying or selling.

The ability to spoof prices through moving averages and get the technical funds to buy and sell on command is a key ingredient by which JPMorgan has never suffered a loss in trading COMEX silver and gold. I think I know why the CFTC won’t touch this, but I believe that the only reason for the Justice Department not seeing it is because they don’t know enough to look at it. Similarly, I don’t believe that the DOJ knows that JPMorgan has accumulated massive amounts of physical silver and gold. (I will try to inform them again).

The real manipulation involves the crooks at JPMorgan acquiring 800 million ounces of physical silver and 20 million ounces of physical gold at prices made artificially low by JPMorgan maneuvering the managed money traders into and out from positions on the COMEX. Yes, JPMorgan used spoofing as indicated in the plea deal to accomplish the maneuvering, but to leave it at spoofing is a gross miscarriage of justice. It’s like the police pulling over a serial killer and letting him go after citing him for a few traffic violations.

All it would take for the DOJ to see the real market manipulation is to step back a bit and consider things in a slightly different perspective. Yes, by all means continue to go after the spoofers, but try to consider that spoofing is only a tool that enables a much deeper price manipulation run by JPMorgan. As much as I am trying to not to get my hopes up that the DOJ might stumble upon the real crime in silver and gold, I do confess to sensing a slight crack in the dike. Coupled with other things, like JPMorgan having now accumulated more physical silver and gold than I could ever have imagined a few short years ago and the incredible physical movement in and out of the COMEX-approved silver warehouses, it’s hard for me to see how there won’t be a resolution of the ongoing price manipulation in the immediate future.

Ted Butler