The following article is brought to you by Jonathan Stempel at Reuters, additional contributing reporters listed at the bottom.
(Reuters) – JPMorgan Chase & Co and HSBC Holdings Plc were hit with two lawsuits on Wednesday by investors who accused them of conspiring to drive down silver prices, and reaping an estimated hundreds of millions of dollars of illegal profits.
The banks, among the world’s largest, were accused of manipulating the market for COMEX silver futures and options contracts from the first half of 2008 by amassing huge “short” positions in silver futures contracts that are designed to profit when prices fall.
“Defendants reaped hundreds of millions of dollars, if not billions of dollars in profits” from the conspiracy, one of the complaints said.
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 market manipulation.
Beatty lives in Connecticut and Laskaris in New York, court records showed. The lawsuits seek class-action status, treble damages, and other remedies.
Spokeswomen for JPMorgan and HSBC did not immediately return calls seeking comment. Both are major participants in the silver market.
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.
CFTC Chairman Gary Gensler said the regulator was seeking power to police “fraud-based manipulation.”
Commissioner Bart Chilton said there had been “fraudulent efforts to persuade and deviously control” silver prices.
The CFTC began probing allegations of silver price manipulation in September 2008. A CFTC spokesman said the agency does not comment on ongoing investigations.
Only once in its 36-year history has the CFTC successfully concluded a manipulation prosecution, in a 1998 proceeding concerning prices for electricity futures.
Earlier this year, the CFTC began looking into allegations by a London trader that JPMorgan was involved in manipulative silver trading, The Wall Street Journal said on Wednesday, citing a person close to the situation.
Silver prices have faced regulatory scrutiny in the past, perhaps most prominently after the Hunt brothers in Texas in 1980 attempted to corner the market, driving prices above $50 an ounce. The price later plunged.
Since the CFTC began its probe, spot silver prices have ranged between $8.42 and $24.90 an ounce, Reuters data show. They traded Wednesday at roughly $23.55. Silver futures prices are up 39.1 percent this year.
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. 10-01857. Case documents were not immediately available.
(Reporting by Jonathan Stempel; Additional reporting by Elinor Comlay, Jonathan Leff, Carole Vaporean and Roberta Rampton and by Jeff Roberts of Reuters Legal)
Looks like JPMorgan built their glass house on an invisible silver foundation. Once the silver foundation cracks, you know what happens next.