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by "flooding" it with a disproportionate number of orders which are not executed but influences prices, and is then withdrawn before it reasonably can be executed.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.
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."