Wednesday, August 6, 2014

Investor Sues the Silver Bullion Banks for Benchmark Manipulation

An investor has filed suit against the three firms that set the price of silver, accusing them of manipulation. The lawsuit, filed in the US District Court in the Southern District of New York, is noteworthy because similar accusations have been levied in the gold market and the process by which commodities prices are set has increasingly come under scrutiny.

The lawsuit was filed by J. Scott Nicholson, a Washington State resident, who is seeking class-action status for the suit. Bank of Nova Scotia "vigorously" denied the charges, according to an article from Bloomberg Businessweek, and the other two rate setters, Deutsche Bank and HSBC, declined comment. The three banks conduct the fix, or price-setting, once a day by conference call, according to an article from Reuters.

It is unclear if Nicholson has evidence to back his charges, but the complaint states that the defendants "have a strong financial incentive to establish positions in both physical silver and silver derivatives prior to the release of silver fixing results, allowing them to reap large, illegitimate profits."

Deutsche Bank said in January that it would withdraw from participating in setting the gold and silver benchmarks in London as it plans to cut 200 jobs in commodities trading. London Silver Market Fixing Ltd. said in May that it would stop administering the benchmark after Deutsche withdraws its participation in August.

The suit comes on the heels of similar suits in the gold market and a lengthy silver market investigation. The five banks accused in the gold fixing case deny the accusations. The five-year silver market investigation, conducted by the Commodities Futures Trading Commission, ended last September when it found no evidence of wrongdoing.

For more:
- read the Bloomberg Businessweek article
- read the Reuters article
- read the BBC article