How ZH’s Discovery of JPM’s Top-Secret London Gold Vault Could End JPM’s Alleged Gold Manipulation

Yesterday we reported that ZeroHedge via excellent investigative journalism had discovered the top-secret location of JP Morgan’s London gold vaultnamely 60 Victoria Embankment.
Numerous SD readers have inquired as to the significance of the story, and why the discovery of the specific location of JP Morgan’s gold vault should matter to precious metals investors (or to JP Morgan for that matter).  The answer as to why this is so significant for JP Morgan lies in rehypothecation.

Once a precise location, holding specific goods can be pointed to by a creditor, the creditor will quickly seek a Writ of Attachment.  The gist of receiving the writ for JP Morgan is: “Hey, turn over this specific XXX to the court, so the court can give it to the proper owner; and don’t you dare move it until the court says OK.

All diehard gold bugs suspect, of course, that through leases, derivatives, futures and [etc], JP Morgan has geared the bejezus out of the bullion, regardless of who the legal owner(s) are, regardless of whether the gold is supposedly allocated or unallocated (think MF Global).

So the thought that JP Morgan might have to send its legal team in to court to do battle with barbarians at the gate – the 120 banks looking for assets – is juicy. And a true headache for JP Morgan, because if or when it happens, JP Morgan no longer controls the situation.

 

2013 Year of the Snake 10 oz .999 Silver Bars
As Low As .99 Over Spot At SDBullion.com!

Submitted by SD reader SiouxWestern:

 

Here is the germane paragraph from the excellent ZH article:

”The total value of the bullion exported in these operations approached $430m at current market prices, and it weighed 10.4 tonnes. The other distinguishing factor was the identity of the recipients, or “consignees” as they are known. According to documentation seen by The National, they were all companies associated with the al Gosaibi family of Saudi Arabia. The al Gosaibis have since fallen out spectacularly with their partner, Maan al Sanea of Saad Group, in the biggest corporate scandal to hit the Middle East, leaving about 120 banks worldwide with debts estimated at up to $22 billion and a decreasing likelihood of getting their money back.”

Presumably, one or more attorneys for the “120 banks” who stand to lose up to $22 billion,  have been getting the run-around by various institutions, including JP Morgan, in trying to locate assets (that is, find out where precisely they are located). All a big game of hide-the-ball, facilitated by all kinds of ball-hiding techniques well-known to readers (protector trusts, etc.)

And – ahem – JP Morgan specializes in these services.

But once a precise location, holding specific goods (“identified” goods, under US Uniform Commercial Code parlance), can be pointed to by a creditor (that is, pled to a court with specificity), the creditor will quickly seek a Writ of Attachment (basically, a judicial lien which freezes specific property) and/or a Writ of Replevin.  The Writ of Attachment might be even more dangerous here, for JPM.

The gist of receiving either writ, for JP Morgan is: “Hey, turn over this specific XXX to the court, so the court can give it to the proper owner; and don’t you dare move it until the court says OK, otherwise you [JPM] are personally liable to the creditors for conversion of their property.

The laws applicable to bailees (like JP Morgan) are opaque but generally result that a bailee will (i) implead (ie, turn over) the property to the court, because in theory the bailee has no ownership in the property, he is just the storage clerk, and (ii) give notice of the wri to anyone who appears in the bailee’s records as having some legal interest in the property. Those folks getting notice thus have the chance to run into court and fight off the claiming creditors.

All diehard gold bugs suspect, of course, that JP Morgan isn’t a simple bailee; rather, through leases, derivatives, futures and [etc], JP Morgan has geared the bejezus out of the bullion, regardless of who the legal owner(s) are, regardless of whether the gold is supposedly allocated or unallocated (think MF Global), regardless of …. pretty much any assumption one might have. Borderline lawless, but certainly not the orderly quartering of gold that one is told to believe.

So the thought that JP Morgan might have to send its legal team in to court, not to be chummy with the two Saudi groups who appear to be hiding the gold, but rather to do battle with barbarians at the gate – the 120 banks looking for assets – is juicy. And a true headache for JP Morgan, because if or when it happens, JP Morgan no longer controls the situation.
And its complicated status as “not simply a bailee” would be in court documents, for all to see. The 120 bank creditors don’t give a whit about JPM’s or the Saudi’s claims of “privacy.”

NB to any attorney reading this: Be sure to deliver your writ to Brinks, who will then be on notice that they cannot be moving gold OUT of the building, willy-nilly.

This really is a keen development, if only for commercial attorneys and creditor geeks. But in today’s tautly-levered world, pretty much anything can be the flap of the butterfly’s wings which set loose the upset of a system.

-SiouxWestern

 

OPM Silver Round Promo 2 with Border