Was The August 13th Gold And Silver Plunge A JP Morgan “Spoof”?

Are the banks continuing to spoof gold & silver, even as they’re being investigated and having their traders arrested?

by Chris Marcus via Arcadia Economics

There have been more recent arrests by the Department of Justice in their precious metals investigation. And when you consider the timeline, it’s interesting to wonder whether JP Morgan or other banks are actually continuing to “spoof” and manipulate the price of gold and silver. Even while they’re simultaneously being investigated and having their employees arrested!

Christian Trunz was working as an executive director at J.P. Morgan up until August 20th when he “pleaded guilty to criminal charges of manipulating the precious metals markets for nine years”.

The CNBC article by Dawn Giel also mentioned that like the other 2 traders who have already pleaded guilty to “spoofing the market” (one is a former JP Morgan employee, and the other worked for Scotia Capital and Bear Stearns – which was taken over by JP Morgan), he “admitted learning the illegal trading tactics from senior traders at the bank and to using those tactics with the knowledge and consent of supervisors.”

All three of the articles about the arrests mention that it was a widespread practice at the traders’ firms, and that it was done with the knowledge of their supervisors. So this wasn’t just some rogue junior traders. This was being condoned from a higher level. And given that Trunz was actually still working at JP Morgan when he was arrested, was he, his colleagues, his supervisors, or his peers at some of these other banks responsible for what happened to the silver and gold prices only a week earlier on August 13?

When the price of both metals spiked downward, at the exact same time, on no known news or fundamentals that I, or any of the other silver experts that I regularly interview on my show have been able to identify.

(chart courtesy of kitco)

(chart courtesy of kitco)

Now if you’re wondering what “spoofing” actually means, the article mentions that “in his guilty plea, Trunz admitted that from approximately July 2007 and August 2016 he placed thousands of orders that he did not intent to execute for gold, silver, platinum and palladium futures contracts.”

In one of the other cases, “Corey Flaum (the former Scotia Bank and Bear Stearns trader) during his guilty plea admitted that from approximately June 2007 and July 2016 he placed thousands of orders to manipulate the prices of gold, silver, platinum and palladium futures contracts according to the Justice Department.”

So they were placing trades they didn’t intend on executing in order to manipulate the price. Which former CFTC commissioner Bart Chilton, who oversaw the agency’s investigation into silver manipulation, also elaborated further on in the interview I did with him earlier this year.

Chris MarcusYou mentioned spoofing. And I’m curious, because my understanding of how some of the manipulation has occurred is that if silver is trading $20.05, there are a lot of stop orders placed around the $20 handle. And often, if the price can get pushed a little bit, then you get a lot of those high frequency algorithms kicking in, and you see a drop, with many feeling that the people nudging the price a little, are the same ones buying it back lower.

Does that sound like a reasonably accurate portrayal to put it in perspective for folks? Or would you phrase it differently?

 

Bart Chilton: Well, it’s a good portrayal. Actually, it’s a very good portrayal.

But it’s actually also a reflection of what I was just speaking about. How trading has changed. Even back in 2008, 2009, 2010, and maybe a little bit of 2011, even when a lot of these silver trades, and some gold trades were pretty suspect, when you were looking at them, you didn’t have high frequency traders in these markets like you do today.

The difference in your description is that today, when a market moves because of a spoof, it could move a lot more.

So while I don’t have access to the trading records that the CFTC and the DOJ have (although if you’d like to send them or your local Congressional representatives this article by all means go ahead), what happened on August 13th sure seems to match what Bart and the guilty pleas describe.

Additionally, the guilty pleas mention that the specific instances they were confessing to occurred between 2007-2016. Which is really the time when this started becoming more blatant. Hopefully the CFTC or DOJ will comment soon. Because exactly what they describe as the violation that the traders are getting arrested for appears to be continuing to occur. As they’re getting arrested!

Each article also mentions that the defendants “are also cooperating with federal prosecutors in ongoing probes of major banks.” And that “the Justice Department is conducting multiple criminal investigations into big banks with the cooperation of traders who have pleaded guilty to spoofing-related crimes.”

Which JP Morgan has even mentioned in the legal section of one of their financial disclosures: “Various authorities, including the Department of Justice’s Criminal Division, are conducting investigations relating to trading practices in the precious metals markets and related conduct. The Firm is responding to and cooperating with these investigations.”

It will be interesting to see how the case unfolds, because at the same time the manipulation is becoming more public knowledge, the market is also rallying. Which means that many of these same banks who have been short the market are currently losing money on their positions. At the same time some of them are being investigated (Scotia appears to be on the verge of exiting the market). And the central banks are getting ready to start QE again.

As always, if you have any questions about this article you can email me here. And to stay updated on the case, just subscribe to future Arcadia updates in the box below.

Chris Marcus