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Three Elements of Manipulation

IMG Auteur
Publié le 11 janvier 2012
1280 mots - Temps de lecture : 3 - 5 minutes
( 9 votes, 5/5 ) , 2 commentaires
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Excerpt from the Weekly Review for subscribers of January 7 –


Finally, Commissioner Bart Chilton of the CFTC gave an interview this week with Jim Puplava that should interest you. http://www.financialsense.com/financial-sense...ipulate-markets

A number of subscribers asked me if I would comment on what Commissioner Chilton had to say. In commenting, I can’t help but try to be as objective as possible. For the record, I commend Chilton for the role he has taken on the important issues, like position limits, concentration and in addressing allegations of manipulation in silver. He is the only commissioner to have done so. I believe there would be no ongoing silver investigation were it not for him. I think he is one of the good guys and I started writing to him about these issues in 2007 http://www.investmentrarities.com/ted_butl...y/11-13-07.html

I agree with most of what Commissioner Chilton had to say, particularly about concentration and position limits and manipulation. I’m glad the interview was mostly about potential manipulation in the silver market. I’m going to skip over all the things I agree with Chilton on and confine my remarks to where I disagree with him. Agreement can be boring. Even though the disagreements are few, I believe they go to the heart of the matter.

Chilton pointed out that it is difficult to prove manipulation in a court of law. He indicated that there are three elements necessary to prove manipulation – the intent to manipulate, the ability to manipulate and the success in the manipulation. I accept his legal definition. Where I respectfully disagree with him is in the degree of difficulty in establishing all three elements in the silver manipulation. Let’s go through the three elements.

Let’s forget for a moment that silver has been under investigation by the CFTC’s Enforcement Division for almost three and a half years and that countless civil lawsuits have been filed against JPMorgan for allegations of silver manipulation in 2008. Let’s just focus on the last year, when silver experienced two separate 35% price declines in a matter of days. Such a decline in a world commodity for no observable supply/demand reason is unprecedented and I would say impossible in a free market. Yet it happened twice in silver within months.

As I have written recently, as a result of the second silver price takedown in September, a tight-knit group of commercials traders bought the equivalent of 165 million ounces in net COMEX futures contracts on the price decline. This is equal to 22% of the world’s annual 740 million oz silver mine production. These same traders came close to buying the same amount in the big May silver price decline as well. This is an extraordinary amount of silver futures, much larger than any manipulative long position attributed to the Hunt Bros. in 1980. It is not possible to buy such a large amount of silver by accident. It had to be intentional. There is the element of intent that Commissioner Chilton speaks of.

The next element necessary to prove manipulation is the ability to manipulate by a concentrated position or otherwise (collusion among different traders). It would seem that the ability to manipulate is also self-evident, as it has been done on more than one occasion in silver. This also ties into Commissioner Chilton’s third element, namely, success being brought about by intent and the ability to manipulate. It couldn’t have been more successful for the COMEX commercial crooks than the results they achieved (at great cost to innocent investors and traders).

I think the problem that Commissioner Chilton and the agency are having is that they have convinced themselves they need proof by wire-taps and emails and other incriminating documentation (like actual confessions) before they can prove manipulation in silver. But the COMEX commercial crooks are not likely to accommodate them. The Commission has something better than that already in hand, namely, the very data that I rely on in analyzing the market. The Commission should stop wishing and waiting for evidence to drop out of the sky and just study the COT and Bank Participation statistics that they produce on a regular basis.

Because it appears so easy for the Commission to prove a silver manipulation on the basis of the three elements outlined by Commissioner Chilton, my guess is that there is something else holding the agency back from ending this scam. They just don’t want to end it. Perhaps there is a political motive or the knowledge that JPMorgan and the CME may be too big to sue. It’s hard to see how the three elements can’t be proved by the public data.

This is all very troubling. Every federal agency and department has a specific public mission. For example, the Federal Aviation Administration’s mission is to ensure aviation safety. Having come off the safest decade in aviation history, it would appear the FAA is achieving its primary mission. The Department of Defense would appear to be meeting its primary mission of defending the country from foreign military attack. I’m sure the Food & Drug Administration would quickly deal with an outbreak of tampered drugs harmful to public safety.

Try as I might, I don’t see the CFTC as coming close to meeting its primary mission of protecting the public and our markets from fraud, abuse and manipulation. Manipulation is the most serious market crime possible. There have been enough credible allegations of manipulation in silver, based upon data from the Commission itself, that the agency appears involved in a never ending silver investigation. But the investigation is never resolved. The critical point is that if there is a silver manipulation (as I and many believe), then it is an active crime in progress. It would be as if commercial passenger jets were dropping out of the sky every other day and the FAA refused to comment. Or if the US was invaded militarily and the Department of Defense went on vacation. Or if citizens were dying from tainted aspirin and the FDA couldn’t be bothered. That would be completely unacceptable and require immediate remedy of the strongest kind.

Because preventing manipulation is the CFTC’s number one mission, credible allegations of an active manipulation, particularly one in which the Commission has initiated a formal investigation, must be resolved immediately. The Commission must either terminate such a manipulation or explain why there is no manipulation forthwith. This business of explaining why it’s so difficult to prove manipulation is unacceptable, especially when all the elements of manipulation are present in the public record.

When the stock market experienced its infamous flash crash in May 2010, all the regulators, including the CFTC, rushed to make sure it would never happen again. That’s good. What’s not good is that silver has experienced a continuous and more severe series of flash crashes all along and the same CFTC hasn’t lifted a finger to intervene. The laws against manipulation apply to all markets, not just to those randomly selected and deemed by the agency to be important. The rule of law applies to all. That includes silver investors who have been savaged by the COMEX commercial crooks.

The CFTC has many important matters to deal with in Dodd-Frank and in helping to sort out the MF Global mess. But nothing comes closer in importance than resolving allegations of an active manipulation in silver, as this is truly a crime in progress. I call on the Commission to immediately end the silver manipulation or explain why there is no manipulation. So should you.

Ted Butler

January 7, 2012

ggensler@cftc.gov Chairman Gensler

bchilton@cftc.gov Commissioner Chilton

jsommers@cftc.gov Commissioner Sommers

somalia@cftc.gov Commissioner O’Malia

mwetjen@cftc.gov Commissioner Wetjen

For subscription info, please go to www.butlerresearch.com

 

 

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When you get a Bee in your Bonnet it can cause a lot of angst.

I am sure that TB is correct and honest with his concerns/claims about Silver manipulation but for mine it is a bit like flogging a dead horse.

A complete waste of time and energy.

Aside from that...who really cares? The authorities certainly do not!

It definitely makes no difference whatsoever to my trading it or holding it.
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I can't pretend to be an expert on the workings of the CFTC and while I have sympathy for the positions advocated by Mr. Butler, I have some questions. It would seem to me some authority has some discretionary ability to unilaterally and aribtrarily change margin requirements - does this authority on margin requirements reside with the CFTC or some other agency?

If it is the CFTC with this authority to set margin requirements I am curious why they seem to have such clear authority in this area and are willing to exercise it but seem to lack equivalent authority for setting position limits for short sellers. Or do they have this authority and they are just not exercising it? If anyone can provide some additional explanation to distinguish how/why the CFTC authority may differ between margin requirements and short positions - it would be appreciated. If the CFTC has authority for both, how might they justify exercising their authority on the margin side of the equation but not on short positions? That would seem to be selective enforcement that might be challengeable. Mr. Butler's article however does seem to suggest the CFTC may NOT have unilateral authority for setting position limits as he seems to suggest the CFTC would be required to commence some kind of independent action in court or in some administrative body to prove manipulation? Without knowing more the ability to selectively penalize parties in one kind of transaction while ignoring the other side seems to be unfair.

And if the CFTC has some already established some position limits then it is curious why they can choose to exercise their authority NOT to enforce the short position limits while they will exercise authority to enforce margin requirements. Can somebody provide enlightenment as to how/why the two situations are distinguishable since changing margin limits in mid stream penalizes parties exposed to such existing positions and it seems inconsistent in my mind that if the CFTC might have authority in that instance that they would not have similar existing authority or even discretion to set, and/or change and/or enforce overall position limits for short trades.

And if the CFTC does have existing authority on position limits for short trades could any such selective enforcement expose the CFTC to some kind of damages for abuse of authority or failing to exercise it fairly or something like that?

Also I am not familiar with the nature of the existing legal actions pending before the CFTC on such matters, but would an order of "Mandamus" be available to force the CFTC to take action on any already mandated requirements on position limits? I believe Mandanus is an action at common law that can be used to require an administrative body to perform its duties but I am far from expert on the concept to know whether it might be available in the current situation - so I would raise it as something somebody else pursing an action already - might be able to look into. Thanks.
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When you get a Bee in your Bonnet it can cause a lot of angst. I am sure that TB is correct and honest with his concerns/claims about Silver manipulation but for mine it is a bit like flogging a dead horse. A complete waste of time and energy. Aside f  Lire la suite
S W. - 11/01/2012 à 08:37 GMT
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