News from GATA

By Evan Weinberger, New York
Tuesday, February 8, 2011

A judicial panel on Tuesday consolidated class-action litigation alleging that JPMorgan Chase & Co. and HSBC Holdings PLC violated antitrust laws by manipulating the silver market and potentially reaped billions of dollars while keeping the price of silver artificially low.

The U.S. Judicial Panel on Multidistrict Litigation on Tuesday consolidated the seven class-action lawsuits pending against the two banks in the U.S. District Court for the Southern District of New York.

“A majority of the domestic defendants are located in that district, and thus many witnesses and discoverable documents are likely to be found there,” the panel ruled. “In addition, a substantial majority of the constituent and potential tag-along actions are pending in that district (including the first-filed action).”

The MDL has been assigned to Judge Robert P. Patterson Jr.

According to the order, six of the seven cases pending against JPMorgan and HSBC were filed in the Southern District of New York, while the seventh is pending in the U.S. District Court for the Eastern District of New York. The panel found that consolidating the litigation would “eliminate duplicative discovery; prevent inconsistent pretrial rulings on class certification, discovery, and other pretrial issues; and conserve the resources of the parties, their counsel and the judiciary.”

The suits were spurred in part by a statement in October by Commissioner Bart Chilton of the U.S. Commodities Futures Trading Commission saying there had been “repeated attempts to influence prices in the silver markets.”

The CFTC has been investigating the silver market for two years, and Chilton said the “fraudulent efforts to persuade and deviously control” silver prices should be prosecuted.

The suits, which specifically allege violations of the Commodity Exchange Act and the Sherman Act, claim that the banks collaborated to suppress the price of silver futures and options contracts by amassing “enormous” short positions in Commodity Exchange Inc., or Comex, beginning June 1, 2008.

Many of the allegations in the suits come from information provided by a whistleblower who used to work in the London office of Goldman Sachs Group Inc., the suits say.

The whistleblower is not named in the complaints, but in testimony before the CFTC in March, Bill Murphy, chairman of the advocacy group the Gold Anti-trust Action Committee, said it was a metals trader in London named Andrew Maguire.

After Maguire went public in March, the defendants began to unwind their positions in Comex, the suits claim.

Since then, the net short position of silver futures that are held by commercial banks — the vast majority of which are made up of JPMorgan and HSBC — has dwindled by more than 30 percent, the suits say.

As that happened, the price of silver skyrocketed, reaching $24.95 an ounce in October, its highest level in 30 years, the suits contend.

JPMorgan and HSBC declined to comment on the suits.

Cleary Gottlieb Steen & Hamilton LLP is representing HSBC.

Counsel for JPMorgan was not immediately available.

The MDL is In re: Commodity Exchange Inc., Silver Futures and Options Trading Litigation, MDL number 2213, in the U.S. District Court for the Southern District of New York.

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