When the CFTC announced in September that it has
closed its investigation into misconduct in the silver market, the predicable
response was that a finding of no manipulation was to be expected as US
regulators and government are corrupt and they had to protect JPM blah blah blah.
However a closer reading of the announcement indicates that the CFTC did not actually find there was no
manipulation. They said that "based upon the law and evidence as
they exist at this time" there was no "viable basis to
bring an enforcement action". That wording can also be read as
saying they have evidence but based on the law, they don't see any chance of
success.
Certainly it was not for want of evidence, as this
September 2009 statement by Bart Chilton noted that the silver investigation had "invested
over 2,318 staff hours ... 32 individual interviews ... approximately 40,000
documents have been reviewed" and by November
2011 the number of documents was 100,000. At the end
they had spent 7,000 staff hours on it.
As this Reuters
article notes, US regulators face high
hurdles in proving cases of market manipulation and while "the CFTC
has levied heavy fines for trading rule violations ... only once in its
36-year history has it successfully concluded a manipulation prosecution: a
1998 case concerning electricity futures prices." I would also give
as an example the lawsuits against JPM and HSBC for silver manipulation,
which failed "to show that the bank 'intended to cause artificial
prices to exist' and acted accordingly".
Proving manipulation is difficult give the complex
rules and regulations the CFTC has to deal with. As I said in this blog post, "when regulations get this complex market fairness and
transparency is actually harmed, and the only ones who benefit are those big
enough to have lawyers able to work out the loopholes."
I do find it hard to believe that there was only one
case of manipulation in 36 years across all the markets the CFTC monitors.
Therefore I am was not be surprised that the CFTC
closed its silver investigation, nor do I expect them to provide much help in
this respect in the future.
PS, in the CFTC announcement there was this classic:
"the complaints pointed to differences between prices in the silver
futures contracts and prices in other silver products, including retail
silver products. The complainants generally asserted that because the prices
for retail silver products, such as coins and bullion, had increased, the
price of silver futures contracts should have also experienced an
increase." I fail to understand how people can think that the price
(per ounce) of a 1oz coin should relate to the price (per ounce) of a 1000oz
bar, when the 1oz coin's price (and rate of increase) is affected by the
capacity limitations of minting 1000oz bars into coins (see these Shortage posts for more background).
