Exclusive: Judge Rules on London Gold Fix Manipulation case
MarketSlant has obtained documents regarding the London Gold Fix Scandal currently being litigated in the New York Southern District Court.
They include the Judge's initial findings in the class action suit pitting the LBMA and its member Banks vs. Entities and Individuals that trade Gold and allege they were victims of price manipulation and suppression from January 1, 2004 to June 30, 2013.
In the document dated Oct 3, 2016, presiding Judge Valerie Caproni of the US District Court, Southern District rendered her Opinion and Order in the matter. Judge Caproni has validated that much of the claims have been substantiated and therefore is recommending litigation for many of the claims brought.
MS has enlisted the help of contributor and Market Structure/Trading Forensics expert Vince Lanci to summarize the document for us.The complete document follows the summary at bottom.- submitted and edited by Soren K.
Our Source
We received the document as a courtesy from Kitco News' Chief Editor "Dani". The Editor preferred to keep the source confidential. As beneficiaries of Kitco linking to our Metals stories, we at MS are greatly appreciative of the chance to drill down on this document.
In good faith, we intend to make available to Kitco our findings and analysis for their own use as this story unfolds, while looking to share Kitco's findings to our own audience.
For now: we intend to lay out the facts for readers. Observations, opinions, and analysis will follow as we become more familiar with the nuances involved.
Document Summary
written by Vince Lanci | The ruling covers the complexities of the case and what law in her opinion should be most important going forward. More importantly, she decides on the merit of the allegations and recommends dismissal or escalation.
The Judge has ordered that many of the allegations are valid for further inquiry and that litigation continue, with only the claims against UBS getting completely dismissed.
What follows is intended as a summary of the Facts of the case with no opinion or bias intended at this time.
MS and Vince will be following the case closely with the help of legal experts to decipher and handicap the case as we drill down on the law, merits, and likely outcomes.
Who is Involved?
The Defendants
- UBS AG and UBS Securities LLC (together, "UBS");
- The London Gold Market Fixing Ltd. ("LGMF");
- the five LGMF fixing banks during the Class Period:
- The Bank of Nova Scotia ("BNS")
- Barclays
- Deutsche Bank
- HSBC
- Société Générale (collectively, the "Fixing Banks").
The Plaintiffs
Individuals and entities that sold physical gold, gold futures traded on the Commodity Exchange, Inc. ("COMEX") market, shares in gold exchange-traded funds ("ETFs"), or options on gold ETFs during the Class Period.
What are the defendants accused of?
The Plaintiffs allege:
1-Defendants colluded artificially to suppress the price of gold in several ways:
- First, leading up to the London PM Fixing, Defendants allegedly collected confidential client order information and then improperly shared that information amongst themselves in order to compare and coordinate the execution of particularly large sell trades, thereby driving down the gold spot price immediately before and during the Fixing call
- Plaintiffs further allege that Defendants used manipulative trading tactics:
- "Giving Ammo" - building orders by transferring them between fellow conspirators
- "Painting the Screen"- placing fake orders to give the illusion of activity and then cancelling the orders when the fixing window closed
- "Spoofing"- placing large orders that are never executed
- "Wash Sales"-placing large orders that are executed then quickly reversed
- "Front Running"- of customer orders in order artificially to suppress the price
2-Defendants Caused Price Distortions Around the Gold Fixing
- A basic premise of Plaintiffs' argument is that, absent collusion or manipulation, trading around the PM Fixing would have been "random" in the sense that gold prices would have been equally likely to move up or down around the PM Fixing
- Instead, from 2001 through 2012, the spot price of gold moved downward around the Gold Fixing much more frequently than it moved upward.
3-Defendants Profited From Manipulating the Fix Price
- First, Plaintiffs generally allege that Defendants used their foreknowledge of downward swings in the Fix Price to make advantageous trades across a variety of Gold Investments.
- Defendants' manipulation of the PM Fixing gave them an unfair advantage over counterparties that were not also Fixing Banks by reducing their risk in "digital options" and other contracts with market-based triggers, such as "stop loss" orders and margin calls
Deutsche Bank Settles Prior to the Ruling
Plaintiffs notified the Court that they had reached a settlement with Deutsche Bank, although no motion for approval of a Settlement Class has yet been presented to the Court
Defendant Deutsche Bank was a LGMF member until May 2014 when it resigned its seat after trying, but failing, to sell the seat to another institution in the wake of an investigation by German regulators into potential manipulation in the precious metals markets.
What is the Defenses' Argument?
In Summary, The Fixing Banks argue that, because Plaintiffs fail to allege that they transacted at a specific time in the trading day when the impact of Defendants' alleged manipulation persisted, Plaintiffs "fail to allege that they ever 'engaged in a transaction at a time during which prices were artificial,'" and therefore have not asserted an injury-in-fact. other arguments involving statute limitations and plaintiffs not being market "enforcers" are relevant.
What do the Plaintiffs want done?
Plaintiff's Seek From the Court:
- to recover losses suffered as a result of Defendants' alleged manipulation and suppression of the price of gold through the gold "fixing" process
- putative claims for
- unlawful restraint of trade in violation of Section 1 of the Sherman Act
- market manipulation in violation of the Commodity Exchange Act (CEA)
- employment of a manipulative or deceptive device and false reporting in violation of CEA and CFTC rules
- principal-agent liability in violation of the CEA
- aiding and abetting manipulation in violation of the CEA
- unjust enrichment.
Summary of Judge's Opinion and Order
Judge Caproni gives opinions on the relevant law intended to explain and rationalize her decisions. Those are largely on the first page of the decision. More Factually, she decides what, if any allegations have merit for further litigation. These are her decisions- VBL
1. UBS's Motion to DISMISS is GRANTED in its entirety
2. Fixing Banks' Motion to Dismiss is GRANTED IN PART and DENIED IN PART
a. GRANTED on Plaintiffs' claim for unlawful restraint of trade December 31, 2005, and from January 1, 2013
b. GRANTED with respect to Plaintiffs' manipulative device claims
c. DENIED with respect to Plaintiffs' antitrust claims for unlawful restraint of trade from January 1, 2006 through December 13, 2012
3. LGMF's Motion to Dismiss is:
- DENIED with respect to personal jurisdiction
- GRANTED IN PART and DENIED IN PART to the same extent as the Fixing Banks' Motion to Dismiss.
Moving Forward
- MS intends to stay on top of this case to the extent we are permitted.
- It is our intention to have a representative in court on October 28th for updates and continued reporting as the situation unfolds.
- We will continue to enlist Vince's assistance navigating the labyrinth of accusations and merits, with opinions rendered as we become intimate with the case
- Our staff has access to colleagues familiar with the governing law here, who will assist us in understanding to the laws, burden of proof, legal tactics used, and implications of decisions.
Significant Upcoming Dates
- Plaintiffs' deadline to show good cause why leave to replead should be granted is October 17, 2016
- The parties, together with the parties in In re Silver Fixing, Ltd., Antitrust Litig., must meet and confer regarding a proposed schedule for discovery and class certification.
- The parties are required to submit a joint proposal (if possible) or separate proposals (if a joint proposal is not possible) by October 21, 2016
- The parties must appear for a pretrial conference on October 28, 2016 at 3:00 p.m. in New York
Twitter: Vince Lanci @VlanciPictures
Twitter: Soren Kierkegaard @Sorenthek
Complete Document
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