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An Unavoidable Comparison

A rare event occurred this past week; the CFTC charged a major food company, Kraft, Inc., with price manipulation in the wheat market. You can count on one or two hands the number of times the federal commodities regulator has charged anyone with price manipulation in its 40 year history.

For what it’s worth, the agency’s case looks convincingly laid out and seems to contain all the elements of proving price manipulation, including intent and the ability to control prices. That said, the Commission has a very poor record of prevailing in the manipulation cases it has brought.

One thing telling about the case was that a large commercial trading entity who was supposedly using the futures market for strictly hedging purposes was accused of engaging in a variety of market schemes for strictly speculative gains. So much for the widespread argument that commercial traders are always “only hedging” and how I should cut them a break. As you know, I have long held that the commercials, at least on the COMEX, are just speculators gaming other speculators and little legitimate hedging occurs. Certainly, that’s what the CFTC alleged in its complaint against Kraft.

Quoting from the CFTC’s press release –

Aitan Goelman, the CFTC’s Director of Enforcement, stated: “This case goes to the core of the CFTC’s mission: protecting market participants and the public from manipulation and abusive practices that undermine the integrity of the derivatives markets. A market participant who is not happy with cash prices available to it may not resort to manipulative trading strategies in an attempt to artificially lower that price.”

Yes, Director Goelman is correct; the core of the agency’s mission is to protect public market participants from manipulation and abusive trade practices that undermine the integrity of derivatives markets. And no, a market participant not happy with cash prices may not artificially lower those prices to secure physical supplies. Wait a minute – isn’t that exactly what I’ve alleged JPMorgan has done and is doing in silver, namely, shorting on the COMEX in order to scoop up physical silver at bargain basement prices? Haven’t I been writing this two times a week for a very long time? (In the interest of full disclosure, I have sent Director Goelman every article I’ve written since he has been the agency’s enforcement director).

In fact, I’ve based my allegations about what JPMorgan has done in silver primarily on the agency’s own public data and that from the exchange (COMEX) and other public sources. The CFTC’s case against Kraft is derived from private trading records and internal emails. Further, there is a bit of complexity in the agency’s case against Kraft, in that the company’s trading strategy involved buying futures contracts in order to impact the basis (the price differential between futures and cash grain prices) and lower the cash price. With JPMorgan, there is no complexity as this crooked bank has used futures market short sales to depress the price of silver in order to buy physical silver at artificially cheap prices.

Importantly, the Commission’s case against Kraft most likely came as a result of a complaint from a disgruntled insider who was damaged by Kraft’s futures market activity and not as a result of widespread complaints or damage to the public. To my knowledge, this was not a case publicly discussed prior to the charges being filed. Compare that to silver, where many thousands of market participants and observers have petitioned the agency for years about the manipulation by JPMorgan and where investors and silver producers have been and are being damaged by artificially depressed silver prices.

The unmistakable conclusion is that this agency is bought and paid for or otherwise not acting in the public’s best interest. For a federal agency, I don’t think there is a more serious allegation.

So the real question is why the selective prosecution of the law? Why is the CFTC going after Kraft on a complicated case with an alleged payoff that looks like chump change (around $5 million total profit to Kraft), when public data indicate JPMorgan shorts the silver market whenever prices rise to cap and drive prices lower in order to profit on those short sales and accumulate silver at unfairly low prices; with JPM’s cumulative illicit take running into the hundreds of millions if not billions of dollars?

I can see the agency going after Kraft, but I can’t see any legitimate reason for it not to go after JPMorgan for the far more egregious silver activities the bank is involved in. Worse, why won’t the agency explain why the public data doesn’t point to JPMorgan doing what I allege the bank is doing? Can the Commission refute that JPMorgan has been the big concentrated short seller in COMEX silver futures since acquiring Bear Stearns in early 2008 and has been accumulating physical silver while remaining short COMEX futures for the past four years? That’s the key, no one - not the CFTC, not JPMorgan, not the CME – can offer a reasonable explanation for JPM’s control and manipulation of the silver market and what has transpired these past seven years.

Beyond the shadow of any doubt, the CFTC knows what price manipulation is; otherwise it never would or could have charged Kraft. So how can the agency see it with Kraft in wheat and not with JPMorgan in silver? Why is JPMorgan above the law? I think it’s because the bank was given a “get out of jail card” for agreeing to take over Bear Stearns and its massive short positions in silver and gold in 2008 at the US Government’s request. Since then, JPMorgan has exploited the arrangement in suppressing the price of silver and accumulating physical silver under fair market value.

The problem with selective enforcement of the law is that it undermines and makes a mockery of the whole system. It is a betrayal of the highest order. Yes, I’m fairly sure that the free pass to JPMorgan to allow it to continue the silver manipulation was given by Treasury and Federal Reserve officials to preserve market order and was considered to be to the public’s benefit. But look at what it has morphed into seven years later – a market more distorted than ever before and in which JPMorgan has amassed the largest hoard of silver in history.

I would remind you that the Enforcement Division (before Goleman arrived) even took five years to supposedly formally investigate JPMorgan’s concentrated short position in silver and ended that investigation without ever addressing the issues. Shame on all involved at the time, most particularly the two who knew better, former chairman Gensler and Commissioner Chilton. Now the shame has been passed to those currently in charge. It is my understanding that all senior officials at the agency swear an oath of office to uphold the law. Clearly, the law is not being upheld in silver or with JPMorgan. I don’t know how the senior officials of the agency can live with themselves considering their extreme dereliction of duty to the law and their betrayal to the citizens of this country.

I know these are very strong accusations and I do not make them lightly. And to be fair, I would be happy to amend them if any reasonable explanation were forthcoming, although that is unlikely. There are many problems for the world and for the US and the ongoing silver manipulation may not rank high in most minds. However, anytime basic law is perverted it diminishes us all. And such a perversion is self-evident in silver.

I know that if someone accused me of doing something seriously wrong and the accusations were unfounded, I would respond forthwith, as I’m sure would anyone. I’m accusing the CFTC and, specifically, Enforcement Director Goelman and his staff of dereliction of duty and the selective application of the law that all swore to uphold. To my mind, the refusal to apply commodity law evenly and protect the public is almost treasonous in nature. Of course, should a cogent alternative explanation be issued by the Commission or the Enforcement Director explaining the role of JPMorgan in the silver market in legitimate terms, I will retract my statement and offer a public apology.

This is a serious matter – open and unqualified allegations of market manipulation by the nation’s most important banking institution and the failure of the regulators to deal with that manipulation or explain why the allegations are unfounded. Since the silver manipulation has become so clear (with the recent COT reports and JPM’s continued physical accumulation), I can’t help but feel we are close to the critical point where the enough outsiders recognize the scam JPMorgan has been running and the regulators’ illegal cover up of that scam. I know without a doubt that silver is artificially depressed in price by JPMorgan and other collusive commercial traders on the COMEX and as this story is discovered a wave of physical buying must occur.

Silver (and gold) investors and producers are being damaged by the continued price fixing on the COMEX. Because the evidence of manipulation is increasingly obvious it is appropriate to demand that the regulators treat silver and gold in the same manner as they regulate other markets. Or explain why they shouldn’t.

If you agree that there is something fundamentally wrong with the Enforcement Division’s double standard in the Kraft wheat case versus the JPMorgan silver case, please take the time to contact Director Goelman. Ask him to charge JPMorgan with manipulation or at least for him to explain how it could be OK for the bank to accept physical delivery on the maximum number of COMEX silver contracts while holding a massive net short position in silver futures. Not how it could be done – how it could be OK.

Ted Butler

April 7, 2015

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