Civil Fraud Quarterly Round-Up: Q1 2021
It has recently been reported that 10 Banks are under investigation by the US Justice Department (“DOJ”) and CTFC for irregularities and potential price fixing in the precious metals market, comprising the gold, silver, platinum and palladium markets. The London Gold Fix, an almost century old benchmark, fixed twice a day by 4 banks in London first came under the microscope in 2012 following investigations into the Libor and FX market manipulation scandals.
DOJ prosecutors have made a request to HSBC Holdings for documents as part of its criminal anti-trust investigation concerning trading activity in the precious metals market and the CFTC have issued a subpoena to HSBC in the US seeking similar documents as part of its civil investigation. Further, more than 25 class-action lawsuits have been filed which make allegations of manipulating the price of gold against members of London Gold Market Fixing Ltd. The requests for documents from the DOJ and CFTC are relatively recent (November 2014 and January 2015 respectively) and so it is likely that these investigations are in their early stages. The 10 banks under investigation are HSBC Holdings plc, Bank of Nova Scotia, Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc, JP Morgan Chase & Co, Societe Generale, Standard Bank Group Ltd and UBS Group AG.
Manipulation of the Gold Fix was considered by The House of Commons Treasury Select Committee (the “Select Committee”) in July last year where the FCA had reached the conclusion that price manipulation through the Gold Fix was possible but found “no clear evidence” that banks had conspired in this way.
Opinion on the likelihood of such manipulation is split. Some analysts have commented that the price of gold and silver would be “very difficult” to manipulate and in any event, any such manipulation would have a “relatively limited” effect. Chief Global Economist at Capital Economics Ltd commented that whilst there appears to be an incentive to manipulate Libor as it is the benchmark used for a large number of contracts and financial products, there would be little motivation to do the same in respect of the price of gold; “gold only determines the price of gold, and nothing else…there is no wider effect”. Additionally, German regulator BaFin is now preparing to close its investigation into price-setting in the precious metals markets after failing to uncover any indications of attempted manipulation.
A Swiss financial watchdog took a different view and noted that it had found a “clear attempt” to manipulate precious metals benchmarks and last year the FCA fined Barclays £26m for systems and controls failings relating to a conflict of interest in the gold fixing and an options contract linked to the price of gold. The trader at the heart of this scandal was fined £96,500 and banned from performing any function in relation to any regulated activity.
The Select Committee concluded in July last year that the FCA should investigate such claims more fully and it remains to be seen whether the investigations across the pond will spark the FCA or SFO to investigate further in London.
As of 20 March the 95 year old London Gold fix will be replaced by the ICE Benchmark Administration which will run an electronic gold price benchmark which will avoid any future allegations of manipulation and impropriety.
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