Whistleblower Speaks Out On J. P. Morgan's Market Manipulation - Reports Violations to the CFTC in the Silver Market

Do we have another Harry Markopolos here, describing in detail the manipulation of the silver markets by J.P. Morgan to the CFTC? How does this square with the testimony today from the CFTC Commissioners, who seem to indicate that the markets are functioning extremely well, and that investor can have full confidence in them?

I am led to understand that Mr. McGuire had offered to testify before the CFTC today, and that he was refused admittance. I do not know him, or the position he is in within the trading community. I cannot therefore assess his credibility or the validity of any evidence which he may present or possess. But I have the feeling that nothing will come of this.

Remember, there was no action on the Madoff scandal until AFTER his fraud collapsed, and the government was forced to acknowledge Markopolos' existence. He had been ignored and dismissed by the bureaucrats at the SEC for years because of Madoff's power and standing with the trading establishment. And of course by those who had an interest in hiding Madoff's scheme, if nothing else, to promote 'confidence' in the markets.

What seems particularly twisted about this is that JPM is the custodian of the largest silver ETF (SLV). Is anyone auditing that ETF, and watching any conflicts of interest and self-trading? Multiple counterparty claims on the same bullion?

If you ever wanted to see a good reason for the Volcker rule, this is it. These jokers are one of the US' largest banks, with trillions of dollars in unaudited derivatives exposure, and they seem to be engaging in trading practices like Enron did before it collapsed.

Have they lost their minds, or are they just that reckless, immature, short term, and arrogant? Morgan practically holds the keys to the US Treasury, a recent recipient of billions in taxpayer support, and still receiving signficant subsidies from the Fed. They seem to be in dire need of adult supervision. Blatantly and clumsily rigging the silver market, and then bragging about it to people outside their company. What's next, bumping off grannies for their Social Security checks? Three card monte games on the boardwalk?

I was trying to understand why this item struck me so hard this evening. It shocked me in a way that few things do anymore. I think it is because I had unconsciously come to the same conclusion earlier, on my own, in the post where I showed the repeated and obvious bear raids on gold into this option expiration, and it struck a resonant chord when I read McGuire's description of the silver manipulation. I refused to believe it, but apparently there it is. The "Dr. Evil" trading strategy that Citigroup was caught using in the Eurobond markets.

I do not expect the detailed facts on this to ever reach the light of day in my lifetime. The implications are far too political.

ADDITIONAL STATEMENT BY BILL MURPHY, CHAIRMAN OF THE GOLD ANTI-TRUST ACTION COMMITTEE

HEARINGS ON THE METALS MARKETS, MARCH 25, 2010

On March 23, 2010 GATA Director Adrian Douglas was contacted by a whistleblower by the name of Andrew Maguire. Mr. Maguire, formerly of Goldman Sachs, is a metals trader in London. He has been told first hand by traders working for JPMorganChase that JPMorganChase manipulates the precious metals markets and they bragged how they make money doing so.

In November 2009 he contacted the CFTC enforcement division to report this criminal activity. He described in detail the way in which JPM signals to the market its intention to take down the precious metals<. Traders recognize these signals and make money shorting the metals along side JPM. He explained how there are routine market manipulations at the time of option expiry, Non-farm payroll data releases, and Comex contract rollover as well as other ad hoc events.

On February 3 he gave two days advance warning by email to Mr Eliud Ramirez, a senior investigator of the Enforcement Division, that the precious metals would be attacked upon the release of the non-farm payroll data on February 5. Then on February 5 as it played out exactly as predicted further emails were sent to Mr. Ramirez in real time while the manipulation was in progress.

It would not be possible to predict such a market move in advance unless the market was manipulated.

In an email on that day Mr. Maguire said "It is 'common knowledge' here in London amongst the metals traders it is JPM's intent to flush out and cover as many shorts as possible prior to any discussion in March about position limits. I feel sorry for all those not in this loop. A serious amount of money was made and lost today and in my opinion as a result of the CFTC allowing by your own definition an illegal concentrated and manipulative position to continue"

Expiry of the COMEX APRIL call options is today. There was large open interest in strikes from $1100 to $1150 in gold. As always happens month after month HSBC and JPM sell short in large quantities to overwhelm all bids and make unsuspecting option holders lose their money. As predicted in advance by GATA the manipulation started on March 19th when gold was trading at $1126. By last night it traded at $1085.

This is how much the gold cartel fears the enforcement division. They thumb their noses at you because in over a decade of complaints and 18 months of a silver market manipulation investigation nothing has been done to stop them. And this is why JPM’s cocky and arrogant traders in London are able to brag that they manipulate the market.

It is an outrage and we are making available the emails from our whistleblower, Andrew Maguire available to the Press wherein he warns in advance of a manipulative event.

Additionally Mr. Maguire informed us that he has taped recordings of his telephone communications with the CFTC for which we are taking the appropriate legal steps to acquire.

-END-

From: Andrew Maguire
Sent: Tuesday, January 26, 2010 12:51 PM
To: Ramirez, Eliud [CFTC]
Cc: Chilton, Bart [CFTC]
Subject: Silver today

Dear Mr. Ramirez:

I thought you might be interested in looking into the silver trading today. It was a good example of how a single seller, when they hold such a concentrated position in the very small silver market, can instigate a selloff at will.

(Note: This is the "Dr. Evil" trading strategy that got Citi rebuked and fined in the Euro Bond markets, and also got Enron into trouble in the energy markets. - Jesse)

These events trade to a regular pattern and we see orchestrated selling occur 100% of the time at options expiry, contract rollover, non-farm payrolls (no matter if the news is bullish or bearish), and in a lesser way at the daily silver fix. I have attached a small presentation to illustrate some of these events. I have included gold, as the same traders to a lesser extent hold a controlling position there too....

I brought to your attention during our meeting how we traders look for the "signals" they (JPMorgan) send just prior to a big move. I saw the first signals early in Asia in thin volume. As traders we profited from this information but that is not the point as I do not like to operate in a rigged market and what is in reality a crime in progress.

As an example, if you look at the trades just before the pit open today you will see around 1,500 contracts sell all at once where the bids were tiny by comparison in the fives and tens. This has the immediate effect of gaining $2,500 per contract on the short positions against the long holders, who lost that in moments and likely were stopped out. Perhaps look for yourselves into who was behind the trades at that time and note that within that 10-minute period 2,800 contracts hit all the bids to overcome them. This is hardly how a normal trader gets the best price when selling a commodity. Note silver instigated a rapid move lower in both precious metals.

This kind of trading can occur only when a market is being controlled by a single trading entity.

I have a lot of captured data illustrating just about every price takedown since JPMorgan took over the Bear Stearns short silver position.

I am sure you are in a better position to look into the exact details.

It is my wish just to bring more information to your attention to assist you in putting a stop to this criminal activity.

Kind regards,
Andrew Maguire

Read more on this, and some particular examples of silver market manipulation, here.

Market Concentration - Approximately 80% of the Precious Metal Derivatives
This is remniscent of the Oil and Steel Trusts from the turn of the 20th Century

Why Its Good to Own the Ratings Agencies (Or At Least to Have the Same Owner)

Dean Baker speaks to the issue of the US and its AAA rating.

I had considered that the Ratings Agencies might become instruments of national policy, implicated as they are in numerous scandals and misbehaviour. If you don't do the time, then you must have turned cooperative and informant in at least a soft and accommodating way.

But I had never considered this particular angle. Now there is room for doubt that they might serve the will of the US government, but there should be no doubt, given their recent history, that they are all too often willing to say and do whatever pleases Wall Street.

"....This means that if Moody’s were to downgrade the government’s debt, to be consistent it must also downgrade the debt of Citigroup, Goldman Sachs and the other big banks. If Moody’s downgrades the government’s debt, without downgrading the debt of the big banks – or even threatens to downgrade the government’s debt without also threatening to downgrade the debt of the big banks – then it is more likely acting in pursuit of Wall Street’s political agenda than presenting its best assessment of the creditworthiness of the U.S. government.

It is unfortunate that we have to suspect a major credit-rating agency of such dishonesty, but given its track record, serious people have no choice. To paraphrase an old Winston Churchill joke, we already know about the character of the bond-rating agencies, we are only asking if they are prostituting themselves now."

Dean Bakes, Will the US Lose Its AAA Rating?

The quotation that Dean Baker references from Churchill brings to mind this famous anecdote from another British wit:

George Bernard Shaw once found himself at a dinner party, seated beside an attractive woman. "Madam," he asked, "would you go to bed with me for fifty thousand pounds?"

The colossal sum gave the woman pause, and after reflection, she coyly replied: "Perhaps."

"And if I were to offer you five pounds?" Shaw asked.

"Mr. Shaw!" the woman exclaimed indignantly. "What do you take me for!"

"We have already established what you are," Shaw calmly replied. "Now we are merely haggling over price."

Today's CFTC Hearing on Metals Position Limits

Pretty much what you might expect. The gorillas hate restrictions, and threaten to take their business elsewhere if anyone tries to regulate them. Since there are only a few major metals exchanges in the world, TOCOM, LBMA, and COMEX, one might think the CFTC could pick up the phone and coordinate something with their counterparts without straining the smoothness of their golf swings.

For the most part commissioners say they are afraid of limiting transparency by increasing transparency requirements. As if there is sufficient market transparency today.

So let's not limit cheating, because it might lessen the volume of fraud on their exchanges and drive it to other countries. Let's see, like Japan, which has MORE transparency by company position, and London, which is mostly a physical market without futures as I recall. The FSA is cracking down on fraud. Maybe that will drive more business over here. Better tell them to ease up.

Perhaps the Commission is concerned that the financial pirates might try and take over Havana and turn it into their private casino. Oops, been there, tried that, too corrupt for their local standards. How about Somalia? They seem to be open to new free market trading concepts.

Gentlemen. Don't worry so much about other countries. Most of the recent financial frauds seem to be originating just to the east of the Hudson River and west of Long Island. Clean up your own house, and let the world look to its own devices.

For the most part as a regulator, the CFTC seems like the FED, but without the pocket protectors and PhD's, and the formal ownership by those whom it is supposed to be regulating.

Time for a change, America. I hate to sound negative, but if anything comes of this I will be astonished. The change will come after there is a major scandal, or a breakdown in the markets. And then the push will be to 'move on' and not look at what anyone did or did not do, but how we can 'fix it' by moving the regulatory responsibility to a committee of Chicago aldermen, or a contingent of Beverly Hills divorce lawyers. Are the Westies available for regulatory outsourcing? Hey, I know who can do it, after all, it's God's work.

What they said at CFTC hearing on metals limits

March 25 (Reuters) - The Commodity Futures Trading Commission held a hearing on Thursday to examine whether position limits are needed to curb speculation in metals futures markets.

Here are comments from participants:

GARY GENSLER, Chairman, CFTC

"Based upon what we learn, we will further review CFTC rules to determine what, if any, course of action is most appropriate." (Goldman Sachs alumni, and a Rubin protege.)

MICHAEL DUNN, Democrat commissioner, CFTC

"I am concerned that position limits in regulated futures markets without corresponding limits in the over-the-counter markets may result in less transparency in our markets, if those presently trading on exchanges move to over-the-counter and other opaque markets to circumvent CFTC regulations." (The benefit of course is that Joe Average doesn't trade on the unregulated and opaque markets, and won't be skinned on a weekly basis, or at least unless he or she is a qualified investor. Still, a decent thought.)

BART CHILTON, Democrat commissioner, CFTC

"The sensible, reasonable approach to position limits that guards against manipulation and stops excessive speculation is what we need to protect consumers.

I hope this hearing helps put us on a fast-track to getting a proposal out there." (A lone voice of reform. Bart is a man of the people.)

SCOTT O'MALIA, Republican commissioner, CFTC

"The exchanges registered with the commission are not the market's epicenter. Significant price discovery in these markets takes place abroad in London." (Let the FSA do it. Mentor is Mitch McConnell.)

"We must ensure that any rules or regulations do not offer any opportunities for regulatory arbitrage or decreased transparency of U.S. markets."

TOM LASALA, chief regulatory officer, CME Group (CME.O)

"The only impact that CFTC-imposed limits will have in the metals market will be to shift business away from U.S. exchanges to less-regulated or even wholly unregulated markets that are beyond the commission's jurisdictional reach." (Therefore one should never regulate because people will just move their business offshore. But that does beg the question of protecting AMERICAN investors and regulating THEIR markets. Very discouraging to hear this from the 'chief regulatory officer.')

DIARMUID O'HEGARTY, London Metal Exchange

"We've put a lot of work over the past 100 years to try and learn from the various mistakes in the market over the years and what we've ended up with is, I think, as good as it gets." (Got tungsten?)

JEFF BURGHARDT, Copper and Brass Fabricators Council

"It is our belief that investment funds have been the major driver behind the record high prices we have seen in many commodities in recent years, including copper."

"Increasing initial margin amounts charged to investment funds will be a more effective solution to the problem." (User Associations always want to limit the longs.)

TOM CALLAHAN, CEO of NYSE Liffe

"It is not clear that federally designed position limits for metals would have the desired effect of limiting unreasonable and abrupt price movements for these contracts just as federally set position limits for certain agricultural products did not appear to protect those products from price volatility during the recent commodity price bull run."

KEVIN NORRISH, Managing director commodities research, Barclays Capital

"Over the last 10 years, metals and energy have migrated to more transparent, better regulated markets. However, the wrong implementation could drive both the metals and energy markets back into that more opaque territory." (Always with the threats to get their way.)

JEREMY CHARLES, global head, HSBC's precious metals business

"Given the global nature of the precious metals markets, unilateral action on the part of the Commission could simply cause large market participants to shift business to other markets." (You can no longer regulate anything that takes place in your country because of globalization. Multinationals rule the world.)

JEFFREY CHRISTIAN, CPM Group

"My position is that the proposal is a mistake. Federally managed position limits seem both inappropriate and unnecessary." (perma-bear, par excellence)

RICHARD STRAIT, Triland USA, division of Mitsubishi

"In the misguided event position limits are mandated to the U.S. metals futures products, they should be applicable to the spot month only and not ... spread positions and only on an as-needed basis." (We reserve the right to manage the outer month prices.)

STEVE SHERROD, acting director of surveillance, CFTC

Citing an internal study of disaggregated commitment of traders data for COMEX, NYSE Liffe:

"In gold for all months combined and for a trader's net futures and delta-adjusted options combined position, 56 traders exceeded the position accountability levels on one or more days during the two-and-one-quarter-year sample period.

"The maximum number of traders holding positions in gold at or above the position accountability level on any one day was 26."

"Seventeen traders on average exceeded accountability levels for an average of 34 Tuesdays of the 115 Tuesdays in the sample period. The average position while over accountability levels was 20,233 contracts." (Ok we'll bite. What was the accountability level? What would happen if you set it higher to some percentage of the open interest? And what is special about a Tuesday? I'll gladly pay you Tuesday for some bullion today?)

MICHAEL MASTERS, Masters Capital Management

"Passive speculators are an invasive species that will continue to damage the markets until they are eradicated." (Who are these passive speculators, and why must we kill them? Are they getting in the way of the squid's beak?)

MARK EPSTEIN, individual trader

"If there weren't these big monster, guerrilla traders out there ... there would arrive a much more robust market-making community, the market will be much more effective in finding prices." (You say it brother.)

BILL MURPHY, Chairman, Gold Anti-Trust Action Committee

"The gold cartel ... thumb their noses at you because in over a period of complaints in 18 months of the (CFTC's) silver market manipulation investigation nothing has been done to stop them." (Well said, except I don't think those were their noses they were sticking out at them. No noses could be that small and that ugly.)

(Reporting by Christopher Doering, Frank Tank, Tom Doggett; Editing by Roberta Rampton; Editing by Marguerita Choy and Jim Marshall)

This brings to mind the famous quote from Meister Eckhart, "The price of inaction is far greater than the cost of making a mistake.”

But it is a sad reality of modern management that you are never blamed for doing nothing, and too often richly rewarded, but you are never allowed to make a mistake.

When I was in corporate life, the 'big boss' told me "If you do ninety-nine things exceptionally right, but one thing wrong, we will only remember the one thing that you did wrong."

And then he had the nerve to ask the next week in a meeting, "How can we get our employees to take more risks?"

This is the point where Obama must again begin to lead, to change the culture in Washington. The regulatory process needs the stimulus of words of direction, the proper motivational incentives, and perhaps, backed occasionally by a size 11 shoe.

NY Fed Commercial Mortgage Backed Securities Pass Fail List

Here are the CMBS that the NY FED Accepted or Rejected today, by CUSIP.

One needs a pricey subscription service or handy access to a Bloomberg terminal to look them up to determine who owns or at least authored what.

Here is a list of the owners of the CUSIP's. Obviously I cannot guarantee its accuracy. But since you are paying for this Treasury subsidy operation, I thought you might like to have at least some indication of who the recipients are.