The Biggest Fraud in History

(9 am. – promoted by ek hornbeck)

  Fraud traditionally occurs behind closed doors. The larger the fraud, the more chances of its existence leaking out to the public. Only after the scheme has blown up does the media report it.

   Fraud has a short lifespan once it is subject to the harsh rays of sunlight. It is only a matter of time before the lies on which it is built come crumbling down.

 Last week a massive case of fraud was exposed to the light, but because it hasn’t imploded yet the mainstream news media isn’t reporting it. In fact, the media seems to want to ignore the facts.

  Why? Not because they question the facts, but simply because of the subject of the fraud – precious metals.

  The normal reaction to the claim that precious metal prices are manipulated is usually an eye-roll and either a dismissive sigh or a guffaw. It’s hard to even get someone to hear the facts because the subject is taboo. Just talking about it gets you lumped in with conspiracy theorists such as JFK’s second gunman, the 9/11 conspiracy, and the people who claim the Federal Reserve works on behalf of Wall Street banks.

  The bias against precious metals is beyond irrational. Even now, after a nine year bull market in gold prices, most people would never dream of owning any. They are still speculating on stocks, despite a 10-year bear market, or real estate, despite a four year bear market. What’s wrong with this picture?

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 It’s strange that so many people think that manipulation of the precious metals market is a cuckoo idea when manipulation of oil prices is accepted by the mainstream. What’s more, governments have been openly manipulating precious metal prices since the Roman Empire, and doing it behind closed doors just a few decades ago. Is it really so hard to believe that they are still doing it?

The Whistleblower

 Andrew Maguire is a metals trader in London. He had nothing to gain by contacting the Commodity Futures Trading Commission on February 3rd to alert them about a price manipulation event in the silver market by JP Morgan that would happen in two days. He described the scenario of how it was going to play out.

“It is common knowledge here in London among the metals traders that it is JPM’s intent to flush out and cover as many shorts as possible prior to any discussion in March about position limits.”

 – Andrew Maguire

  On February 5, as the metals price smackdown happened exactly as he foretold, he emailed the CFTC and explained to them what was happening in real time. His emails can be seen here.

 Six weeks later, when the CFTC began holding hearings to tighten regulations, Maguire became angry that he wasn’t invited to testify. So he contacted Bill Murphy from the Gold Anti-Trust Action Committee and gave him his information so he could go public with it.

 Coincidentally, the very next day after going public, Andrew Maguire and his wife were driving in London when a car sped out of a side street and struck their car. Both Maguire and his wife were injured, but not serious. The car then sped off, nearly running over pedestrians in an attempt to get away.

  A few days later, the popular economic website King World News, obtained a half-hour interview with Maguire. Within a day of posting the interview, the web site was brought down with a Denial of Service attack.

 If this sounds familiar, its because you’ve recently heard a story much like it. When whistleblower Harry Markopolos tried to expose Bernie Madoff’s ponzi scheme to the SEC, the SEC refused to act. The CFTC also refused to act on Maguire’s information. Markopolos ended up carrying a gun because he feared for his life.

How does this work?

 On August 16, 2006, the London Metals Exchange (LME), the largest base metals exchange in the world, went into default.

 “Those with short positions in nickel falling prompt on Friday 18 August 2006, and on subsequent prompt dates until further notice, who are unable to effect physical delivery an/or unable to borrow metal at a backwardation of no more than $300.00 per tonne per day, shall be able to defer delivery for a day at a penalty of $300.00 per tonne.”

 While Mr. Heale states that the action by the exchange is designed to prevent default, the action taken is nothing but a declaration of default, rendering his statement as absurd. Default is a simple word. Any time you unilaterally violate or negate the terms and conditions of any legal contract, that contract is in default. Period.

 What does it mean when contracts on commodities can be unilaterally changed? And more importantly, how is it possible that there were more short positions than there was physical nickel to deliver?

  It’s called Naked Shorting, and basically means “selling something you don’t own”.

 Obviously, naked shorting can be immensely profitable as long as you don’t get caught. Since the SEC and CFTC have basically been asleep at the switch for years, the danger of getting caught is low.

  However, that isn’t the only way that naked shorting can blow up on you. When you naked short a commodity there better be enough physical inventory of that commodity to satisfy short-term demand. Otherwise someone who wants, say, a few tonnes of nickel might ask you to cover your naked shorts. That’s what triggers a default.

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 Which brings us back to the silver market.

When JP Morgan Chase took over Bear Stearns in 2008, it also inherited its huge short positions in the silver market. When those short contracts were about to mature in the summer of 2008, something funny happened.

 As of July 1, 2008, two U.S. banks were short 6,199 contracts of COMEX silver (30,995,000 ounces). As of August 5, 2008, two U.S. banks were short 33,805 contracts of COMEX silver (169,025,000 ounces), an increase of more than five-fold. This is the largest such position by U.S. banks I can find in the data, ever. Between July 14 and August 15th, the price of COMEX silver declined from a peak high of $19.55 (basis September) to a low of $12.22 for a decline of 38%.

 The crash of silver prices caused those Bear Stearns short positions to go from big loser to big winners for JP Morgan Chase. It was such an obvious manipulation that even the sleepy CFTC took notice and started an investigation that has culminated with the recent March hearings. The hearings were supposed to be a non-event, but the revelations from it are leaking out despite an effective news media blackout.

 Would you be surprised to learn that the cameras had a “technical malfunction” during Bill Murphy’s statement, which magically righted itself immediately after he finished?

  After the hearing, according to Douglas, Murphy was contacted by several major media outlets for more interviews. Within 24 hours, all the interviews were canceled. All of them.

 Probably the most startling revelation during the hearings came from Jeffrey Christian, a former Goldman Sachs staffer, who told the regulators that the “LBMA trades over 100 times the amount of gold it actually has to back the trades.”

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  Christian is no gold bug. In fact he came there to testify against trade limits. Yet he also admitted to the bullion market banks being leveraged at 100-to-1. To put that into perspective, Bear Stearns was only leveraged at 30-to-1 shortly before it failed. Adrian Douglas put this into perspective at the hearings:

A. Douglas: We are talking about the futures market hedging the physical market. But if we look at the physical market, the LBMA, it trades 20 million ozs of gold per day on a net basis which is 22 billion dollars. That’s 5.4 Trillion dollars per year. That is half the size of the US economy. If you take the gross amount it is about one and a half times the US economy; that is not trading 100% backed metal; it’s trading on a fractional reserve basis. And you can tell that from the LBMA’s website because they trade in “unallocated” accounts. And if you look at their definition of an “unallocated account” they say that you are an “unsecured creditor”. Well, if it’s “unallocated” and you buy one hundred tonnes of gold even if you don’t have the serial numbers you should still have one hundred tonnes of gold, so how can you be an unsecured creditor? Well, that’s because its fractional reserve accounting, and you can’t trade that much gold, it doesn’t exist in the world. So the people who are hedging these positions on the LBMA, it’s essentially paper hedging paper. Bart Chilton uses the expression “Stop the Ponzimonium” and this is a Ponzi Scheme.


J. Christian: If you start putting position limits on bona fide hedgers for example, the bullion banks, and the previous fellow was talking about hedges of paper on paper and that is exactly right. Precious metals are financial assets like currencies, T-Bills and T-bonds they trade in the multiples of a hundred times the underlying physical…

 This is a mind-blowing admission. Unlike financial assets like T-Bills, gold is a physical asset, yet it is being treated like a piece of paper by these markets. What’s more, the leverage against these physical assets is nothing but paper on top of more paper at levels that no regulator would ever allow at a commercial bank.

  It’s very similar to the Madoff ponzi scheme.

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 In case you think that Mr. Christian misspoke, he later said:

 People say, and you heard it today, there is not that much physical metal out there, and there isn’t. But in the “physical market,” as the market uses that term, there is much more metal than that. There is a hundred times what there is.

 I’ve got news for Mr. Christian – there can only be as much of something as there is, not 100 times of it.

  What Christian is saying is that there is no difference between the physical metal and the the paper product it represents, no matter how much paper there is. Or to put it another way: “it has been persistently that way for decades” and “there are any number of mechanisms allowing for cash settlements.”

 A cash settlement is a default. Period. That’s fine when you are talking about T-Bills, but not when you are talking about something tangible.

 JP Morgan and HSBC control between 85% and 100% of the futures market for gold and silver. That’s a monopoly by any definition, and it can smash down the price whenever it wants to as long as a large percentage of the traders don’t take physical delivery.

 If this sounds too much like conspiracy, consider that JP Morgan was forced to pay its customers millions of dollars in 2007 to settle a lawsuit where was charging 22,000 clients storage fees on silver bullion that didn’t exist.

  Now imagine that you are a large Asian financial client that is paying the LBMA banks to store your gold and silver. After hearing this news you decide to take delivery of it. Oops! The gold and silver don’t exist.

 You then have what amounts to a bank run. If the world assumes that there is X amount of a commodity in the world, when there is in fact only a 100th of that amount, what do you think will happen to the price of that commodity?

 Now Goldman is warning about “violent price spikes” in commodities. Perhaps they realize that the ponzi scheme is coming to an end.

In Perspective

 The net commercial short position on precious metals is beyond suspicious. At various times it has gone from 10% of worldwide silver production, to over 40% of world yearly production.

 In comparison, short positions on NYMEX crude oil is generally about a day or two’s worth of global production.

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 So what is the purpose of the manipulation?

For starters, any price manipulation, whether it goes up or down, is designed to fleece the sheeple. People that put their money into a rigged market without insider knowledge constitute suckers. They are all “marks”. It doesn’t matter how or why.

  As for precious metals, the rigging is only one way – down. Since the days of the Roman Emperors it has always been this way. The smackdown that Maguire warned about was designed to push down the prices. The massive naked shorting is further proof.

  While this makes some sense for governments, why would banks be so keen on suppressing the prices of precious metals?

  Just see Christian’s testimony above. “Precious metals are financial assets like currencies…” That’s how Wall Street perceives gold and silver.

 Precious metals are a barometer for measuring the strength of financial assets like currencies. By artificially suppressing the price of gold and silver, it gives the false impression of strength for the financial assets that the banks sell to their clients. Sort of like AAA ratings on subprime mortgage-backed securities.

 How about the multi-year bull market in gold and silver? Instead of proving that the price suppression is false, it proves that the ponzi scheme is breaking down. It is a fighting retreat. The equivalent of “extend and pretend”.

 There is no longer a question as to whether the price of gold and silver are being suppressed. Whistleblowers like Maguire, the data collected by GATA, and the testimony at the CFTC hearings has put that question to rest. The only questions now are how and when the ponzi scheme ends.


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    • gjohnsit on April 7, 2010 at 5:13 am

    The biggest fraud that you’ve never heard of.

      But will anyone care?


    The general complacency over financial fraud is demoralizing (and impoverishing, enslaving, really).

  2. …following of the details on this are way beyond mine.  So I sincerely thank you for bringing your knowledge here.  

  3. The financial oligarchy is credibly powerful and anything is possible including indentured servitude via mountains of consumer debt.  

    Much of what the financial oligarchy deals in is a ponzi scheme.  The biggest threat to the survival of working class families is the power of the financial oligarchy.  The present outlook is grim because of the control oligarchy has over ALL of Washington.  

    • gjohnsit on April 7, 2010 at 6:33 pm

    As some of you might know, the world’s largest silver ETF (SLV) is owned by none other than JP Morgan Chase.

     On the other end of the spectrum is the respected Central Fund of Canada (CFC)…but is it?

     Lenny Organ who was the person to enter the vault of ScotiaMocatta, says “What shocked me was how little gold and silver they actually had.” Lenny describes exactly how much (or little as the case may be) silver was available – roughly 60,000 ounces. As for gold – 210 400 oz bars, 4,000 maples, 500 eagles, 10 kilo bars, 10 one kilogram pieces of gold nugget form, which Adrian Douglas calculates as being $100 million worth, which is just one tenth of what the Royal Mint of Canada sold in 2008, or over $1 billion worth of gold.

    The ponzi scheme ends when people start taking physical delivery.

  4. the whole effort appears aimed at fixing prices within a small range perceived as ‘normal’ circa 2006, because the PTB know that if prices were actually allowed to find their natural market levels, the ensuing economic disruptions would seriously threaten their positions as Masters of the Universe.

    So instead the real economy is forced to continue, at its peril, this charade that prices set on paper by the banks and backed by the full power of the G7 accurately reflect the true value of, well, everything.

    Truly, the global capitalist economy is more and more resembling the command economy of the old Soviet Union, where prices are fixed by the state at artificial levels to make people feel as if they can still afford goods, even though the lack of accurate valuation results in those same goods never making it to the shelves.

  5. … this is so much larger and goofier than our local version of this.  There’s a local goldmine that was mined out in the mid 1900’s, located under a little foothills town,  and the local wing nutter scam artists were trying to get it re opened,  and taking a bunch of investors along for the ride.  Oh, and the local Republicans have been trying to get a highway exchange located near the site recently and have been quoted as saying this would be a great idea for local development.  That’s our McClintock McCarpetbagger !

    Problem is the whole thing is the most ridiculous scam.  They’d have to dewater all the old mine, (used mines fill up with it)  which would wreck all the local water sources for the town, and then they’d have to do something with all the polluted water, then they have to go burrowing merrily even deeper under Grass Valley, then they came up with this whacko scheme they were going to take all the minings tailings and make ceramic tiles out of them.

    Emgold and the Idaho Maryland Mine of Grass Valley, CA

    “Golden Gamble in Grass Valley”

    It was so bad some of the local Republicans were writing “are you all crazy?” stories about it.

    current status:  source of jokes about how dumb the investors were

    “Emgold stock consolidates capital on a 10 for 1 new basis”

    Now, it gets better.  In 2008, there was a Libertarian – Republican musician and internet business spokesperson running on the Republican primary for congress here, named Theodore Terbolizard.  Theodore’s brother was/is one of these silver speculators / dealers. Ted Terbolizard goes to a bar in Grass Valley one night, gets a bit snookered, and then gets pulled over by the cops on his way home, and arrested for a DUI, right near the street the old Empire Gold Mine (Now a State Park in Grass Valley)  is on, with a laptop and $10,000 cash in his car.

    It was one of the most spectacular primary crashes ever. It was such a wild story to write up.

    Now, the source of the cash has always been of much speculation, especially because Terbolizard was not filing his FEC campaign contribution reports in a timely manner.

    Well, a year later, I thought to see if Terbolizard (and that’s his legal name, btw) had ever filed anything, and I’ll be darned, he finally had.

    Guess where he was getting some of his larger campaign contributions from (besides the Ron Paul Libertarians? )

    Employees of a big aerospace defense contractor, Northrop Grumman.

    Now, and this is just for fun speculation, why would a large company that makes many  things out of metals, on the taxpayer’s dime,  be interested in precious metal price speculation ?

  6. The SUA

    We can only be referring to the members of the Silver Users Association. Founded in 1947 to get at what was the world’s largest silver stockpile held by the U.S. government, and to do so at taxpayer subsidized rates, this organization has had fantastic success at its mission.  As it became apparent that for the U.S. to continue with circulating 90% silver coins would mean silver shortages for the users and also higher prices, they successfully lobbied Congress, the Treasury and the Oval Office to have this country taken off silver coins so that they could access this metal.  In order to maintain a flow of cheap silver to themselves, our last real money was phased out.  This organization has been getting silver at rates below the cost of production, at least for most of its unfortunate existence.  I don’t know what you could compare them to in any other commodity, because this is the only users group in any commodity.  If anyone can show why they are not an illegal shortside price fixing cartel in violation of antitrust law, regular readers of this website would like to see it.

    And guess where they were located?

    Grass Valley, CA (  — The Silver Users Association (SUA), a group devoted to the conflicting goals of keeping silver prices low and keeping silver available for users, stunned the silver investing community last month by repeating the claims made by silver investors and analysts that the silver market is very tight and that any significant investor demand will create a shortage of silver.

    • ANKOSS on April 8, 2010 at 2:52 pm

    Lies are welcome when the populace is comfortable. Deny them their comforts (Ipads, NFL, etc.) and they will rebel. We are a few years away from exiting the comfort zone. Then political change will come, for good or ill.

  7. Hong Kong pulling ALL its gold from London Depositories

    HONG KONG (MarketWatch) — Hong Kong is pulling all its physical gold holdings from depositories in London, transferring them to a high-security depository newly built at the city’s airport, in a move that won praise from local traders Thursday.

    You think there may be a problem? ;o)

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