Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Foreign commercial banks charged with collusion to manipulate gold prices, (Apr 30, 2014)

By Linda O’Brien, J.D., LL.M.

Certain foreign commercial banks colluded to manipulate the London Gold Market Fixing Ltd. price-setting process for gold for their own profit, according to a complaint filed in the federal district court of New York City by an investor on behalf of a putative class of individuals and entities that traded physical gold and gold derivatives on an exchange in the United States (Fleisher v. Bank of Nova Scotia, April 24, 2014).

Bank of Nova Scotia, Barclays Bank PLC, Deutsche Bank, AG, HSBC Holdings PLC, and Societe Generale N.A. are foreign commercial financial services companies that are members of the London Gold Market Fixing Ltd. (“London Gold Fix”). The financial institutions meet each trading day in a twice-daily price-setting process for a troy ounce of physical gold. Martin Fleisher is an investor who has engaged in transactions for the purchase and sale of securities dependent upon the price of gold on an exchange in the United States.

The complaint states that gold is the most popular as an investment of all the precious metals. The most common benchmark for the price of gold in the global gold market is the London Gold Fix. The London Gold Fix is not regulated by any governmental entity but is left to the members of the London Gold Fix to determine how the price of gold is set. The members are not prohibited from trading and sharing information with each other and with others during the fixing process and are in a position to manipulate the price-setting process to guarantee profits for themselves on trading in gold and gold derivatives.

Studies have shown significant increases in trading volume during, but not after, the price-setting period when the financial institutions are free to share information with each other and their clients, according to the complaint. Statistical analysis has indicated significant return advantages for the informed trader that far exceeded trading costs. Also, significant movement in gold prices and increased trade volume registered at the time of the daily PM Gold Fix which had material impact on gold instruments traded on the Commodity Exchange (COMEX), a large exchange in the United States on which gold contracts and derivatives are traded. Research analyzing the London Gold Fix found it to be conducive to collusion and manipulation and the empirical data was consistent with price artificiality.

Regulatory agencies from at least two foreign countries have commenced investigations into gold price manipulation. The defendant financial institutions have also been investigated in connection with allegations of manipulation of the LIBOR and foreign currency rates.

The London Gold Fix is by its very nature not transparent and vulnerable to conspiratorial and manipulative behavior. The financial institutions conspired with one another to restrain trade and manipulate prices of gold and gold derivatives, including gold futures and options contracts. The financial institutions have used their power and insight as members of the London Gold Fix and as entities trading on undisclosed information to profit at the expense of uninformed market participants, the complaint alleges.

Fleisher asserts claims for unjust enrichment, and violations of Section 1 of the Sherman Act and the Commodity Exchange Act. The action seeks injunctive relief, compensatory and treble damages, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 14 CV 2917.

Attorneys: Stephen D. Susman and Marc M. Seltzer (Susman Godfrey LLP) for Martin Fleisher.

Companies: Bank of Nova Scotia; Barclays Bank PLC; Deutsche Bank, AG; HSBC Holdings PLC; Societe Generale N.A.

News: Antitrust NewYorkNews