CFTC Believes That Silver Is A Free Market After 5 Year Investigation

The Commodity Futures Trading Commission announced earlier today that they will close the five-year investigation about silver market manipulation. According to their press release, the organisation has spent 7,000 staff hours of investigation which as produced no evidence of wrongdoing. Reuters writes:

The CFTC formally closed the probe six months after a U.S. District Court dismissed a class action lawsuit making similar claims against JPMorgan Chase & Co.. “Based upon the law and evidence as they exist at this time, there is not a viable basis to bring an enforcement action with respect to any firm or its employees related to our investigation of silver markets,” the CFTC said.

The CFTC typically does not comment on ongoing inquiries, but made the silver case public in 2008 after receiving complaints alleging manipulation of the silver futures contracts traded on the Commodity Exchange Inc (COMEX). The agency launches dozens of such investigations each year, many of which do not result in formal charges or action.

The probe gathered urgency in 2011, as silver prices doubled to a record of nearly $50 an ounce, then collapsed nearly 30 percent in five days.

That conclusion comes even with detailed information explained by Andrew Maguire, as explained on Wikipedia:

Maguire then predicted a manipulative event in the silver market and gave detailed information in an e-mail to the CFTC about what to expect, sending it on February 3, 2010, two days prior to the event. The event transpired exactly as Maguire predicted. While the event was taking place, Maguire sent e-mails in real time, pointing out certain details because the CFTC enforcement seemed not to know what to look for or how to interpret the data.

The man who has been following the silver market very closely since almost 4 decades is analyst Ted Butler from ButlerResearch. In fact, he was among the first ones to discover silver price manipulation in the COMEX futures market back in the 80’s. In today’s commentary, he explains how the announcement of the CFTC did not touch the key issue: the degree of concentration on the short side of COMEX silver (and gold) held by one or two US banks in the August 2008 Bank Participation Report. Shortly after that, it became clear that JPMorgan was the big bank holding the concentrated short positions as a result of the Bear Stearns takeover. Ted Butler writes:

This was the key issue and the announcement, effectively, left it out. This is not surprising. This investigation was only initiated, in my opinion, because the Commission couldn’t answer a simple question, namely, how a 30% net market share by JPMorgan wouldn’t be manipulative to the price. Such a large percentage of market share had always been prosecuted by the CFTC in the past for being a market corner and manipulation. Rather than answer that simple question, the Commission initiated an expensive taxpayer funded investigation designed to avoid answering the real question.

Today’s announcement confirms something I felt for years, namely, that the agency would intend to close the investigation without specifically addressing the documented concentration on the short side of COMEX silver. There’s good reason for that – there’s no way market corners by JPMorgan could ever be legitimately explained away. The most likely outcome was always that the agency would say in the end – “we looked real hard for wrongdoing, believe you me, but didn’t find any and we can’t tell you anymore because of confidentiality considerations.”

Reuters presents some reactions in their article:

Closing of the probe was a rare bright spot for Wall Street commodities players during a year in which the U.S. power market regulator has leveled record fines against two big banks, and the Federal Reserve is considering whether to rein in Wall Street’s ability to operate in physical markets.

But Democrat commissioner Bart Chilton, who had championed the silver inquiry, said he was disappointed.

“For me, there’s not been a more frustrating nor disappointing non-policy-related matter at the CFTC,” he said in a statement after the agency’s announcement.

The Gold Anti-Trust Action Committee, an advocacy group that believes the Federal Reserve and banks are colluding to keep gold and silver prices artificially low, said it was not surprised by the CFTC decision.

“We believe that the U.S. government is part of the trading operation. In essence, you are not going to have the CFTC turns against its own government,” GATA Chairman Bill Murphy said.

“We are not even slightly surprised and had expected this.”

A JPMorgan spokesperson declined to comment.

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