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The scandal isn't what's illegal -- it's what's perfectly legal

By: Chris Powell, Secretary/Treasurer, GATA

 -- Published: Tuesday, 24 November 2015 | Print  | Disqus 

Dear Friend of GATA and Gold:

Citing the Bloomberg News report brought to your attention this afternoon about the New York attorney general's supposed investigation of the use of "spoofing" to manipulate the foreign-exchange market --

-- Zero Hedge asks tonight, "Why is the New York attorney general not prosecuting the real FX spoofing criminalgos?":

Zero Hedge writes:

More interesting than who was named in this latest 'investigation' is who wasn't -- and while the 'carbon-based' inter-dealer traders are looking at billions more in settlement charges and fines over the coming months, the real culprits of constant foreign-exchange spoofing remain unnamed. We refer of course, to the algo-based 'FX traders' of the Virtus, the Volants, the Citadels of the world ... but especially the latter, whose role in executing New York Fed trades and curbing sharp market moves lower is well-known and has been documented.

We also refer to the central banks themselves that trade either directly out of their own account, like the Swiss National Bank, or via trust banks such as the Bank of Japan, or like the New York Fed, which transacts in various pathways but most notably by spoofing FX using high-frequency-trading firms.

So why not go after the true FX riggers?

Because as noted above, if one really begins pursuing the spoofers, one will ultimately have to charge central banks for engaging in this criminal behavior. And that is unacceptable because with central bank credibility already on the way out, the last thing the monetary "authorities" need is for the general population to realize that the concept of price discovery has been dead since 2008.

And yet if one really wants true price transparency and discovery ever to return to markets, instead of focusing on various anonymous small-time traders in aptly-named chat rooms, they should look at just one thing: the central banker meetings every other month on Sunday at 7 p.m. in Conference Room E on the 18th floor of the Bank for International Settlements tower in Basel.

They won't.

Zero Hedge thus summarizes pretty neatly GATA's 16-year study of the markets, except for one important detail, a detail GATA discovered long before it discovered most of its documentation about market rigging, documentation summarized here:

That is, the authorities don't prosecute market rigging undertaken by governments and central banks precisely because it is legal.

Back in 1999 GATA spent its first substantial money on legal research by a major anti-trust law firm. The lawyers reported that our hopes for suing the U.S. government for rigging the gold market were pretty much dashed by the Gold Reserve Act of 1934, which established the Exchange Stabilization Fund within the U.S. Treasury Department and which, as amended through the years, conferred on the ESF the power to trade in and presumably rig not just the gold market but every market:

Nevertheless two years later, in 2001, GATA's consultant, the Harvard-trained lawyer Reginald H. Howe, found a novel mechanism for challenging gold market rigging -- a lawsuit in U.S. District Court in Boston against the Bank for International Settlements, U.S. Treasury Department, U.S. Federal Reserve, and various major investment banks, in which Howe claimed standing as one of the few remaining private shareholders in the BIS, whose own gold holdings, he charged, were undervalued because of market rigging by Western central banks.

Howe's lawsuit eventually failed on a jurisdictional technicality but it produced an enormous disclosure at the one hearing held in the case, at which the defendants moved for dismissal. An assistant U.S. attorney put it plainly. Without admitting the conduct Howe's lawsuit alleged, the assistant U.S. attorney said the lawsuit had to be dismissed because the government had the legal power to do exactly what Howe accused it of doing: rigging the gold market.

Your secretary/treasurer attended the hearing and wrote about it a few hours later. His report is here:

Much of GATA's documentation consists of the records of surreptitious gold trading by governments and even admissions by central bankers that such trading is undertaken secretly to control the gold price. After all these years of market rigging they wouldn't leave themselves open to a charge that it was illegal.

Of course mainstream financial news organizations won't touch this issue; doing so would enrage their governments and reveal that their reporting has been and remains a big hallucination -- that as a high school graduate put it at GATA's Washington conference seven years ago, "there are no markets anymore, just interventions":

But even some advocates of the monetary metals fail to understand this, instead railing against regulatory agencies that are actually powerless to do anything about the biggest market rigging of all, though the U.S. Commodity Futures Trading Commission, during the tenure of Commissioner Bart Chilton, gave GATA a spectacular forum to thrust the issue at market participants and news reporters at a hearing in Washington in March 2010 at which GATA Chairman Bill Murphy and Board of Directors member Adrian Douglas spoke:

That's why GATA long has concentrated on research, freedom-of-information requests, and publicity rather than complaining to market regulators. For as the recently retired editor of The Washington Monthly, Charles Peters, often said: "The scandal isn't what's illegal. The scandal is what's perfectly legal."

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Support GATA by purchasing recordings of the proceedings of the 2014 New Orleans Investment Conference:

Or by purchasing DVDs of GATA's London conference in August 2011 or GATA's Dawson City conference in August 2006:

Or by purchasing a colorful GATA T-shirt:

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

To contribute to GATA, please visit:


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