Barclays Cooperates With U.S. Precious Metals Probe

barclays-bonusAs the U.S. Department of Justice (DoJ) digs deeper with its precious metals investigation, multi-national banks such as Barclays have been providing information without hesitation. The DoJ and Commodity Futures Trading Commission have 10 banks aligned in the scope of their investigation as the probe into the possible rigging of precious metals markets continues on.

Barclay’s acknowledgement of its involvement in the investigation comes after HSBC reported that the DoJ issued a request for HSBC Holdings documentation as they continue to conduct their criminal antitrust investigation. Such requests are complicating matters for a bank attempting to cut costs and improve profits while handling allegations of their traders manipulating foreign exchange markets. The bank suffered a 21-percent drop in annual net profits due to account charges, provisions and restructuring costs.

Ever since the unveiling of the Libor rigging scandal and the widespread manipulation of interest rates in foreign exchange markets, scrutiny of precious metals trading and benchmarking regulations has been tense. FINMA, a Swiss regulator, uncovered manipulation attempts of precious metals benchmarks during its investigation of foreign exchange trading at UBS last November. “The behavior patterns in precious metals were somewhat similar to the behavior patterns in foreign exchange,” said FINMA director Mark Branson.

Others involved in investigations include Germany’s Bafin, who are looking at how precious metals benchmarks are set; Britain’s Financial Conduct Authority, who are delving into gold while investigating commodity benchmarks; and of course the U.S. courts, who have multiple lawsuits filed alleging conspiracies regarding the fixing of precious metals prices. Banks involved in setting benchmarks, also known as fixes, made it clear last year that they will no longer govern the standards.

Silver benchmarks are now set by CME Group and Thomson Reuters, while the Intercontinental Exchange (ICE) will be administering new gold benchmarks. Platinum and palladium benchmarks will be handled by the London Metal Exchange.

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Precious Metals Trading Businesses Banned

gold-eagle-1-4-oz-reverseTwo companies based out of Fort Lauderdale have been banned from trading after their head executives settled by paying restitutions to customers who underwent a total of $7.8 million in losses from precious metals purchases. In early February, the U.S. Commodity Futures Trading Commission finalized charges against Paramount Metals Exchange and Paramount Credit, each located in Delray Beach, after both companies were found to have made false selling and transferring claims of physical metals to clientele.

The companies allegedly lied to their customers by telling them they would arrange the transfer and storage of their metal purchases in independent depositories where the precious metals would be stored on their clients’ behalf. The U.S. Commodity Futures Trading Commission later settled with Gold Coast Bullion and Midwest Metals after authorities purported the companies called investors, most of which were unfamiliar with precious metals, and put a down payment to buy precious metals that investors never received.

The commission had Midwest Metals and owner, Brian Steven Ekasala, pay restitutions of $322,852.71 as well as $200,000 in civil penalty fines. Midwest solicited customers to buy and sell precious metals and executed transactions through another company, Hunter Wise Commodities of Nevada. According to the commission, Midwest required customers to pay a 30 percent deposit, take a loan out and pay interest, and included additional charges for mark-up and commission.

“Gold Coast never actually delivered any precious metals in connection with these transactions, but received commissions and fees totaling more than $2.6 million,” the commission said in a written statement. “Neither Midwest nor Hunter Wise actually delivered any precious metals to any customer.”

The four companies and their top executives neither confirmed or denied guilt, which led to them paying restitutions, waiving hearings, and ending operations. Isaiah Goldman, Brock Catronio and their two associated companies paid $1,595,946 to customers along with a $1 million civil penalty fine. The money returned to customers covered their entirety of their investments lost due to trading losses, commissions, additional fees and interest charges.

Hunter Wise-related companies and their owners paid defrauded customers $52.6 in restitution, $55.4 million in civil penalty fines and are currently in receivership. Gold Coast Bullion and its president, Anthony Lauria, will pay restitutions amounting to $5.9 million and $3.75 million in civil penalty fines after having customers put down roughly 25 percent on precious metals purchases and taking out a loan to cover the remainder.

According to the commission, not all of the money lost by purchasers will be returned through restitutions since many of the companies are out of business and lack the profits to fully pay back their debts. The commission also released a general statement saying that present and future precious metals purchasers should buy directly from mint companies and take physical delivery of their products to insure the quality of their investment.

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Justice Department Seeks A Price Fix For Gold

gold_marketsThe U.S. Justice Department and Commodity Futures Trading Commission have set out to unveil the world of trading metals in London. And from the wide selection of metals to choose from, gold is looking like their primary point of focus. Investigators from both organizations are looking for the smoking gun linking some of the biggest banks in the world to allegations of market rigging, a task European investigators have already stopped pursuing.

The metals probe was launched before Christmas, and is a process in which benchmark metal prices have been set in the private world of London banking throughout history. But there are deeply-rooted flaws in benchmark setting regarding interest-rate setting and foreign exchange dealing. And some of these age-old practices aren’t tolerated in the high-speed financial transactions of the modern world. What is presently happening with the metals market is the lax old-world London methods, where your word is your bond, is trying to intertwine with the tightly regulated and by the book new-world business.

Take the gold market for example. It was created after the First World War when banks were in need of a reliable daily price in a time when gold was the only global currency. It was named the London Gold Fix, a benchmark prices set back in Sept. 1919 when five London-based banks compared market information over the phone. The system later evolved to two daily meetings where a morning and afternoon gold price would be set. Multiple changes have been made to adapt to a changing market, and allows gold prices to be set electronically on markets open around the clock.

Until recently, rules were set from this early-century foundation that had members of the gold fix committee around a table with there flags in front of them. Upright flagstaffs meant the member was still negotiating prices while lowered flags meant an agreement had been reached. The “official” system up until a few years ago had a staff member from an industrial metals magazine phoning a select list of market contacts to gather prices that were then combined to produce a published prices. Obvious flaws left this “official” system open to the distribution of false prices by metal traders.

An Australian mining company became suspicious of inconsistent price quotes on the cobalt it produced as a by-product of its nickel mining. The solution to this “official” catastrophe was direct dealing through internet auction announcing the availability of their cobalt stocks to bidders in the market. Nickel later developed this direct dealing due to it high success rate and profit margins. The point of this cobalt story in regards to the London gold fix is to raise this question: what will become of the U.S. Justice Departments findings? Will we slap them on the wrist with some fine and go back to business as usual? Or will we evolve like cobalt and make the market harder to manipulate?

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