Growing Class Action Against London Gold Fix Alleges Five Bank Participants Colluded over Gold Prices

May 14th, 2014

On March 2, 2014, former gold trader, Kevin Maher, filed a lawsuit in the New York Southern District Court, Maher v. Nova Scotia et. al., alleging that the five participants in the “London Bank Fix,” Barclays, Scotiabank, Deutsche Bank, HSBC, and Societe Generale, manipulated the price of gold to their advantage. Since filing, more than a dozen new complaints have been filed by small public investors, hedge funds, and other individuals such as Maher.

The lawsuits claim that the participants in the London gold fix, which takes place during two daily phone calls, used the call information to trade gold prior to the publication of the gold fix.  The lawsuits also point to the fact that the call is “unregulated” or unmonitored.  Research published by the New York University (NYU) Stern School of Business under Professors Rosa Abrantes-Metz and Albert Metz, in February, found patterns of unusual trading and price activity around the 3:00 p.m. gold fix call.  The recent investigations into London Interbank Offered Rate (LIBOR) and other benchmark rates have also contributed to suspicion around the gold fix.

In addition to the lawsuits, the United Kingdom’s (UK) Financial Conduct Authority (FCA) and Federal Financial Supervisory Authority of Germany, BaFin, have recently opened investigations into commodity benchmark rate setting. The United States (US) Commodity Futures Trading Commission (CFTC) also regularly reviews commodity pricing.

It is still unclear how valid the allegations presented are.  Other than the NYU research, little concrete evidence has been raised. And comments from Maher, the first to bring a lawsuit, suggest that the lawsuit stands on more subjective grounds; to illustrate, he said, “we now know that LIBOR was manipulated and that a bad odor is coming out of the Forex market. So why not gold?”  The reactions of the London gold fix participants are even less revealing. While Brian Porter, Chief Executive Officer of Scotiabank, said that the fix process should be reviewed, representatives from Deutsche Bank claim that the suit is without merit.  Then Deutsche Bank announced that it would cease to participate in the fix as of May 13, 2014.

 

Read more:

o   http://www.bloomberg.com/news/2014-03-04/barclays-deutsche-bank-accused-of-gold-fix-manipulation.html

o   http://dealbook.nytimes.com/2014/05/05/banks-sued-on-claims-of-fixing-price-of-gold/?_php=true&_type=blogs&_r=0

o   http://www.lbma.org.uk/assets/blog/alchemist_articles/Alch73Fertig.pdf