OVER the past few weeks, the financial press has been full of stories of financial wrongdoing, both alleged and proven. The FSA investigations which have featured so prominently have been running for some time. Often the more egregious cases come to light following a disruption in the underlying markets. Enron imploded at the end of 2001, soon after 9/11. The Madoff scandal unravelled as stock markets collapsed during the financial crisis at the end of 2008.
Typically, suspicions are raised long before the crime becomes apparent. Nearly 10 years ago, financial analyst Harry Markopolos tried to replicate Madoff’s consistent double-digit annual returns. He couldn’t do it, and this led him to write a report where he detailed his concerns. He passed his findings to the US Securities and Exchange Commission (SEC) in 2005. No action was taken, with all of the consequences we all know about.
Less than two weeks ago, the US Commodity Futures Trading Commission (CFTC) held a hearing on position limits in precious metals. This followed a similar debate on energy products, but was also as a result of pressure from concerned investors including silver analyst Ted Butler and members of the Gold Anti-Trust Action Committee.
During this hearing Bill Murphy, the Chairman of GATA, made public claims from a London-based metals trader which purports to show the manipulation of the silver market. He went to great lengths to explain to the CFTC how alleged short-side manipulation was being carried out. Regulators chose to ignore the evidence.
The bottom line is that we have to be able to believe in the integrity of our markets. Gaining an unfair advantage by dealing on inside information is a crime. Market manipulation is also. It distorts the mechanism that exists to establish a fair price between buyers and sellers. Regulators should step up and get on with a full and open investigation. Otherwise, we may start to question who they are there to serve.