$200m Payday for CFTC Whistleblower

The CFTC, US commodities watchdog, has announced a $200 million payday for a whistleblower who provided significant contributions to ‘enforcement actions that have resulted in monetary sanctions totalling more than $3 billion. Given that the largest (known) CFTC fine was JP Morgan for $920 million for manipulating precious metals markets, market commentators are speculating that the two may be connected. 

The $920 Million fine for JP Morgan was announced on 29/09/2020, with the press release: JPMorgan Chase & Co. Agrees To Pay $920 Million in Connection with Schemes to Defraud Precious Metals and U.S. Treasuries Markets. The fine was for two separate years-long manipulation schemes where ‘JP Morgan traders and sales personnel openly disregarded U.S. laws that serve to protect against illegal activity in the marketplace’. Given that JP Morgan is still operating the ETFs GLD and SLV, the fine hasn’t slowed them down significantly. 

JP Morgan are far from the only bank to be implicated in price suppression of precious metals. In a press release on 29/01/2018, the CFTC in conjunction with the FBI proceeded with criminal and civil charges against six traders in Deutsche Bank, UBS and HSBC for their involvement with commodities fraud and spoofing schemes. While the original press release is no longer available online, this snippet is from the regulators’ archives.

On 21/10/2021, the CFTC announced that it had awarded nearly $200 million to a whistleblower. The press release indicates that whistle blowers can hope to receive between 10 and 30 percent of the money collected. While clearly speculation, a number of commentators have argued that this whistleblower would have to have been connected to the JP Morgan action, the magnitude of other infractions pale in comparison. With incentives like these, we might expect to have more revelations of criminal practice coming out. A major question that remains, is whether there are more ‘monetary sanctions’ to come that haven’t yet been made public. 

The fallout is far from over for the mega bank with a silver miner from Florida announcing that they are taking legal action last month. In 2012, Hidalgo Mining Corp raised US$10.35 million to fund production in a Mexican silver mine by 2014. At time of raising silver hovered around the US$31/oz level, but the drop to US$19/oz made the project unviable. Based on public statements from the regulator, from July 2007 to August 2016, a former trader placed ‘thousands of orders that he did not intend to execute’ on gold, silver, platinum and palladium futures contracts. Hidalgo are now suing the bank using the judgements by the CFTC as evidence from which they can claim damages. Ironically, as recently as last Wednesday, silver was still pottering around the $31/oz level. 

Collectively this is potentially very constructive for the price of silver, often referred to as the most undervalued metal on earth, as the confluence of these actions and the macro environment we find ourselves heading into now being the ‘perfect storm’.