Barclays, Deutsche Bank Accused of Gold Fix Manipulation

Barclays Plc, Deutsche Bank AG and three other banks were accused in a lawsuit of manipulating the London gold fix, a benchmark used throughout the $20 trillion market for the metal.

Kevin Maher, a New York resident who said he bought and sold gold and gold futures and options, sued yesterday in Manhattan federal court claiming the five banks overseeing the century-old benchmark colluded to manipulate it.

Maher cited press reports in his complaint, including a Bloomberg News story last week on a draft paper by two researchers showing what they said were unusual pricing patterns connected to the gold fix. The paper was the first study to raise the possibility that the banks, which also include Bank of Nova Scotia, HSBC Holdings Plc and Societe Generale SA, may have been actively working together to manipulate the benchmark.

Authorities around the world, already investigating the manipulation of benchmarks from interest rates to foreign exchange, are also examining the gold market for signs of wrongdoing.

German financial markets regulator Bafin interviewed Deutsche Bank employees as part of a probe into the potential manipulation of gold and silver prices. Britain’s Financial Conduct Authority is also scrutinizing how prices are calculated.

Deutsche Bank, Germany’s largest lender, said in January it would withdraw from the panels setting the gold and silver fixings.

Fix ‘Dated’

Scotiabank Chief Executive Officer Brian Porter said the process is outdated and should be reviewed. Speaking today in an interview at Bloomberg News in New York, he said he would welcome more members.

“The fix is dated, it has been around for a long period of time,” Porter said on Bloomberg TV. “It should be reviewed and any degree of transparency we could bring to that would be healthy.”

Porter said he couldn’t discuss the lawsuit. “We are comfortable how we run the business,” he said in an interview. “We are customer-focused and we will defend ourselves.”

Maher is seeking to represent a class of all investors who, from 2004 to now, held or traded gold and gold derivatives that were priced based on the gold fix or who held or traded COMEX gold futures or options. He’s seeking unspecified damages on behalf of the class. Damages may be tripled under U.S. antitrust law.

‘Without Merit’

“We believe this suit is without merit and will vigorously defend against it,” Renee Calabro, a spokeswoman for Frankfurt-based Deutsche Bank, said in an e-mail.

Mark Lane, a spokesman for London-based Barclays, and Juanita Gutierrez, a spokeswoman for London-based HSBC, declined to comment on the lawsuit.

“The claims are unsubstantiated and Societe Generale will defend these against proceedings,” Saphia Gaouaoui, a spokeswoman for the Paris-based bank, said today in an e-mailed statement.

The London gold fix is the benchmark used by miners, jewelers and central banks to value the metal. According to the researchers, it may have been manipulated for a decade by the banks setting it.

Trading Patterns

Unusual trading patterns around 3 p.m. in London, when the so-called afternoon fix is set on a private conference call among the five banks, are a sign of possible collusive behavior and should be investigated, New York University’s Stern School of Business Professor Rosa Abrantes-Metz and Albert Metz, a managing director at Moody’s Investors Service, wrote in the draft research paper.

In February, officials at Barclays, Deutsche Bank, HSBC and Societe Generale declined to comment on the report. Joe Konecny, a spokesman for Toronto-based Bank of Nova Scotia, didn’t respond to a message seeking comment on the report at the time.

The rate-setting ritual dates to 1919. Dealers in the early years met in a wood-paneled room in Rothschild’s office in the City of London and raised little Union Jacks to indicate interest. Now the fix is calculated twice a day on telephone conferences at 10:30 a.m. and 3 p.m. London time. The calls usually last 10 minutes, though they can run more than an hour.

Firms declare how many bars of gold they want to buy or sell at the current spot price, based on orders from clients and themselves. The price is increased or reduced until the buy and sell amounts are within 50 bars, or about 620 kilograms, of each other, at which point the fix is set.

Traders relay shifts in supply and demand to clients during the call and take fresh orders to buy or sell as the price changes, according to the website of London Gold Market Fixing, where the results are published. The process is unregulated and the five banks can trade gold and its derivatives throughout the call.

The case is Maher v. Bank of Nova Scotia, 14-cv-01459, U.S. District Court, Southern District of New York (Manhattan).

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