In Chats, Silver ‘Mafia’ Traders Flexed Muscle, Drew BladesBy
Messages between two dealers span five years, four banks
Traders talk of ‘smashing’ market to juice profits: filings
Until 2014, the global reference price for silver and other precious metals was set each day in a phone call or at a meeting with traders at a handful of banks, a century-old ritual known as the London Fix. Deutsche Bank AG was one of the banks.
As early as 2008, one of its traders began conspiring with a trader at Fortis Bank, via electronic chat, to manipulate prices, according to court documents filed by silver investors seeking to broaden their claims that the market was rigged.
“Cant wait for another day when we get the bulldozer out of the garage on gold and sil,” the Fortis trader wrote on Feb. 25, 2008. “Haha yeah,” responded the Deutsche Bank trader, in a chat-room transcript included in court papers.
The two traders’ correspondence -- as the Fortis trader moved to HSBC Holdings Plc and then Standard Chartered Plc over five years -- are part of a cache of chat-room transcripts that for the first time provide an inside look at how traders allegedly fixed silver prices. The documents were provided to silver investors as part of a $38 million settlement in April between them and Deutsche Bank over allegations of market manipulation. In the documents filed last week in Manhattan federal court, the investors told a judge that the transcripts offer convincing evidence to warrant new claims against other banks.
Deutsche Bank declined to comment on the documents; it neither admitted nor denied wrongdoing as part of its settlement. Representatives from HSBC, Standard Chartered and BNP Paribas SA, which acquired Fortis Bank in 2009, also declined to comment.
A judge in October dismissed the investors’ claims against UBS Group AG because there was no evidence its traders participated in the daily London Fix call. She said the plaintiffs could seek to file a new complaint, which they are now asking to do. Peter Stack, a UBS spokesman, said the bank finds “no merit to the plaintiff’s allegations” and “will vigorously defend against them.”
Representatives for Barclays Plc and the other banks named in the court documents as having participated in manipulating the silver market from 2007 to 2013 declined to comment, as did the lawyer for the plaintiffs, Vincent Briganti.
The new evidence is derived from 350,000 pages of bank documents and 75 audio tapes handed over by Deutsche Bank as part of the accord. The traders aren’t identified by name in the filings.
The recorded chats -- sprinkled with “dude,” “bro,’’ and assorted obscenities -- are a “smoking gun” bolstering claims that traders rigged silver prices, impacting jewelry prices, silver investments and the earnings of mining companies that sell raw materials to refiners, the plaintiffs say. The traders acted against their own clients’ interest, triggering stop-loss orders and front-running customers trades, according to the documents.
They also gave code names to certain techniques, according to the documents, which explain that “blade” meant placing a series of small orders close to each other in price, and “muscle” referred to placing large orders -- usually when they knew the market was illiquid.
On Aug. 11, 2011, for instance, a UBS trader wrote, “Dont do anything now its gonna go fast like rollercoaster going up.”
“Dude the 1 lot offer is so powerful I love it,” a Deutsche Bank trader responded.
“It depends what kinda mkt sometime u use muscle sometime u use blade this is a blade but then two guys doing it like this together is small muscle and blade,” the UBS trader said.
Many of the chats involve a UBS trader known as “The Hammer,” who on April 1, 2011, wrote a message urging coordination in trading, according to the records. “We gotta do it the same next time...if we are correct and do it together, we screw other people harder.”
A few months later, on June 8, “The Hammer” suggested to a Deutsche Bank trader that they recruit new members to join the alleged conspiracy, the records show. “We need to grow our mafia a lil get a third position involved,” the UBS trader wrote. The Deutsche Bank trader responded, “Ok calling barx,” a reference to Barclays, according to the documents.
The newly aired conversations may renew concerns about the $30 billion-a-year global market for silver trading, which because of its relatively small size and often-volatile price moves has long been suspected of being rigged.
The U.S. Commodity Futures Trading Commission launched an investigation of silver-market manipulation in 2008 amid an outcry from investors. Prices had collapsed at a time many expected them to rise. The investigation was closed in 2013, and no charges were filed. At the same time, private plaintiffs and other authorities in the U.S. and Europe have probed allegations of wrongdoing in the metals markets.
The London Fix was discontinued in 2014 after Deutsche Bank withdrew. The new process involves an electronic, auction-based mechanism for price-setting.
The documents also offer a glimpse of the years-long association between the Deutsche Bank trader and the trader who started at Fortis Bank. They kept up the same banter and tactics for at least five years, even as the Fortis banker moved to new banks, according to the transcripts.
In all, the records show at least six exchanges between the two, agreeing to quote the same spread prices to clients and disclosing their banks’ respective market positions to each other.
In a chat on April 4, 2011, they discussed putting on short trades against the silver market, while a month later they talked of keeping bullish positions over a weekend, according to the records.
In an October 2011 chat, they discussed the so-called spreads on buy and sell orders they would quote to clients, the records show. Banks keep the difference between the two prices as their commission for negotiating the trade. "Thanks for info mate … Ill be in line with u," the Deutsche Bank trader wrote to the other, then at HSBC.
By 2013, when the HSBC trader had moved to Standard Chartered, they shared their respective positions and agreed where they would pivot in the market, the records show. The Deutsche Bank trader said he would become a seller at $23.40. "Were on the same wavelength," the other replied.
Sometimes, the two traders appeared to recognize that they should keep their conversations off platforms where they were being recorded.
"Strange silver fix," the Deutsche trader wrote to the other, then at HSBC, on Nov. 25, 2011. "I heard a funny story about the fix the other day," the HSBC trader responded. "But it’s definitely a beer chat."