
HSBC, Goldman Rigged Metals’ Prices for Years, Suit Says - MichaelCORS
http://www.bloomberg.com/news/2014-11-25/hsbc-goldman-rigged-metals-prices-for-years-suit-says.html
======
acjohnson55
This is fucking ridiculous. Scandal after scandal. How long are we going to
put up with this?

In America, the political climate disgusts me. When it comes to the poor and
the front-line workers, we're all about the strictest forms of accountability.
Drug tests for basic aid. Punitive oversight of educators. But our richest,
most powerful institutions are robbing us blind on the regular and getting
away with it.

~~~
jrcii
Since ancient history the rich have gotten away with doing as they please, and
they always will. The real culprit is democracy's false promise that it can do
anything to change this. Ultimately the masses will only take action if food
or shelter is at risk.

~~~
IgorPartola
"Democracy is a poor system of government at best; the only thing that can
honestly be said in its favor is that it is about eight times as good as any
other method the human race has ever tried." ~ Robert A. Heinlein

~~~
JamesArgo
If this means anything, it means we should experiment with newer forms of
government, not be happy with the best of a bad lot.

~~~
random8799
How about the intelligent management of the earth's resources? For example,
instead of humans wearing gold to impress each-other, we instead use gold for
its properties.

look into: (Cybernetic) Resource-based Economic Model.

It is the most efficient and effective use of resources with human concern
that I am aware of... anyone with other ideas, I am open to listen and digest.

The developer "class" will be around to automate almost all job functionality
as time continues. In this unique economic and functional opportunity that we
have, what will we do with the time we have left? Will we create a world
designed to support and nurture all human beings to grow their full potential,
or will we be short-sighted and manipulative for momentary gain?

Either way, I have no expectations from this current culture.

~~~
jqm
Bingo. I believe you have nailed it. This is the eventual and (I believe)
inevitable answer.

Open the code. Let anyone see how it functions if they care to take the time.
Base it on real math. Real statistics. Remove the political sound bites from
governance.

Factors the "market" doesn't take into account should be extrapolated and
accounted for. What is the cost of a barrel of oil really? What about when it
ruins a fishery or aquifer and heats up the planet? What about the fact it is
a resource that is not renewable? So we are passing a burden to future
generations in that they don't have the resource anymore. Not to mention a
possibly ruined fishery. The market doesn't care about these things, and thus
we get problem after problem (not to mention wars).

Governance of resources by nice hair and teeth and political soundbite and
cronyism is ultimately a stupid way to do things and I can't imagine it will
win the evolutionary battle of systems.

~~~
wcummings
Implying many governments aren't currently run by technocrats.

------
Dwolb
It sounds like the actions went something like this: Modern Settings places a
large order for 100k oz platinum from BASF. BASF buys mined platinum stock at
price Y and takes 1 month to produce the refined platinum order. BASF doesn't
want to be exposed to price movements with platinum that swing +/-20%. (if the
price of platinum drops, BASF doesn't want to make thinner margins on a
product they've already produced)

Therefore, BASF calls up their friendly bankers, Goldman and HSBC, to reduce
BASF's exposure to platinum price swings through derivatives. BASF hears both
banks' proposals over respective dinners. The conversations between the teams
range from difficulties with the business, the client that BASF is dealing
with, and what could be done to make everyone's job a little easier.

The relationships get cozy over time and BASF starts an open flow of
information about who's purchasing what metals so Goldman and HSBC can 'just
handle' the derivatives BASF should buy. Unscrupulously, the banks start
trading on the information on when large orders will be placed on which metals
markets and get discovered insider trading.

~~~
nickff
I think you are right in describing this as insider trading rather than price-
fixing; and it brings up the issue of what to do about the general problem of
insider trading.

When there are many routinely violating a law which is very broad, it is
generally seen as an argument in favor of getting rid of the law, especially
when the law is of dubious or debatable benefit to the public. This is one
argument in favor of the legalization of narcotic drugs, and it seems to be a
good argument in favor of the legalization of insider trading.

If insider trading were legalized, then BASF's customers could either make
discretion an explicit condition of their purchasing contracts, or else sell
their information (to futures market participants and analysts). This would
raise the table stakes for participating in markets like this, but it is not
clear that there would be any substantial negative impact to the efficiency of
the market; the additional transparency and increased flow of information
might even improve the liquidity of the assets, and smooth price fluctuations
through better predictions in then futures market.

I am not the first to make these points, but I would be very interested to
hear what HNers think of them.

~~~
dllthomas
It's my understanding that insider trading is basically not illegal in
commodities, even on paper.

The above sounds a little bit like front-running[1], though, which is far more
likely to be illegal if the banks were serving as broker.

[1]: That is, accepting an order and then trading for yourself based on the
fact that you received the order before you fill the order.

------
bkeroack
This is a great example of what Nassim Taleb would call "lack of skin in the
game"[1].

It's a wonder that we don't see more of these crimes, given that the rewards
(if they don't get caught) accrue to the parties responsible, while the
punishments (if caught) are suffered almost exclusively by everybody else. The
people who made the criminal decisions do not suffer when the corporation is
fined/santioned, it's shareholders, innocent employees and society at large
who do. In other words, there's very little disincentive against this
behavior.

What we really should consider is adding personal criminal liability to
corporate officers who are found to either commit or condone financial crimes,
as far up in the call stack as it can be proven.

1\. [http://www.amazon.com/Antifragile-Things-That-Disorder-
Incer...](http://www.amazon.com/Antifragile-Things-That-Disorder-
Incerto/dp/0812979680)

~~~
josho
Fraud is fraud. I understand that it is possible for officers of corporations
to face jail if found guilty of fraud.

My understanding is the lack of will (or resources) for entities like the
DOJ/SEC to investigate and punish those responsible.

------
jim_greco
> According to the complaint, the four companies participated in twice-daily
> conference calls to set global price benchmarks for platinum and palladium,
> which also affected derivative products based on the precious metals.

I was bond trader so I don't know the specifics of the platinum and palladium
markets, but my guess is they are pretty illiquid. A significant portion of it
is likely traded off-exchange so discovery of the true value of the commodity
is a huge issue. It sounds like these four companies see a lot of flow in one
form or another and thus have a better idea of what the true market price is.
They also probably have significant counter party exposure to each other
through derivative contracts. Meeting twice daily to compare notes and settle
on a price to adjust margin, etc. It doesn't sound very nefarious. It just
sounds like a bunch of market participants trying to figure out the right
price. And of course they use this information to make money for themselves -
that's how a market making operation works.

Now you could make the argument that regulation should push more of this type
of trading onto an anonymous Exchange where price discovery is available to
everyone and this drives down the information advantage that insiders have.
The Government pushed that with swaps to various degrees of success. Hopefully
they continue to do more of it.

~~~
josu
You are probably right about the market being not that liquid, but it's not
like illiquidity is a requirement, just take a look at the lawsuits for
rigging the interest rate and FX benchmarks.

~~~
lucozade
As it happens, the libor rate rigging was due to illiquidity. Specifically,
illiquidity in the uncollateralised loan market.

This happened because the broker-dealers stopped believing that their
counterparts would still be afloat in 3 months. They required collateral and
that gets funded on a daily basis.

As such, the usual flow of longer term loans dried up and so the rate setters
effectively had to make up the numbers. The scandal was that swap traders and
management influenced their rates, not that they were made up.

I agree with you on the fx rigging though. The allegations are, as i
understand it, that there was collusion such that front running became viable.

------
datashovel
It's unfortunate, but these days when I hear about rapid price fluctuations my
"knee jerk" reaction is:

1) Who HAS the market in 'X' cornered, and is working to drive prices up so
they can unload their shares.

2) Who is WORKING to corner the market in 'X' by driving prices down.

The fortunate thing (I think) is that removing barriers from access to data
will eventually make schemes like this all but extinct. It will no longer be
how rich people get richer. It will be how crooks end up in jail.

------
adwf
I wonder whether this is just a speculative suit based on past performance
with the LIBOR scandal, or whether they actually have some sort of smoking
gun. The article doesn't really mention either way.

~~~
themartorana
I'd have to imagine they have something. It explicitly mentions twice-daily
meetings, so there must be some insider knowledge of what went on.

Besides, the collective lawyer-power of these banks is no joke. You don't go
against them unless you have them dead-to-rights.

As an aside, if they DO have this kind of info, it will have to set off
international investigations of the LIBOR scandal type, no?

~~~
Lazare
> It explicitly mentions twice-daily meetings, so there must be some insider
> knowledge of what went on.

Not at all.

"The fixing process is governed by a set of Rules for the Administration and
Conduct of The London Platinum and Palladium Market Fixings (the Fixing
Rules).The current version of the Fixing Rules, made under Article 74 of The
London Platinum and Palladium Fixing Company Limited’s Articles of
Association, became effective on 29 July 2014.

Pursuant to the Fixing Rules, representatives of the four members of The
London Platinum and Palladium Fixing Company Limited (the Company) dial in to
a secure conference facility to determine the single trading prices for
platinum and palladium at 9.45 am and 2.00 pm London time on each London
business day. The price for platinum is determined first, followed by the
price for palladium."

That's a quote from here:
[http://www.lppm.com/contentitem.aspx?cid=19](http://www.lppm.com/contentitem.aspx?cid=19)

And it refers to how (at the moment) the price of platinum and palladium is
officially reported. The allegation is not that the twice-daily meetings
_occurred_ , it's that the results of those meetings was rigged.

~~~
tomp
Given that there are only 4 members that decide on the price, it seems like
it's rigged by design.

------
pfortuny
These years are a boon for financial education: we are getting to learn
everything: derivatives (including swaps, by the way), forex, the libor, the
meaning of a Ponzi scheme (thanks to Madoff), insider trading, and now front
running.

I say: these years will be taught in law schools and in finance masters for
ever. __History in the making __.

~~~
anonbanker
If one is paying attention, one can get quite an education on finance. It's
just that there are few of us actually paying attention.

I'd go back to Enron/healthsouth as the begining of the modern education, but
yeah, I definitely agree.

------
noipv4
There's something 'regular citizens' wrestle with that the elites never seem
to: a sense of moral duty.

~~~
jdimov
Seems like 'regular citizens' have a problem then...

------
amalag
This doesn't even mention the issue with them delaying aluminum deliveries to
raise those prices.

~~~
lmm
Because it's not clear that was done to affect aluminium prices, as a judge
recently agreed. Rather it's more likely they delayed aluminium deliveries
because they were in stupid contracts that meant they got more money the
longer they took to deliver.

~~~
fnordfnordfnord
Without commenting on the merit of the recent suit I'll just point out that an
illegal scheme to rig aluminum prices might look the same. These are smart
people. It would be ridiculous to expect to find incriminating emails with
subjects like: _Fwd: Fwd: Re: Our illegal scheme to rig prices and make mad
bucks LOL_ or contracts with clauses that spell out the entire details of a
scheme in a simple manner.

~~~
lmm
Intent does matter in terms of whether something is illegal price fixing. If
you have some other scheme to make money that involves buying or selling a lot
of aluminium at particular prices, and you also have some aluminium holdings
that mean you profit from the price movements that you yourself caused,
that's... shady, but generally not actually illegal.

And we generally do tend to find such emails, even in Goldman. It's a big
company that does all its business in writing.

------
klunger
It's not just precious metals. Remember the aluminum price manipulation from
these guys last year? [http://thedailyshow.cc.com/videos/aa0rnb/john-oliver-s-
arcan...](http://thedailyshow.cc.com/videos/aa0rnb/john-oliver-s-arcane-
details-of-boron-group-metals-pricing-update---aluminum-hoarding)

------
spacemanmatt
Shocked, I say. Shocked.

~~~
alandarev
Why? Its like banks never crossed the line to get more profits in the recent
history?

~~~
valarauca1
This is sarcasm. Its a direct quote from the movie Casablanca (one of the all
time classics).

When ordered to shut down a bar, the police captain uses the excuse that
illegal gambling is taking place in the bar. But the Captain is a frequent
patron of the illicit gambling.

The exact quote is roughly

"Shocked, I say. Shocked to find that gambling has been going on in this
location."

"Your winnings sir."

"Thank you."

~~~
alandarev
Ow, you got me. I am ashamed to admit I missed most american classic movies.
Thank you for the reference, its on my list now.

------
malloreon
Take every single penny back and 10 times more. Put everyone involved in
prison.

------
senthil_rajasek
This is a law suit. It's unclear to me what's "unlawful" in this case. Did
they violate any regulation of the market for these metals?

------
cryoshon
What kind of crazy hijinks are the banks going to get into next?

I expect no change from any elected official, even though my elected official
is Liz Warren...

Every time some huge scandal like this is broken (LIBOR, aluminum fixing,
mortgage default swaps) I openly wonder how long it's going to be before
people start wrecking things out of anger.

------
arca_vorago
If the SEC weren't yellow-bellied cowards they might actually do something
about this. Too bad regulatory capture and good old bribery and corruption are
rampant.

------
known
Legalize insider trading. You can't prevent it.

~~~
mootothemax
_Legalize insider trading. You can 't prevent it._

Why can't we first try actively prosecuting the individuals who take part in
these frauds?

That seems to be the one action missing from the recent banking scandals.

~~~
none_for_me_thx
Insider trading is not fraud. If someone is _merely_ trading based on insider
knowledge (that is, they aren't _also_ being fraudulent about it), there is no
deception. A person ought to be able to dispose of their property when and how
they see fit. Moreover, we should actually _want_ insider trading to happen
more often, since prices transmit knowledge, and more knowledge earlier is a
good thing for markets.

This is why some people, myself included, believe insider trading is a
victimless "crime" which should be decriminalized.

~~~
lmm
The point is that all investors should have equal access to information. Of
course some investors are more able to fly a surveillance helicopter over a
warehouse than others, but there's an equality in principle there: anyone with
the money can hire their own helicopter.

If one investor has a friend inside the company and another doesn't, that's
different. That's not a difference in resources, that's a difference in how
the company itself is treating its investors. It's inequitable on the face;
more pragmatically, it makes it much easier for the rich to exploit their
advantages if they can just walk up to company officers and bribe them, which
exacerbates inequality. Anything the company tells one investor, it is and
should be obliged to tell all of them (and all at the same time).

~~~
kasey_junk
I don't have much of an opinion one way or another about insider trading laws.
That said, I think the single biggest benefit to removing them would be
destroying this fictional notion that all investors have equal access to ALL
potential investor relevant information. This is simply untrue and anyone
investing with the idea that it is true is deluding themselves.

Insider trading laws don't try to make everyone have equal access to
information, they try to make everyone have equal access to a very constrained
subset of information, because any legal scheme that tried to do more than
that would be destined to fail.

