Scotiabank one of 5 banks facing lawsuit over accusations of gold price manipulation

Published in Financial Post Bob Van Voris, Bloomberg News | March 5, 2014 | Last Updated: Mar 5 8:13 AM ET

Barclays Plc, Deutsche Bank AG, the Bank of Nova Scotia and two 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 says he bought and sold gold and gold futures and options, sued Tuesday in Manhattan federal court claiming the five banks overseeing the century-old benchmark colluded to manipulate it.

Maher’s complaint cites press reports, 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 HSBC Holdings Plc and Societe Generale SA, may have been actively working together to manipulate the benchmark.

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

Deutsche Bank, Germany’s largest lender, said in January it would withdraw from the panels setting the gold and silver fixings. German financial markets regulator Bafin interviewed the bank’s 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.

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.

Jim Galvin, a spokesman for Paris-based Societe Generale, didn’t immediately respond to phone and e-mail messages Tuesday seeking comment. Joe Konecny, a spokesman for the Toronto-based Bank of Nova Scotia, also didn’t respond to a message seeking comment.

Miners, Jewellers

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

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 a draft research paper.

A spokesperson for Moody’s said Friday that the paper was not a Moody’s research report and Metz was “writing independent of his position at Moody’s and representing his own research findings and viewpoint.”

In February, officials at Barclays, Deutsche Bank, HSBC and Societe Generale declined to comment on the report. Konecny didn’t respond to a request for comment on the report at the time.

The rate-setting ritual dates back 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.

Gold Bars

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).

Original Article