The silver market saw a little bit of history being made on Oct. 17, with German megabank Deutsche Bank filing papers in Manhattan Federal Court agreeing to pay $38 million to settle U.S. litigation that alleged it illegally conspired with other banks to fix silver prices at the expense of investors.
The silver price manipulation is the latest and one of the smallest of a long string of scandals in the global banking system that has seen many of the world’s largest financial institutions illegally manipulating financial and commodity markets such as mortgage markets, foreign exchange markets, gold prices and interest rate benchmarks like the London Interbank Offered Rate.
For example, in May 2014, Barclays was fined £26 million (US$44 million) by U.K. regulator Financial Conduct Authority (FCA) for failing to implement internal controls from 2004 to 2013 that would have prevented a Barclays gold trader from manipulating what had been the global benchmark of spot gold prices for almost a hundred years: the daily London Gold Fix.
This settlement with Deutsche Bank over silver had been arranged in April, according to Reuters, but this October court filing was the first indication of the terms of the settlement. Some observers think Deutsche Bank’s first-mover status in reaching a settlement will entice the remaining banks involved in the litigation to do the same.
Vincent Briganti, a lawyer for the investors, told CNBC that the deal provides “substantial monetary compensation, plus cooperation from Deutsche Bank in the continued prosecution of this important case against the non-settling defendants.”
Only a few years ago, Deutsche Bank was a central player along with a handful of other large Western banks in setting gold and silver prices at the daily London gold and silver fixes. Deutsche Bank left the group in May 2014 as part of a larger exit from the commodities business, leaving the remaining banks Barclays, HSBC, Societe Generale and Scotiabank to continue with the gold fix, and HSBC and Scotiabank to fix silver prices.
With so few members remaining after Deutsche Bank’s departure and no replacement to be found, the entire London price fixing mechanism was swiftly replaced in mid-2014 with the current electronic, auction-based system system run by CME Group and Thomson Reuters, and the “fix” terminology with its unsavoury associations was retired.
In the newly settled silver-price manipulation litigation, investors had claimed Deutsche Bank, HSBC and Scotiabank rigged silver prices through the daily London silver fix, and accused Switzerland’s UBS of exploiting its knowledge of the manipulation.
The alleged conspiracy was described by CNBC as having started in 1999, and it suppressed prices on US$30 billion of silver and silver financial instruments traded each year, and helped the banks pocket returns that could top 100 percent annualized.
U.S. District Judge Valerie Caproni ruled in early October that the aggrieved investors had sufficiently, “albeit barely,” alleged that the banks had violated U.S. antitrust law by conspiring to depress the Silver Fix from 2007 to 2013.
Judge Caproni dismissed UBS from the case, noting there was no proof it had manipulated prices, even if it may have benefitted from price distortions.
The silver manipulation settlement may prove only a footnote in the larger story of Deutsche Bank’s slow motion collapse over the past few years.
Deutsche Bank said in September that the U.S. Justice Department had requested US$14 billion to settle a probe tied to Deutsche Bank’s shady dealings in the residential mortgage-backed securities market, which triggered a sell off in shares that have lost half their value in the past year, and reduced Germany biggest bank to a market cap of only US$19 billion. Deutsche Bank put aside US$6 billion for litigation at the end of June, and has been slashing its U.S. workforce as it retreats from North America.