* Hundreds of millions in illegal profit alleged
* Triple damages sought in one of two lawsuits
* CFTC proposed new tools to thwart price manipulation
(Adds adviser comment, details)
By Jonathan Stempel
NEW YORK, Oct 27 JPMorgan Chase & Co (JPM.N)
and HSBC Holdings Plc (HSBA.L) were hit with two lawsuits on
Wednesday by investors who accused them of conspiring to drive
down silver prices, and reaping an estimated hundreds of
millions of dollars of illegal profits.
The banks, among the world's largest, were accused of
manipulating the market for COMEX silver futures and options
contracts from the first half of 2008 by amassing huge short
positions in silver futures contracts that are designed to
profit when prices fall.
"Defendants reaped hundreds of millions of dollars, if not
billions of dollars in profits" from the conspiracy, one of the
The respective plaintiffs, Brian Beatty and Peter Laskaris,
each said they traded COMEX silver futures and options and
contracts, and lost money because of the alleged manipulation.
Beatty lives in Connecticut and Laskaris in New York, court
records showed. The lawsuits seek class-action status, damages
that may be tripled and other remedies. The defendant banks are
major participants in the silver market.
JPMorgan declined to comment. An HSBC spokeswoman had no
The lawsuits were filed one day after the Commodity Futures
Trading Commission proposed regulations to give it greater
power to thwart traders who try to manipulate prices.
The CFTC began probing allegations of silver price
manipulation in September 2008.
"Going back to the early 1980s, silver has been an
extremely volatile market," said Bill O'Neill, managing partner
at Logic Advisors, an Upper Saddle River, New Jersey investment
firm specializing in commodities. "I often describe it as a
speculative playground. You have to be a big boy to play."
FRAUD, DEVIOUSNESS ALLEGED
Only once in its 36-year history has the CFTC successfully
concluded a manipulation prosecution, in a 1998 proceeding
concerning prices for electricity futures.
Speaking on Tuesday, Chairman Gary Gensler said the
proposed regulations would give the regulator greater power to
police "fraud-based manipulation."
Commissioner Bart Chilton added that there had been
"fraudulent efforts to persuade and deviously control" silver
A CFTC spokesman said the regulator does not comment on
investigations, and would not discuss the investor lawsuits.
Earlier this year, the CFTC began looking into allegations
by a London trader that JPMorgan was involved in manipulative
silver trading, the Wall Street Journal said on Wednesday,
citing a person close to the situation.
Silver prices have faced regulatory scrutiny in the past,
perhaps most prominently after the Hunt brothers in Texas in
1980 attempted to corner the market, driving prices above $50
an ounce. The price later plunged.
Since the CFTC began its probe, spot silver prices XAG=
have ranged between $8.42 and $24.90 an ounce, Reuters data
show. They traded Wednesday at roughly $23.53. Silver futures
prices SIc1 are up 39.1 percent this year.
The cases are Beatty v. JPMorgan Chase & Co et al, U.S.
District Court, Southern District of New York, No. 10-08146,
and Laskaris v. JPMorgan Chase & Co et al in the same court,
(Reporting by Jonathan Stempel; Additional reporting by Elinor
Comlay, Jonathan Leff, Carole Vaporean in New York and Roberta
Rampton in Washington, D.C.; Editing by Steve Orlofsky)