Plaintiffs in a silver manipulation case have beefed up their complaint against JPMorgan Chase & Company (NYSE:JPM) in an effort to keep the case alive. Lead counsel Christopher Lovell, who is a partner at Lovell Stewart Halebian Jacobson, recently discussed the case’s shortcomings and the plaintiffs’ efforts to improve their argument in an interview with Tekoa Da Silva of Bull Market Thinking.
“The status of the action is that the court ruled the [silver] complaint and all [its] claims will be dismissed, unless plaintiffs are able to improve their allegations,” said Lovell.
The plaintiffs have filed a proposed amended complaint and are waiting for the judge to determine whether the case will move forward.
An indication of weakness
A lawsuit normally begins with the filing of a complaint. The defendant then provides an answer or enters a motion to dismiss.
JPMorgan chose the latter, and Lovell said, “that might indicate the case isn’t as strong as those cases in which an answer is filed.”
If an answer is filed, discovery goes forward. That is the stage where the plaintiff would be able obtain records through a court order, Lovell explained. But in the case against JPMorgan, the judge found that the initial complaint lacked legs to carry the matter forward.
“The court in its motion to originally dismiss the complaint has said that given everything the plaintiffs have alleged the overall picture is consistent with manipulation. But it doesn’t go a little bit further and leave one thinking it’s plausible that there was manipulation here,” explained Lovell.
Lovell said he has been working on commodities manipulation since 1976 and admitted that cases often have “quite a bit more detail” than this silver manipulation case does.
A four-pronged test is used to indicate manipulation. The court found that the plaintiffs’ original complaint only satisfies a single factor of that test: it indicates that JPMorgan has the ability to manipulate the market.
Thereafter, the court essentially found that the argument outlines what JPMorgan could possibly do, but fails to provide details indicating that the firm in fact did do anything.
Lovell explained that commodity futures markets provide order confidentiality; however, he said an attempt has been made to add more orders details in the amended complaint.
“We have alleged though, large positions, the percentage of the market the large positions constituted, and plaintiff’s experts estimates of the suppressing effect on silver prices the positions had,” he said. “We have also alleged large trades on two or three specific days during the class period,” Lovell continued.
The amended complaint reveals significant focus on dates such as June 26, 2007 and August 14 to 15, 2008 and argues that “the price movements on these dates were very consistent with and only with manipulation.”
Although the plaintiffs have attempted to add merit to their case by focusing on particular days, the document makes clear that JPMorgan’s manipulative trading occurred on other dates as well.
“On the contrary, during the regime of JPMorgan’s dominant COMEX short position, the COMEX silver futures market was plagued by the following pattern of uneconomic conduct,” the complaint states.
Lovell said the complaint indicates the gold/silver ratio before, after and during the class period. “We correlated the changes in ratio with changes in the defendants’ conduct and changes in the defendants’ concentration in the market,” he said.
The plaintiffs also argue that JPMorgan’s choice to trade silver on the COMEX indicates its aim to intentionally manipulate the market. Prices in the silver futures and options market respond much more to large orders, trades and positions than other markets, the complaint argues.
“The London bullion market is a forum in which market professionals, such as JPMorgan, are able to trade large volumes of silver amongst themselves with minimal price impact,” the complaint states.
In fact, the document alleges that the London market appears to have had no influence on the silver price in 2007 and from 2009 to 2011. In these years, the COMEX was 100 percent responsible for price discovery and thus was “a price leader.” Yet that is where JPMorgan chose to make large, influential trades.
Lovell did not deny that the case appears to be lacking in some areas. “Unfortunately we did not set forth the exact size of the positions, nor the exact size of the trades,” he said. “Large is about as specific as we have been.” He said the complaint does not allege any numbers.
“We tried to supply the extra material to make enough points going from the defendants’ conduct to prices to overcome our lack of emails or things like that that you would have from a government investigation. Or even having someone who is sometimes called a canary who gives specifics from inside the company.”
“Yet this complaint is a long complaint and we do have some compare and contrast allegations that while not supplying the exact detail, I think add to the overall impact of the allegations.”
Lovell said the judge knows this case well and credits the judge as being kind enough to outline the case’s weaknesses.
“We have to see what the judge thinks of the additions. We did the best that we could with the information that we had and we’ll have to see how the judge reads it,” Lovell said.
He said it has always been the tradition in the United States that discovery comes after the complaint is sustained because that means a discovery does not arise unless there is a good complaint. “I’m not sure we will succeed in asking the judge to change that for our case,” he added.
Lovell said the amended complaint was filed in February and that he is looking for a decision on the fate of the case to take about six months.
Meanwhile, Lovell said, individuals who have information regarding specific trades relevant to this silver manipulation case could help by providing it.
“The plaintiffs in the case have tried to do an investigation and check around. If anyone has credible information about the conduct of JPMorgan or others in the silver market during the class period we would appreciate receiving it,” he said.
Securities Disclosure: I, Michelle Smith, own shares of JPMorgan.