By Jean Eaglesham And Christopher M. Matthews
U.S. officials are investigating at least 10 major banks for
possible rigging of precious-metals markets, even though European
regulators dropped a similar probe after finding no evidence of
wrongdoing, according to people close to the inquiries.
Prosecutors in the Justice Department's antitrust division are
scrutinizing the price-setting process for gold, silver, platinum
and palladium in London, while the Commodity Futures Trading
Commission has opened a civil investigation, these people said. The
agencies have made initial requests for information, including a
subpoena from the CFTC to HSBC Holdings PLC related to
precious-metals trading, the bank said in its annual report
Monday.
HSBC also said the Justice Department sought documents related
to the antitrust investigation in November. The two probes "are at
an early stage," the bank added, saying it is cooperating with U.S.
regulators.
Also under scrutiny are Bank of Nova Scotia, Barclays PLC,
Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc.,
J.P. Morgan Chase & Co., Société Générale SA, Standard Bank
Group Ltd. and UBS AG, according to one of the people close to the
investigation.
Bank representatives declined to comment or couldn't be
immediately reached. A CFTC spokesman declined to comment, as did a
spokeswoman for the Justice Department.
The precious-metals probes are the latest example of regulatory
scrutiny into how the world's biggest financial institutions
influence widely used benchmarks. Until last year, prices for gold,
silver, platinum and palladium were set using a decades-old
practice of once- or twice-a-day conference calls between a small
group of banks. The process for setting each of the price "fixes"
has since been overhauled.
Benchmarks for the four precious metals affect jewelry prices
and financial products such as exchange-traded funds. U.S.
commercial banks regulated by the Office of the Comptroller of the
Currency had $115.1 billion of precious metals-related contracts
outstanding as of Sept. 30.
Previously launched investigations of the interest-rate and
foreign-currency markets have led to billions of dollars in
settlements from major financial firms. Related probes are
continuing in the U.S. and Europe, with additional cases against
firms and individuals by the Justice Department expected in the
coming months, according to people familiar with the matter.
In the interest-rate investigations, banks often reached
settlements with U.S. and U.K. regulators, which made similar
allegations of collusion in the rate-setting process. In contrast,
the U.K. Financial Conduct Authority and German financial watchdog
BaFin reviewed the precious-metals benchmarks but closed their
inquiries without finding evidence of wrongdoing, according to
people familiar with those probes.
Robert Hockett, a law professor at Cornell University, said it
is "not particularly surprising" that the Justice Department is
plowing ahead despite the decision by European regulators. Recent
scrutiny of big banks' operations in the physical commodities
markets and criticism of the Justice Department's financial-crisis
track record make it "quite understandable" that the agency would
investigate allegations of precious metals price-rigging.
Last year, the FCA fined Barclays GBP26 million ($40.2 million)
for lax controls after one of its traders allegedly manipulated the
gold fix at the expense of a client.
The bank said at the time that it regretted the situation that
led to the settlement and has enhanced its controls. A Barclays
spokesman declined further comment.
Swiss regulator Finma settled last year allegations of
foreign-currency manipulation with UBS. The regulator said it found
"serious misconduct" among precious-metals traders at UBS,
including "front running," or trading ahead of, the silver-fix
orders of one client. A spokeswoman for UBS, which said at the time
that it "instituted significant cultural and compliance changes,"
declined further comment.
Some of the banks under scrutiny by the regulators are also
fighting potential class-action lawsuits filed by investors,
traders and other plaintiffs in a federal court in Manhattan.
More than 25 lawsuits have been filed against Barclays,
Deutsche, HSBC, Bank of Nova Scotia and Société Générale over their
alleged role in setting the gold fix. The plaintiffs are seeking
damages for losses suffered due to the alleged manipulation of the
price of the metal and gold derivatives. Law firm Berger &
Montague, the court-appointed co-lead counsel for the proposed
class-action suits, said the gold fix affected trillions of dollars
worth of gold and related financial contracts.
Jewelry company Modern Settings LLC last year sued the firms
that used to set the platinum and palladium fixes. The proposed
class-action suit seeks unspecified damages from Goldman, HSBC,
Standard Bank and BASF Metals Ltd, a unit of chemical giant BASF
SE, for losses suffered from their alleged "nearly eight-year
unlawful conspiracy to manipulate and rig" the metals
benchmarks.
The banks and BASF are fighting the lawsuits.
Meanwhile, the CFTC and Justice Department are pushing ahead
with an investigation into another interest-rate benchmark,
according to people familiar with the probe. Investigators are
scrutinizing whether bank traders or brokers were involved in the
potential manipulation of the ISDAfix, a measure used widely in
areas such as setting payout rates on pension funds and determining
the cost of real-estate loans.
Representatives of the agencies declined to comment.
Write to Jean Eaglesham at jean.eaglesham@wsj.com and
Christopher M. Matthews at christopher.matthews@wsj.com
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