Goldman Sachs, HSBC Sued For Manipulating Precious Metal Prices

A class action securities case is accusing Goldman Sachs Group (GS), HSBC Holdings Plc (HSBC), BASF SE (BAS), and Standard Bank Group Ltd. of manipulating prices for palladium and platinum. According to lead plaintiff Modern Settings LLC, the companies used insider information about sales orders and client purchases to make money from price movements for the precious metals, which are used in jewelry, cars, and other products.

The lawsuit, filed in Manhattan federal court, is the first of its kind in the United States. Similar complaints have been filed in New York accusing banks of rigging gold’s benchmark price.

According to this securities case, the defendants took part in daily conferences to establish the global price benchmarks for palladium and platinum. They said that this impacted derivative products based on the metals, while giving the four companies the ability to make trades in the metals prior to the movements. This purportedly resulted in in “substantial profits” for the banks, while harming those not in the know. Class action members are said to have lost value in tens of thousands of transaction.

The complaint uses analysis of price moves over seven-years beginning in October 2007. A judge will have to approve whether the plaintiff can represent other metal buyers.

Regulators have been clamping down on benchmarks after discovering that the prices in currencies and interbank-loans were being manipulated. In August, Silver was the first precious metal to modify its procedure, while gold fixing’s procedure will also be modified. The new mechanism for palladium and platinum will be implemented starting next month.

Earlier this year, AIS Capital, a hedge fund, filed a class action lawsuit accusing Barclays PLC (BARC), HSBC Holdings PLC, Deutsche Bank AG (DB), Société Générale SA, and Bank of Nova Scotia for purportedly manipulating gold’s price. According to the plaintiff, the banks worked together, along with unnamed co-conspirators, to manipulate the prices of gold derivatives contracts and gold so they could make money.

AIS Capital Management, which invest in gold futures, physical gold, and equities of gold-mining companies, noted that its Gold Fund dropped 67% in value last year as the cost of precious metals fell by nearly a third. The plaintiff pointed to several occasions when the gold price either dropped or fell not long after one of the gold-fixing conference calls attended by the defendants. The price of gold would then shift in the opposite direction right after the benchmark was established.

The institutions meet twice a day to figure out a snapshot of the price, also known as the London fix. This is the global benchmark for gold’s spot price that is used by central bankers and jewelers to place a cost on deals and figure out the value of securities linked to gold, including exchange-traded funds. The lawsuit also alleges that banks placed spoof trades to shift prices on the derivatives and physical markets toward their favor.

AIS Capital Management Sues Gold-Fix Banks, The Wall Street Journal, March 11, 2014

HSBC, Goldman Rigged Metals’ Prices for Years, Suit Says, Bloomberg, November 26, 2014

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