Gold Manipulation DB Et Al Full

Case 1:14-cv-05153-VEC Document 2 Filed 07/09/14 Page 1 of 35


gold derivative contracts, including COMEX gold futures contracts and options on futures contrac cont racts. ts.

Defenda Def endants nts eng engage aged d in in this this cons conspir piracy acy for the pur purpose posess of pro profit fiting ing fro from m thi thiss

manipulation, both individually and collectively. 3.

As al alle lege ged d be belo low, w, th thes esee prac practi tice cess inc inclu lude ded d prepre-fi fix x and and post post-f -fix ix cal calls ls am amon ong g

Defendants, other collusive conduct, and individual manipulative conduct by Defendants. E.g., ¶¶74-83, infra. 4.

This Th is joi joint nt and and ind indiv ivid idua uall cond conduc uctt caus caused ed su subs bsta tant ntia iall harm harm to to Plai Plaint ntif ifff on Jun Junee 28, 28,

2012 (see ¶6 infra) and to Plaintiff and other persons holding or transacting in physical gold and gold derivative derivative contracts, contracts, includ including ing COMEX gold futures futures and options on many other days. 5.

Becau Be cause se De Defe fenda ndant nts’ s’ in inte tent ntio ional nal co cond nduct uct wa wass car carri ried ed out out wi with th th thee int inten entt to to

artificially fix prices of gold and gold derivatives, this c onduct is per se unlawful. I.

PARTIES A.

Plaintiff

6.

Plai Pl aint ntiiff Der erks ksen en is a re ressid iden entt of Or Oreg egon on..

Durrin Du ing g th thee Cl Clas asss Pe Perrio iod, d, Pl Plai aint ntif ifff

purchased and sold COMEX gold derivatives including options on futures contracts. On June 28, 2012 in particular, Plaintiff Plaintiff held a long position in ten August 2012 gold gold call options that was negatively affected by the downward manipulation by Defendant Barclays Plc of the London Fix and physical gold prices. See ¶¶68-73, infra. As a general matter, Plaintiff tended to hold long COMEX gold call positions during the Class Period. Because of Defendants’ manipulation, Plaintiff transacted at artificial prices and/or in an artificial market. B.

Defendants

7.

Defe De fend ndan antt Ba Bank nk of No Nova va Sc Scot otia ia (“ (“BN BNS” S”), ), do doin ing g bu busi sine ness ss as Sc Scot otia iaba bank nk

(“Scotiabank (“Scot iabank”) ”) is a Canadian Canadian public public company with with headquarter headquarterss in Toronto, Toronto, Ontario, Ontario, Canada. Canada.

2


Defendant Scotiabank is licensed by the New York Department of Financial Services with a registered address at One Liberty Plaza, 22nd-26th Floors, New York, NY 10006. Defendant, through throug h its broker-dealer broker-dealer affilia affiliate te The Bank of Nova Scotia, Scotia, actively traded traded COMEX gold futures and options contracts during the Class Period. 8.

Defe De fend ndan antt Ba Barc rcla lays ys Ba Bank nk pl plcc (“B (“Bar arcl clay ays” s”)) is is a Br Brit itis ish h pub publi licc lim limit ited ed co comp mpan any y

with headquarters at 1 Churchill Place, London E14 5HP, England. Barclays is licensed by the New York Department of Financial Services with a registered address at 745 Seventh Avenue, New York, NY 10019, 10 019, and a foreign representative office at One MetLife Plaza, Plaz a, 27-01 Queens Plaza North, Long Island City, New York 11101. Defendant, through its broker-dealer affiliate, Barclays Capital Inc., actively traded COMEX gold futures and options contracts during the Class Period. 9.

Defe De fenda ndant nt De Deut utsc sche he Ban Bank k AG AG (“DB (“DB”) ”) is a Ger Germa man n fin finan anci cial al se serv rvic ices es com compan pany y

headquartered in Frankfurt, Germany. DB is licensed by the New York Department of Financial Services with a registered address at 60 Wall Street, New York, NY 10005. Defendant, through its broker-dealer affiliate, Deutsche Bank Securities Inc., actively traded COMEX gold futures and options contracts during the Class Period. 10.

Defe De fenda ndant nt HSB HSBC C Hold Holdin ings gs pl plcc (“H (“HSB SBC”) C”) is a Brit Britis ish h publ public ic lim limit ited ed com compan pany y

headquartered in London at 8 Canada Square, London E14 5HQ, England. HSBC has numerous subsidiaries in the United States, including HSBC Bank U.S.A., N.A., the principal subsidiary of HSBC U.S.A. Inc., an indirect, wholly-owned subsidiary of HSBC North America Holdings Inc. HSBC, through its broker-dealer affiliate, HSBC Securities (USA) Inc., actively traded COMEX COMEX gold futures contracts during the Class Period. Defendant HSBC, through its broker-dealer

3


affiliate, HSBC Securities (USA) Inc., actively traded COMEX gold futures and options contracts contra cts during during the Class Period. Period. 11.

Defenda Def endant nt Socié Société té Génér Générale ale (“S (“SocG ocGen” en”)) is a publi publicc bankin banking g and and financ financial ial ser servic vices es

company headquartered in Paris, France. Defendant SocGen is licensed by the New York Department of Financial Services with a registered address at 1221 Avenue of the Americas, New York, NY N Y 10020. Defendant SocGen, through its broker-dealer affiliate, held by virtue of a joint venture with Credit Agricole CIB, NewEdge USA, LLC, actively traded COMEX gold futures and options contracts during the Class Period. 12.

During Dur ing the Cla Class ss Per Period, iod, Def Defenda endants nts BNS BNS,, Barcl Barclays ays,, DB, DB, HSB HSBC, C, and and SocG SocGen en

owned and were fixing members of the London Fix, were gold dealers, and bear responsibility for the alleged acts of their employees and the conduct and planning of the London Fix. II.

CO-CONSPIRATORS

13.

In addi additio tion, n, var variou iouss othe otherr entit entities ies and ind indivi ividual dualss unkno unknown wn to to Plaint Plaintiff iff at this tim timee

participated as co-conspirators in the acts complained of, and performed acts and made statements that aided and abetted and were in furtherance of, the unlawful conduct alleged herein. 14.

Each Eac h of the these se unkn unknown own part parties ies act acted ed as the agen agentt or joi joint nt vent venture ure of or or for for the the

named Defendants with respect to the acts, violations, and common course of conduct alleged herein. 15.

Whenev Whe never er in in this this Comp Complai laint nt refe referen rence ce is is made made to to any act act,, deed, deed, or tran transac sactio tion n of

any corporation, the allegation means that the corporation engaged in the act, deed, or transaction by and/or through its officers, directors, agents, employees, or representatives while they were

4


actively engaged in the management, direction, control, or transaction of the corporation’s business or affairs. III.

JURISDICTION AN AND VE VENUE

16.

Plai Pl aint ntif ifff br brin ings gs th this is ac acti tion on und under er Sec Secti tion on 22 of of the the Com Commo modi dity ty Exc Exchan hange ge Act Act,, 7

U.S.C. § 25, to recover actual damages suffered as a result from Defendants’ violations of the Commodity Exchange Act and CFTC Rule 180.1(a). 17.

Plai Pl aint ntif ifff al also so br bring ingss thi thiss act actio ion n under under Se Sect ctio ion n 4 of of the the Clay Clayto ton n Act, Act, 15 U.S U.S.C .C.. §

15, to recover recover treble damages and costs of suit, including reasonable attorneys’ fees, against Defendants for the injuries that Plaintiff and the other other Class members have suffered from from Defendants’ violations of Section 1 of the Sherman Act (15 (15 U.S.C. §§1). 18.

Thiss Court Thi Court has sub subjec jectt matter matter jur jurisd isdict iction ion over thi thiss action action purs pursuant uant to Secti Sections ons 4

and 16 of the Clayton Clayton Act (15 U.S.C. §§ 15(a) and 26) and pursuant pursuant to 28 U.S.C. §§ 1331 and 1337(a). The Court also has jurisdiction pursuant to 28 U.S.C. §1332(d) and the Class Action Fairness Act of 2005 (“CAFA”), 28 U.S.C. §§ 1711, et seq., which vests original jurisdiction in the district courts of the United States for any multi-state class action where the aggregate amount in controversy exceeds five million dollars and where the citizenship of any member of the class of is different from that of any Defendant. The five million dollar amount-incontroversy and diverse-citizenship requirements of CAFA are satisfied in this case. 19.

Venue Ven ue is is prope properr in thi thiss Dist Distric rictt purs pursuant uant to 15 15 U.S.C U.S.C.. §§ 15( 15(a) a) and and 22 22 and and 28

U.S.C § 1391(b), (c) and (d) because during the Class Period, all the Defendants resided, transacted business, were found, or had agents in this District; a substantial part of the events or omissions giving rise to these claims occurred in this District; and a substantial portion of the affected interstate trade and commerce discussed herein has been carried out in this District.

5


This Court has personal jurisdiction over each Defendant, because each Defendant transacted business throughout the United States, including in this District; and dealt with Class members throughout the United States, including Class members residing or located in this District; had substantial contacts with the United States, including in this District; and/or committed overt acts in furtherance furtherance of their illega illegall scheme and and conspiracy conspiracy in the the United States. States. In addition, addition, the conspiracy was directed at, and had the intended effect of, causing injury to persons residing in, located in, or doing business throughout the United States, including in this District. 20.

Venu Ve nuee is is pro proper per in th this is Di Dist stri rict ct pu purs rsua uant nt to Se Sect ctio ion n 22 22 of of the the Co Comm mmod odity ity

Exchange Act, 7 U.S.C. § 25, because one or more Defendants resides or is found in the District. Defendants’ unlawful acts allegedly manipulated the prices of COMEX gold futures and options contracts that were traded on COMEX, a designated contract market located in this district at One North End Avenue, New York, New York. IV.

INTERSTATE CO COMMERCE

21.

The act activi ivitie tiess of Def Defenda endants nts and the their ir Co-C Co-Cons onspir pirato ators rs wer weree withi within n the the flow flow of, of,

were intended to, and did have a substantial effect on the foreign foreign and interstate commerce of the United States. 22.

Defenda Def endants nts mad madee use use of the mea means ns and and inst instrum rument entali alitie tiess of tra transp nsport ortati ation on or

communication in, or the instrumentalities of, interstate commerce, or the mail in connection with the unlawful acts detailed in this Complaint. Comp laint. 23.

Defenda Def endants nts each enga engage ge in sub substa stanti ntial al busi busines nesss acti activit vities ies in the Uni United ted Sta States tes tha thatt

affect billions of dollars of commerce in gold and gold derivatives.

6


V.

CLASS ACTION ALLEGATIONS

24.

Plaint Pla intif iff, f, on beha behalf lf of him himsel selff and all sim simila ilarly rly sit situat uated ed puta putativ tivee Clas Classs membe members rs,,

seek damages against Defendants based on allegations contained herein. 25.

Plai Pl aint ntif ifff br brin ings gs th this is act actio ion n on on beh behal alff of of hi hims msel elff and and,, und under er Fe Feder deral al Ru Rule le of Ci Civi vill

Procedure 23(a) and (b)(3), as a representative of a Class defined defined as follows: All persons or entities in the United States and its territories that, from January 1, 2004 to the present, held or transacted in physical gold, or gold derivatives that settled or were marked-to-market based on the London Fix, or held or transacted in COMEX gold futures or options contracts. Excluded from the Class are Defendants, their co-conspirators, and their officers, directors, management, employees, subsidiaries, or affiliates, and all federal governmental entities. 26.

Numerosity. Members of the Class are so numerous that joinder is impracticable.

Plaintiff Plaint iff does not and cannot cannot not know the the exact size size of the the Class at present, present, but but believes believes that that there are hundreds of Class members geographically dispersed throughout the United States. 27.

Typicality. Plaintiff’s claims are typical of the claims of the members of the Class.

Plaintiff Plaint iff and all members members of the Class Class were damaged damaged by the same same wrongful wrongful conduct of Defendants. 28.

Plaint Pla intiff iff wil willl fair fairly ly and adeq adequat uately ely prot protect ect and rep repres resent ent the int intere erests sts of the the Clas Class. s.

The interests interests of Plaintiff Plaintiff are coincident coincident with, and not antagonis antagonistic tic to, those of the Class. Class. Accordingly, Accor dingly, by proving proving its its own claims, claims, Plaint Plaintiff iff will prove other Class member members’ s’ claims as well. 29.

Adequacy of Representation. Repr esentation. Plain Plaintiff tiff is repre represented sented by counsel counsel experi experienced enced and and

competent in the prosecution of class action antitrust antitrust litigation. litigation. Plaintiff and its its counsel have the necessary financial resources to adequately and vigorously litigate this class action. Furthermore, Plaintiff can and will fairly fairly and adequately represent the interests of the Class and has no 7


interests that are adverse to, at conflict with, or antagonistic antagonistic to the interests interests of the Class. Plaintiff understands and appreciates his duties to the Class Class under Rule 23 of the Federal Rules of Civil Procedure, is determined to diligently discharge those duties, and is committed to vigorously protecting the rights of absent Class members. 30.

Predominance. Questions of law and fact common to the members of the Class

predominate over questions that may affect only on ly individual Class members because bec ause Defendants have acted on grounds generally applicable to the entire Class, thereby making overcharge damages with respect to the Class as a whole appropriate. Such generally applicable conduct is inherent inhere nt in Defendants’ wrongf wrongful ul conduct. 31.

Commonality. There are questions questions of law law and fact common common to the Class. Class. Such

questions relate to the existence of the conspiracy alleged, and the type and common pattern of injury sustained as a result thereof, including, but not no t limited to: a.

whet wh ether her De Defe fend ndan ants ts and and thei theirr co-c co-con onsp spir irat ator orss consp conspir ired ed amo among ng the thems msel elve vess and/ and/or or

with others to manipulate prices of gold and gold derivative contracts; b.

whether Defendants and their co-conspirators manipulated prices of gold

derivative contracts; c.

thee dur th durat atio ion n of th thee cons conspi pira racy cy al alle lege ged d in in thi thiss Com Compl plai aint nt an and d the the na natu ture re an and d

character of the acts performed by defendants and their co-conspirators in furtherance of the conspiracy; d.

whet wh ether her th thee all alleg eged ed co cons nspi pira racy cy vi viol olat ated ed Se Sect ctio ion n 1 of th thee She Sherm rman an Act Act;;

f.

whet wh ether her th thee con conduc ductt of of def defen enda dant ntss and and thei theirr co-c co-con onsp spir irat ator ors, s, as al alle lege ged d in th this is

Complaint, Complai nt, caused caused injury to the business business and property property of Plaintiff Plaintiff and other member memberss of the Class;

8


g.

thee app th appro ropr pria iate te mea measu sure re of dam damage agess su sust stai aine ned d by Pl Plai aint ntif ifff an and d othe otherr me membe mbers rs of

the Class. 32.

Superiority. Class action treatment is a superior method for the fair and efficient

adjudication of the alleged controversy. Such treatment will permit a large number of similarly situated, geographically dispersed persons or entities to prosecute their common claims in a single forum simultaneously, efficiently, and without the unnecessary duplication of evidence, effort, or expense that numerous individual actions would engender. The benefits of proceeding through the class mechanism, including providing injured persons or entities a method for obtaining redress on claims that could not practicably be pursued individually, substantially outweigh potential difficulties in in management of this class action. 33.

Plai Pl aint ntif ifff kn know owss of no spe speci cial al dif diffi ficu culty lty to be enco encoun unte tere red d in in the the main mainte tena nance nce of

this action that would preclude its maintenance as a class action. VI.

FACTUAL AL ALLEGATIONS A.

The Lo Londo don n Fix Fix and th the Ma Marke kett fo for Go Gold

34.

Gold Go ld is a “com “commo modi dity ty”” as def defin ined ed by by the the Com Commo modi dity ty Exch Exchang angee Act, Act, 7 U.S U.S.C .C.. §

1(a)(4). 1(a)( 4). Gold also serves serves as the the commodity commodity “underlying” “underlying” derivati derivative ve contracts, contracts, including including gold gold futures and gold options traded on COMEX, a designated contract market located in New York, NY under Section 22 of the Commodity Exchange Act, 7 U.S.C. §25. 35.

Gold Go ld is is the the most most popu popula larr prec precio ious us met metal al for for inve invest stor orss worl worldw dwid ide. e.2 The World

Gold Council estimates that the investable gold market, as of 2010, was approximately $2.4 trillion. 3

2

http://www.investopedia.com/features/industryhandbook/metals.asp

3

http://www.exchangetradedgold.com/media/ETG/file/liquidity_in_the_global_gold_market.pdf 9


36.

The pri price ce for for gold gold wor worldw ldwide ide is dri driven, ven, in larg largee part, part, by a pro proces cesss calle called d the the

London Fix. 37.

The Lo London ndon Fix was cre create ated d to to set set a daily daily benc benchmar hmark k price price for “Go “Good od Deli Delivery very””

gold -- physi physical cal gold bars comply complying ing with a set of rules rules issued issued by the London London Bullion Bullion Market Market Association (“LBMA”), an international trade association that represents the London market for gold bullion. 4 38.

Duri Du ring ng the Cl Clas asss Per Perio iod, d, th thee Lond London on Fi Fix x inv invol olve ved d fi five ve re repr pres esen entat tativ ives es –

Defendants Defenda nts BNS, Barclays Barclays,, DB,5 HSB HSBC, C, and SocGen SocGen – on a teleconf teleconfere erence. nce. 39.

These The se banks banks joi join n a twic twice-d e-dail aily y tele telecon confer ference ence comm commenci encing ng at at 10:30 10:30 a.m. Lon London don

time and 3:00 p.m. London time. 40.

Althoug Alt hough h only only the the banks banks par partic ticipa ipate te on on the the calls calls,, they they repr represe esent nt thei theirr marke markett

participant clients on the call. These Th ese participants p articipants include gold producers produ cers (miners, refiners), gold consumers (jewelers, manufacturers), investors, speculators, and sovereign states, among others. 41.

At the beg beginn inning ing of the tel telecon econfer ference ence,, one one bank bank,, desig designat nated ed as as the the Chai Chair, r,

proposes a starting price for the day, usually closely tracking the existing spot price for gold.

4

The LBMA includes the majority of the gold-holding central banks, private sector investors, mining companies, producers, refiners and fabricators. 5

DB has announced its withdrawal from the gold fixing process, but was remaining as a participating member until a buyer for its seat is found. found. See Maria Kolesnikova and Nicholas Larkin, Deutsche Bank Withdraws From Gold Fixing in Commodities Cuts, Bloomberg.com, Jan. 17, 2014, availabl availablee at: http://www.bloomberg.com/news/2014-01-17/deutsche-bankwithdraws-from-gold-fixing-in-commodities-cutback.html . Reports indicated that South Africa’s Standard Bank, in conjunction with Chinese bank ICBC, was likely to make a bid to acquire the seat. See Clara Denina and Jan Harvey, Standard Bank in prime position for Deutsche’s gold fix seat: sources, Reuters, Feb. 18, 2014, available at: http://www.reuters.com/article/2014/02/18/us-gold-fix-frontrunner-idUSBREA1H0X120140218 Ultimately, however, on April 29, 2014, Reuters reported that Deutsche Bank had given notice that “it would cease to be part of the the price-setting process as of May 13 [2014]” without having found a buyer for its seat. See Update 1-Deutsche Bank resigns gold, silver fix seat with no http://uk.reuters.com/article/2014/04/29/gold-fixbuyer , Reuters (Apr. 29, 2014), available at: http://uk.reuters.com/article/2014/04/29/gold-fixdeutsche-bank-idUKL6N0NL5LA20140429 10


Each of the remaining members declares whether they are a net buyer or net seller at the proposed price. If there are no buyers or sellers at a given price, the chair will move the price until there are both buyers and sellers. 42.

At that that poi point, nt, the auct auction ion mov moves es to to a seco seconda ndary ry phas phase, e, wher wheree buyers buyers and sell sellers ers

identify the quantity of gold they would be buying or selling at the specified price. These quantities are specified in increments of five bars.6 The Chair will will incre increase ase the price price if the net purchases of gold would be 50 bars greater than the net sales at the price, and reduce it if the net sales would be 50 bars greater than the net purchases. 43.

Thiss proce Thi process ss cont continue inuess for for an ind indefi efinit nitee perio period d of tim time, e, usua usually lly in the the range range of 55-

15 minutes, until the quantities are balanced to within 50 bars, each “bar” being specified as between 350 and 430 troy ounces7 of gold with a minimum fineness of 995.0 parts per thousand fine gold. 8 44.. 44

Once On ce th thee dif diffe fere rence nce is 50 bar barss or or les less, s, th thee Chai Chairr may may dec decla lare re the the pri price ce fixe fixed d and and

the banks will split the difference pro rata amon among g the themse mselve lves. s.9 This pro rata arrangement is purely between the banks and will not affect their underlying customer orders.10 45.

Oncee the Onc the Chair Chair decl declares ares the pri price ce to to be fix fixed, ed, the fix fixing ing pri price ce is is publi publishe shed d

immediately by various news agencies. 11

6

https://www.goldfixing.com/how-is-the-price-fixed/

7

One troy ounce is exactly 31.1034768 grams. Each COMEX COMEX futures contract is a contract for future delivery of 100 troy ounces ounc es with a minimum fineness of 995 parts per thousand fine gold. 8

http://www.lbma.org.uk/pages/index.cfm?page_id=27

9

https://www.goldfixing.com/how-is-the-price-fixed/

10

Id .

11

London Bullion Market Market Association and The London Platinum and Palladium Market, A Guide to the London Precious Pre cious Metals Markets at 15 (Aug. 2008), available av ailable at: http://www.lppm.com/otcguide.pdf 11


46.

Lond Lo ndon on Fix Fix membe members rs tra trade de ot othe herr gold-r gold-rel elat ated ed inst instru rume ment ntss durin during g the the London London Fix Fix

teleconfere telec onference. nce.

In this way, the member memberss and/or their affi affiliate liatess can can lever leverage age their criti critical cal

foreknowledg forek nowledgee - that the price price is virtually virtually certain certain to move in in accordance accordance with the fixing fixing - to trade derivatives deriva tives to the the disadvantag disadvantagee of Plaint Plaintiff iff and the the Class. Class. Simila Similarly, rly, like in in the insta instance nce of LIBOR-rigging, Defendants’ knowledge impelled them to adjust and coordinate their their statements and actions during the London Fix based on how their own derivatives positions would benefit or suffer from the outcome of the fixing. B.

Golld De Go Deriv iva ati tiv ves – COM OME EX Fu Futu ture ress an and Op Opti tio ons.

47.

Deriva Der ivativ tives es are fin financi ancial al ins instru trumen ments, ts, the val value ue of whi which ch is tie tied d to to the the unde underly rlying ing

net worth, performance or value of another asset. asset. Derivative contracts include, among other things, contracts for sale of a commodity for future delivery (typically referred to as “futures contracts”) and options on such contracts. Both futures contracts and options are regulated by the Commodity Futures Trading Commission (“CFTC”).12 48.

Future Fut uress cont contrac racts ts are requ require ired d to to be be trade traded d on exch exchang anges. es. Thes Thesee exchang exchanges es are are

known as designated contract markets.13 49.

COMEX COM EX (Co (Commo mmodit dity y Excha Exchange nge,, Inc.) Inc.) is a desig designat nated ed cont contrac ractt mark market et loc locate ated d in in

New York, New York. COMEX has been owned and operated by b y the CME Group since 2008.14 COMEX offers a platform for trading of gold futures and options contracts, as well as contracts in other metals such as silver and copper. 15

12

See 7 U.S.C. 2(a)(1)(A).

13

See 7 U.S.C. § 7.

14

See http://investor.cmegroup.com/investor-relations/releasedetail.cfm?ReleaseID=329722

15

http://www.cmegroup.com/product-codes-listing/comex-market.html 12


50.

Among Amo ng thes thesee gold gold deri derivat vative ive con contra tracts cts,, COMEX COMEX off offers ers sta standar ndardize dized d gold gold futu futures res

contracts contr acts with delivery delivery dates dates commencing commencing with the next calendar month, month, and potentially potentially extending as far as 72 sequential months into the the future, depending upon the month in which the contract was executed. The number of gold futures futures contracts trading trading at any given time varies. varies. Trading is conducted for delivery during the current calendar month; the next two calendar months; each February, April, August, and October within a 23-month period; and any June and December falling within a 72 month period beginning with the current month. The two most immediate expirations are called “front months”. “Front month” contracts are the most actively traded gold futures. 51.

A gold gold futu futures res con contra tract ct is is an agr agreem eement ent to buy buy or or sell sell gold gold in the the amou amount nt spec specifi ified ed

as a term of the the contract. contract. The COMEX COMEX specifies specifies the terms terms of trading trading,, including the tradi trading ng units, units, price quotation, trading hours, trading months, minimum and maximum price fluctuations and margin requirements. 16

The contract contract size for gold futures futures is 100 troy ounces, with minimum minimum

quality specifications specifications of 995 “fineness.”

The minimum price fluctuation for gold futures

contracts is $0.10 per troy ounce. Prices of gold futures are quoted in dollars and cents per troy ounce. 52.. 52

Trad Tr ades es of COM COMEX EX gol gold d fut futur ures es con contr trac acts ts ha have ve two two “s “sid ides es.” .” Th Thee “lon “long” g” si side de

represents the buyer of a contract who is obligated to pay for the gold and take delivery. The “short” “shor t” side represent representss the seller of a contract contract who is oblig obligated ated to receive receive payment for the the gold and make delivery. If a market participant holds its position to the end of the the settlement period for a gold gold futur futures es cont contrac ract, t, the mark market et partic participan ipantt is obliga obligated ted to “go “go to deliv delivery ery.” .” Once the

16

See, e.g., http://www.cmegroup.com/trading/metals/precious/gold_contract_specifications.html

13


settlement date is reached, the futures contract for a particular month becomes a bilateral contract to pay for and deliver physical ph ysical gold pursuant to the individual contract specifications. 53.

The gold gold fut future uress contr contracts acts for the curr current ent deli delivery very mont month h termi terminat natee tradi trading ng on the

third last business day of the delivery month. On this day, physical delivery of the gold must occur, with the long futures holders receiving the gold at specified locations, and those on the short side delivering the gold to those locations. 54.

No trad trades es in in gold gold futu futures res del delive iverab rable le in in the the curre current nt deliv delivery ery mont month h are are made made afte afterr

the third last business day of that month. Any contracts remaining open after the last trade trade date are either: (a) Settled by delivery which shall take place on any business day beginning on the first business day of the delivery month or any subsequent business day of the delivery month, but no later than the last business day of the delivery month; or (b) Liquidated by means of a bona fide Exchange for Related Position (“EFRP”) pursuant to CME Rule 538.17 55.

If del delive ivery ry occu occurs, rs, the enti entity ty del delive iverin ring g the the gold gold must must pro provid videe the the gold gold from from a

CME-approved producer bearing the one or more of the CME’s approved brand marks, assayed by approved assayer, and delivered with a licensed depository within a 150-mile radius of the City of New York. 56.

Gold Gol d futur futures es pric prices es for for activ activee months months not going going to deliv delivery ery set settle tle on a dail daily y basis basis

(and at final settlement) based on exchange activity between 13:29:00 and 13:30:00 Eastern Time (“ET”). The active month is the nearest base contract month that is not the current delivery

17

See, e.g., CME Rulebook Chapter 113, Gold Futures, available at: http://www.cmegroup.com/rulebook/NYMEX/1a/113.pdf (“An http://www.cmegroup.com/rulebook/NYMEX/1a/113.pdf (“An EFRP is permitted in an expired futures contract until 12:00 p.m. on the business day following termination of trading in the expired futures contract. An EFRP which establishes a futures position for for either the buyer or the seller in an expired futures contract shall not be permitted following the termination of trading of an expired futures contract.”)

14


month. The base months for gold futures are February, April, June, August and December. The COMEX determines pricing according to the following schedule. a. Tier 1: 1: If a trade(s trade(s)) occurs on Globex Globex (the (the electronic electronic platfor platform) m) between between 13:29:00 and 13:30:00 ET, then the contract month settles to the volumeweighted average price (VWAP), rounded to the nearest tradable tick. b. Tier 2: In the absence of outright trades during the settlement window, the active month settles to the best bid or ask in the expiring contract at market close that is nearest to the last traded price. c. Tier 3: If there is no bid or ask in in the expiri expiring ng contract contract at that that time, time, then the settlement price is implied from the bid/ask in the active spread at the close of the market. 18 57.

Few COM COMEX EX fut future uress cont contrac racts ts res result ult in act actual ual del delive ivery ry of the unde underly rlying ing

commodities commodi ties.. Trader Traderss generally generally use futures futures contr contracts acts as as a hedging hedging mechanism mechanism or to specul speculate ate on movements moveme nts in the price of a commodity and enter offsetti offsetting ng trades prior to their expiration. expiration. For example, a purchaser of a gold futures contract can cancel or offset his future obligation to the contract market/exchange clearing house to take delivery of gold gold by selling an offsetting futures futures contract. The difference between between the initial purchase or sale price and the price of the offsetting transaction represents the realized profit or loss. 58.. 58

Gold Go ld opt optio ions ns on fu futu ture ress cont contra ract ctss are are also also tra trade ded d on COM COMEX EX..19 There are two

types of options – calls and puts. A call option gives gives the holder of the gold option the opportunity opportunity to purchase the underlying futures contract at a certain price, known as the strike price, until the

18

See http://www.cmegroup.com/trading/metals/files/daily-settlement-procedure-goldfutures.pdf 19 See http://www.cmegroup.com/trading/metals/precious/gold_contractSpecs_options.html

15


date that the option expires.

Accordingly, if the price of the futures contracts trading on

COMEX exceeds the strike price, a call will typically be exercised as “in the money”. A put option guarantees the holder the opportunity to sell an underlying futures contract at the strike price until the date that the option expires. A put option is purchased when the party expects prices in the underlying contract to fall (analogous to a short position on a futures contract); a call option is purchased when the purchaser expects prices in the underlying contract to rise (analogous to a long position on a futures contract). C.

Thee Rela Th Relatio tionsh nship ip Be Betwe tween en the Lo Londo ndon n Fix Fix and the Pr Price ice of Gol Gold d Deri Derivat vative ives. s.

59.. 59

Futu Fu ture ress tra tradi ding ng all allow owss a tra trade derr to to hedg hedgee agai agains nstt a ch chan ange ge in the the pri price ce of of the the

underlying underly ing commodity commodity in the future, or to speculate speculate on future prices of such commodity commodity with the intention of making a profit. 60.

Future Fut uress contr contracts acts rar rarely ely res result ult in phys physical ical deli delivery very.. As the Uni United ted Sta States tes Cour Courtt of

Appeals for the Eight Circuit noted in Cargill, Inc. v. Hardin, 452 F.2d 1154, 1172-73 (8th Cir. 1971): While the obligation to make or take delivery is a bona fide feature of the futures contract, in reality the futures market is not an alternative spot market for the commodity itself, and indeed the functions performed by the futures market would probably be severely hampered if it were turned into an alternative spot market. Most parties who engage in futures transactions are in no position to either make or take delivery, and if they were required to always make preparations to fulfill their obligations to make or take delivery, the number of persons who could effectively participate in the futures market would be substantially restricted, thus reducing the liquidity and volume of that market. The main economic functions performed by the futures market are the stabilization of commodity prices, the provision of reliable pricing information, and the insurance against loss from price fluctuation. The functions can be fulfilled only if both longs and shorts can be assured that they can offset their contracts at non-manipulated prices.

16


61.

Nonet No nethel heles ess, s, the the spot spot or or physi physica call marke markett pr pric ices es are are int intim imat atel ely y rela relate ted d to the the pric prices es

on the the futures futures market markets. s. This is because because the futures futures price and the the spot spot market market price pricess “conver “converge” ge” at the time of delivery. The convergence is the result of the futures contract converting at the point of delivery to physical ph ysical gold at a licensed depository near the City of o f New York. Thus, for those taking delivery on a gold futures contract (i.e., the long contracts of the nearby delivery month), the price at which they can sell the gold that they receive will be the spot (physical) price of gold. 62.

The fut future uress price price is thu thuss the the mark market’ et’ss cons consens ensus us of the the expec expected ted spo spott price price for the

underlying physical commodity at a specified future date. Because the futures price is nothing more than an expectation of the future spot price, both futures and physical prices must be and are, in fact, directly correlated. 63.

For exam example ple,, if the fut future uress price price in a con contra tract ct negot negotiat iated ed today today for del delive ivery ry next next

month starts starts to rise, rise, this indicates indicates that that the market believes believes spot prices prices will rise rise next month. The rise in the future price for delivery next month will cause a reaction today among producers and consumers of the commodity. 64.

The fol follow lowing ing cha chart rt demo demonst nstrat rates es how the mar marked ked str strong ong inf influe luence nce that the

London Fix has as a key daily event in the development of the prices of physical gold would equally affect COMEX gold futures prices. In fact, from January 2010 until December 2013, the end of day physical gold prices and the end of day prices of the COMEX gold futures contract had a correlation coefficient of approximately 97%, with average price spreads of only 0.15% (or 0.0015) and average return spreads of 0.22% (or 0.0022).

17


2000

Gold Spot and Futures Price Prices: s: 2 0 10 -2 -20 0 13

1800

D 1600 S U , . z o y o r 1400 t r e p e c i r 1200 P

1000

800 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Spot

65.

Futures

Even the cor correl relati ation on of the 1-m 1-minut inutee averag averagee intra intraday day ret return urnss of phy physic sical al gold gold and

COMEX gold futures was very strong at approximately 78%. The following chart of average intraday gold price shows the same strong relationship between the physical gold and the COMEX gold futures markets.

Average Av erage Norm Normalized alized Gold Prices: Prices: Jan 201 20 10 - De Dec c 20 13 1000.6 D S1000.4 U 0 0 100 0.2 0 1 = e s 1000 a b , . z o 999.8 y o r t r e 999.6 p e c i r 999.4 p s e r u 999.2 t u f d e z 999 i l a m r o 998.8 N

Futures Physical

AM Fixing

PM Fixing

998.6

London time

18


D.

Defendants’ Unlawful Conduct

66.

Plaint Pla intiff iff all alleges eges that fro from m appr approxim oximate ately ly Janu January ary 1, 2004 to the pre presen sent, t,

Defendants manipulate the prices of gold and gold derivatives contracts on their own and combined, conspired, and agreed with one another and unnamed co-conspirators to manipulate the prices of gold and gold gol d derivatives contracts. 67.

Thiss agre Thi agreeme ement nt was int intend ended ed to per permit mit each Def Defenda endant nt ind indivi ividua dually lly and all

Defendants collectively to reap profits from their foreknowledge of price movements in the gold market. 1. Barclay’s Fined £26 Million Million for Trader Trader Manipulati Manipulation on of of London London Fix Fix

68.

On May 23, 201 2014 4 the the UK’s UK’s Fin Financi ancial al Con Conduc ductt Autho Authorit rity y (FCA) (FCA) fin fined ed Barc Barclay layss

the equivalent of $44 million for failing to manage conflicts between itself and customers relating to the London Fix from 2004-2013. 69.

The FCA als also o fine fined d a Bar Barclay clayss trade trader, r, Dani Daniel el Jam James es Plu Plunket nkett, t, £95, £95,000 000 for

influencing the June 28, 2012, 3pm London Fix in order to avoid paying a Barclays’ customer $3.9 milli million on on a digital option option (an option option with an all-or-not all-or-nothing hing style style payoff) expiring expiring on June 28, 2012 that that would would force force the the bank bank to pay the client client if the the fixing fixing price price was was above above $1,558 $1,558.96. .96. As a direct result of the trader’s manipulative efforts, the 3pm London Fix was set at $1,558.50, a mere $.46 below the option’s strike price. 70.

As il illu lust stra rate ted d in th thee char chartt belo below, w, the the Bar Barcl clay ays’ s’ tr trade ader’ r’ss mani manipu pula lati tion on of of the the

London Fix price had a clear impact on the the spot market prices of gold.

19


71.

Thee above Th above char chartt shows shows a sharp sharp dec decre reas asee in the the pric pricee of phys physic ical al gold gold imm immedi ediat ately ely

following the start of the fixing call. This is is indicative of Barclays overstating overstating the amount of sell orders on its book in order to to force the fixing price downwards. As this information information was leaked into int o the the marke market, t, a lar large ge suppr suppress ession ion in in gold gold price pricess is is obser observed. ved.

Follow Fol lowing ing thi thiss initi initial al

suppression, there was a temporary recovery in the market before another sharp decline in prices towards the option’s strike strike price. This is consistent with with Barclays making a concerted effort to ensure that the fixing price price was set below the option’s strike price. 72.

The fix fixing ing pri price ce does does not cor corres respon pond d preci precisely sely to the the marke markett level level at the end end of of

the fixing fixing call becaus becausee the aucti auction on is based based on the the members’ members’ order books and not not on actual market transactions. As such, there is a lag in in market prices until the fixing information is leaked (during the call) or released (after the call) to the market. 73.

On Jun Junee 28, 28, 2012, 2012, Pl Plai aint ntif ifff held held a lon long g call call opt optio ion n posit positio ion n that that was was neg negat ativ ively ely

impacted by Barclays’ manipulative conduct. 20


2. Defendants Illicitly Shared Informa Information tion With With One Another Prior to the London Fix and Entered Spoof Orders to Move Prices In Their Favor

74.

Base Ba sed d upon upon Pla Plain inti tiff ffs’ s’ Co Couns unsel el’s ’s fa fact ctua ual, l, econ econom omic ic and and oth other er in inves vesti tiga gati tion on,,

Plaintiff has good grounds to believe and does allege as follows. 75.

Betw Be tween een at at leas leastt 2004 2004 and at at leas leastt late late 201 2013, 3, tra trade ders rs emp emplo loye yed d by Def Defen endan dants ts and and

involved in the London Fix typically or frequently had, during the minutes before the London Fix commenced, joint communications with one another via various means including one-on-one private chat rooms. 76.

During Dur ing suc such h pre-F pre-Fix ix comm communi unicat cation ions, s, the Def Defenda endant nt ban banks ks repe repeate atedly dly sha shared red

information with one another about significant orders or intentions of one another’s customers. 77.

These The se com commun munica icatio tions ns freq frequen uently tly enta entaile iled d one one Defen Defendant dant div divulg ulging ing to one one or or

more other Defendants specific large amounts that were to be purchased or sold by such Defendant’s customer customer during the London Fix. Such specific disclosures ranged from 10,000 to 100,000 ounces ounces to be purchased or sold sold by a given Defendant’s Defendant’s customer customer during during the London Fix. 78.

In addi additio tion n to div divulg ulging ing speci specific fic fact factss concer concerning ning cus custom tomer er orde orders, rs, suc such h pre-Fi pre-Fix x

communications frequently included discussions discussions of, or advice as to, what steps the Defendants should take during the London Fix so as to mutually profit themselves from the order flow. These discussions included simple advice, such as “do not get in the way” of the orders that a Defendant would be submitting. Such discussions also included active steps that could be taken by Defendants to profit from the order flow. 79.

Based Bas ed on on these these pre pre-ca -call ll com commun munica icatio tions, ns, Def Defenda endants nts col collus lusive ively ly adju adjuste sted d and and

coordinated coordi nated their their conduct during the the London Fix in order to profit profit and/or and/or avoid losses losses for themselves at the expense of the market, mark et, including their clients.

21


80.

Separa Sep arate te and and apart apart from from thi thiss aspec aspectt of Def Defend endants ants’’ pre-F pre-Fix ix collu collusio sion, n, Defe Defenda ndants nts

also, collectively or individually, or working with large customers customers of a Defendant, engaged in communications prior to and during the London Fix that were intended intended to move and manipulate gold prices in order to profit one or more of Defendants or their customers. 81.

Such Su ch com commu muni nicat catio ions ns in incl clud uded ed pl placi acing, ng, ju just st pr prio iorr to to the the Lo Lond ndon on Fi Fix, x, dur durin ing g the the

London Fix, Fix, at the the London London Fix, and/or and/or after after the London Fix, large large orders orders for for COMEX gold gold futures contracts on the Globex trading platform for which there was no intention of execution. exec ution. 82.

These The se “spo “spoof” of” ord orders ers wer weree desig designed ned to move move the mar market ket pri prices ces jus justt prio priorr to to the the

Fix, during the Gold Fix, at the Fix, and/or after the Fix, so as to profit one or more of Defendants or their customers. 83.

Many of thes thesee large large spoo spooff order orderss amount amounted ed to “fr “front ont-ru -runni nning” ng” oth other er orde orders rs to to be

executed during during the the London Fix, or the the London London Fix itself, itself, and and were specifi specifically cally intended intended to to manipulate prices registered registered during the London London Fix and/or or the outcome of the London Fix itself. 3. Nume Numerous rous Tradin Trading g Days Exhibit Exhibit Eviden Evidence ce of Manipul Manipulatio ation n

84.

Anomal Ano malous ous pri price ce move movement mentss duri during ng the the fixi fixing ng wind window ow that that are hig highly hly sugg suggest estive ive

of manipulati manipulation on - like those those on June 28, 28, 2012 - can be witness witnessed ed on numerous numerous days, days, where prices prices near the 3 p.m. London London Fix spike, spike, eithe eitherr upward or downward, downward, and then retreat retreat in the opposite opposite direction direc tion as the the price is is “fixed”. “fixed”. Five trading trading days days are analyzed analyzed below as illustr illustrative ative of the overall trend during the Class Period. On February 1, 2013, there was a dramatic drop in price from nearly $1678 to below $1665, contemporaneous with the beginning of the London Fix. The price began recovering recovering during the London London Fix and continued afterwards. This movement around the fixing window is highly anomalous and suggestive of manipulation because it tends

22


to show that the market ultimately discounted to some degree the pricing information that occurre occu rred d during during the Lon London don Fix.

85.

Then The n again again,, on Febr Februar uary y 3, 3, 2012, 2012, the pri price ce for for gol gold d was was appro approxima ximatel tely y $175 $1750 0

minutes before the beginning of the PM London London Fix call. The price then fell dramatically to to $1738 as the call opened. This drop anticipated the decline that that occurred during the call to below $1735. Minut Minutes es after the call call ended, ended, prices recover recovered ed strongly strongly,, reaching reaching a post post Fix high high of approximately $1743. This movement around the fixing fixing window (steep drop just before the call, call, continued during the call, steeply recovering afterwards) is highly anomalous and suggestive of manipulation because it tends to show that the market ultimately discounted discounted to some degree the pricing information that occurred during the London Fix.

23


86.

On Jan January uary 4, 2012, 2012, ther theree was was anoma anomalou louss pric pricee movem movement ent bef before ore the beg beginn inning ing

of the PM Fix call, this time in an upward direction. The gold price rose from below $1599 to more than $1614 within the half hour before the beginning of the call, only to surrender most of these gains gains within within the half hour follow following ing the call. call. This movement movement around around the fixing fixing window (steep rise just before the call, with a clear reversal that begins at the very beginning of the call) is highly anomalous and suggestive of manipulation because it tends to show that the market market ultimately discounted to some degree the pricing information that occurred during the London Fix.

24


87.

On Sept Septem embe berr 4, 2012 2012,, the the gold gold pri price ce sat sat belo below w $1690 $1690 jus justt 15 mi minut nutes es bef befor oree the the

beginning of the London Fix. At nearly the precise moment the PM Fix call began, prices steeply increased to just shy of $1699, only to begin to fall back to below $1691 at the end of the London Fix. This movem movement ent around the fixing window (ste (steep ep rise as the the call call begins begins,, sustain sustained ed through the call, and retrenchment to pre-call levels beginning at the very minute the call call ends) is highly anomalous anomalous and suggestiv suggestivee of manipulation manipulation because it tends to show that that the market ultimately discounted to some degree the the pricing information information that occurred during the London Fix.

25


88.

On May May 21, 21, 2013 2013,, the the gold gold price price decl decline ined d signi signific ficant antly ly in in the the 25 min minute utess prior prior to

the call only to recovery briskly briskly once the call ended. This movement around the fixing fixing window is highly anomalous and suggestive of manipulation because it tends to show that the market market ultimately discounted to some degree the pricing information that occurred during the Fix.

26


89.

If th thee fiv fivee pre previ viou ouss exam exampl ples es of an anom omal alou ouss vol volat atil ilit ity y ar arou ound nd th thee Lo Londo ndon n Fix me mere re

statistical outliers and not evidence of manipulation, then it would be expected that this volatility would disappear when looking at an average of all the trading days during the class period. To the contrary, the price manipulation actually becomes clearer when viewed over the past fifteen years. The chart below shows the change in physical gold prices if each trading trading day for the period from 1998 through 2013 were averaged together. to gether. The dramatic changes in price followed by swift reversals at the time of the AM and PM London Fix in this chart demonstrate that the phenomenon is not coincidental coinc idental statistical noise occurring on only a few cherry-picked dates, but ratherr is a clear trend that cannot rathe cannot be explained explained by chance. Appendi Appendix x A contains charts charts breaking down the intra-day intra-day averages by one-year periods. periods. Average Av erage Normal Normalized ized Ph Phys ysical ical Gold Pric Price: e: Jan 19 9 8 - De Dec c 20 2 0 13 100 0.4

D S U100 0.3 0 0 0 1 =100 0.2 e s a b , . z 100 0.1 o y o r t r e100 0.0 p e c i r p 999.9 s e r u t u f 999.8 d e z i l a m 999.7 r o N

AM Fixing

PM Fixing

999.6

London time

90.

The tabl tablee below below illu illustr strate atess that that price price move movess of sta statis tistic ticall ally y anoma anomalou louss size size durin during g

the London Fix occurred with great frequency. If these London Fix price moves were the result of natural market forces, it would be expected that those price moves would be either maintained or reversed with the same statistical regularity as any other price move observed during the

27


trading day. If it were manipulation that caused the London London Fix price moves, these moves would be reversed with greater frequency than expected because the manipulators must reverse their trade in order to book a profit and because legitimate market factors would ultimately cause somee degree som degree of dis discou counti nting ng of of the the prici pricing ng info informat rmation ion fro from m the the Lon London don Fix Fix.. Sur Suree enoug enough, h, statistically anomalous price reversals after the London Fix, of the price changes during the London Fix, occurred with enough regularity to indicate manipulative activity. Frequency of Anomalous Price Moves During London Fix Calls % of Fix Calls Accompanied by Price Moves of Anomalous Size

% of Fix Calls Accompanied by Anomalous Price Moves that were Subsequently Reversed

2010

17%-23%

7%-10%

2011

16%-25%

5%-12%

2012

18%-25%

8%-12%

2013

20%-29%

12%-17%

2010-2013

18%-25%

8%-13%

91.

The fol follow lowing ing char chartt depi depicts cts the inc increas reasing ing exte extent nt to whi which ch ano anomalo malous us pri price ce moves moves

at the time of the London Fix were followed by a reversal of at least 50% of the original move, within withi n 30 or 60 minute minutess of the London Fix.

28


80.00%

Post-fix reversal of anomalous PM fixing call price moves

f l a h 70.00% t s a e l t a y60.00% b g n i s r e50.00% v e r s e v o40.00% m l l a c g30.00% n i x i f s u o20.00% l a m o n a f 10.0 0% o %

0.00% 20 10

92.

2 0 11

2 0 12 Sample period 30-minut 30-m inute e postpost-fix fix rever reversa sall period 1-hou -hourr postpost-fix fix revers reversal al period

2 0 13

Thesee “spik Thes “spikes” es” and the their ir rever reversal salss indi indicat catee the the influ influenc encee of man manipu ipulat lative ive and

collusive collus ive behavior behavior.. The pattern pattern is not explain explained ed by neutral neutral or benign causes, causes, but but plausibly plausibly demonstrates the manipulative conduct of Defendants to move prices prices on both the the physical and derivative markets to their benefit. 93.

The cha chart rt bel below ow de demo monst nstra rate tess fr from om 19 199898-20 2013 13 th thee ra rate te of “f “for orec ecas astt err error or”” – a

square of the difference between predicted market moves based on econometrics and the market’s actual moves. These forecast errors hit a massive peak during the brief period that that is encompassed encompa ssed by the 3 p.m. London London Fix. Append Appendix ix B contains contains charts charts of forecast forecast errors errors broken broken down by year.

29


Average Av erage Rollin olling g Forecast Errors Errors:: Jan Jan 19 9 8 - De Dec c 20 2 0 13 0.000009%

0.000020%

PM Fixing 0.00 00 18%

0.000008%

s r o 0.000007% r r e t s a0.000006% c e r o f r a0.000005% e n i l

s r 0.0000 16% o r r e t 0.00 00 14% s a c e r o 0.0000 12% f m r u t 0.0000 10% e r

AM Fixing

e0.000004% t u n i m 0 0.000003% 3 g n i l l 0.000002% o R

e t u 0.000008% i n m 0 0.000006% 3 g n i l l 0.000004% o R

0.0000 01%

0.000002%

0.000000%

0.000000%

London time Linea Li nearr For Forecas ecastt Error rrors s

94.

Retur eturn n Fo Foreca recast st Error rrors s

Thiss is cont Thi contrary rary to what sho should uld occu occurr in a mar market ket fr free ee of man manipu ipulat lation ion.. The

period surrounding 3 p.m. p .m. is the time at which the most gold futures contracts are traded, as the following follo wing chart chart reflects reflects.. maximally maximal ly efficien efficient. t.

Accordingly, Accor dingly, it should should be the the period period during during which the the market market is

Instead, Inst ead, it is the the direct direct opposite. opposite. This, too, too, is highly anomal anomalous ous and

suggestive of market manipulation.

Average On-The-Run Comex Futures Trading Volume Volum e : 2 0 10 -2 0 13 60 0

50 0

d e d a r t 400 s t c a r t n o c f o 300 r e b m u n e20 0 g a r e v A 100

0

30


95.

If the vol volati atilit lity y surro surroundi unding ng the the Lond London on Fix Fix were were simply simply a natura naturall react reaction ion of of the the

market to the London Fix itself and not manipulative trading, it would be expected that the volatility would have always existed for as long as the the London Fix has been reported. In fact, as demonstrated by the chart below, the London Fix has not always had as pronounced an effect on prices, but that over time volatility around the London Fix increased. There is no change ch ange in the legitimate public aspect of the London Fix Fix that could explain this. In fact, experts, such as Trinity College Dublin professor of finance Brian Lucey, have opined that the relevance of the London Fix to the market should be fading.20 But increasing volatility over time is consistent with the advent of manipulative trading and either an increasing number of participants over time or a more brazen magnitude ma gnitude of manipulation by those participants.

Pre-Fix Volatili Volatility ty - Int Inte e ns nsity ity Index Index 130

120 e u l a v x e d n 110 i y t i s n e t n I 100

90

Date

20

Suzi Ring & Nicholas Larkin, FCA Said to Observe London Gold Fixing as Scrutiny Increase, BLOOMBERG.COM, April 25, 2014, available at: http://www.businessweek.com/news/2014-0424/fca-said-to-observe-london-gold-fixing-calls-as-scrutiny-grows 31


96.

The abov abovee char chartt depi depicts cts the rel relati ative ve vol volati atilit lity y of mov moves es in gol gold d in the ten min minute utess

immediately immed iately precedi preceding ng the AM and PM London London Fixings. Fixings.

The increase increase of this this “Intensi “Intensity” ty”

index, 21 from a low in 2000 to a peak in in 2010 (when the relati relative ve volatili volatility ty of the the price price movements movemen ts was the the highest) highest) and continuing continuing throug through h the present present (where those those pre-call pre-call price movements remain at historically elevated levels), is indicative of manipulative forces at work that are exclusive of, and more intense than, what the natural effects of the London Fix Fix on the market may have been in the past. 97.

The inc increa reasin singly gly unu unusual sual pre pre-Fi -Fix x activ activity ity over the year yearss can can also also be be obser observed ved by

looking only at those days when the pre-Fix activity was a downward move in prices. The below chart depicts an index of the intensity of downward moves in gold immediately preceding the AM and PM London Fixings. The increase of the index from a relative relative low in 2000 to a peak in 2010, when the intensity of the downward price price movements just prior to the London Fixes was the most dramatic, carries over to today where the intensity remains at historically elevated levels. 22

21

This index is based on the volatility of gold prices in the build up to the twice daily London fixings relative to the volatility of gold prices throughout the full London trading day. The index itself is made by computing the one-year on e-year rolling average of this relative volatility, benchmarked to an index value of 100 in January 2000. As such, an increase in the relative volatility of pre-fix moves in gold prices causes the index ind ex value to increase, while a decrease in the relative volatility causes the index to decrease. 22 This chart (on the following page) was developed by first constructing an index based on the percentage of moves immediately preceding the AM and PM London Gold Fixings that were negative over a given annual period, rolled rolled forward each day. An inverse cumulative return index based on the above percentages was then created to show how the intensity changed over time. This series is benchmarked to an index value of 100 in January 2000. In other words, a relative increase in the percentage of pre-fix moves in gold prices that are negative in a given annual period causes the index value to increase, while a decrease in negative observations causes the index to decrease. 32


Downward Downw ard Move Move s - In Intens tensity ity In Inde dex x 240

220

200 e u 180 l a v x e d n 160 i y t i s n e 140 t n I

120

100

80

Date

98.

If the inc increa reased sed pri price ce volat volatili ility ty and vol volume ume acco accompa mpanyi nying ng the Lon London don Fix coul could d

be explained by the innocent speculation of the greater market m arket on the outcome of the London Fix price announcement, then the n it would be expected that the overall impact of that volatility would be neutral and not increasingly negative over time time as the above chart exhibits. That is, sometimes sometimes the market would speculate that the London Fix would lower the price of gold, and sometimes would raise it, and further that sometimes this speculation would be correct and sometimes incorrect in roughly equal measure over time. 99.

To the the cont contrary rary,, altho although ugh the Lon London don Fix was ass associ ociate ated d with with both both mani manipul pulati ative ve

and abnormal increases and decreases in gold prices, the London Fix appears, in the aggregate, to have had a net negative effect overall on the price price of gold throughout the Class Period. This can be demonstrated demo nstrated by b y examining the price of gold during the th e part of the trading day da y closest to the London Fixes. Gold is traded 24 hours a day. The trading day for gold can be broken up into

33


three equal eight-hour periods, the “Fixing Period” from 8:00-16:00 London Time in which both the AM AM and PM Lond London on Fixes occur, the “Pre-Fi “Pre-Fix x Period” Period” from from 0:00-8:0 0:00-8:00 0 and the “Post “Post Fix Fix Period” from 16:00-24:00 London time. If the volatility surrounding the London Fix was purely random and not the result of manipulation, there would be no significant difference over time between the period containing the London Fixes (8:00-16:00) and the Pre-Fix and Post-Fix periods. 100.

However How ever,, as the chart chart below below demonst demonstrat rates, es, gold gold prices prices during during the the Fixing Fixing Period Period

(8:00-16:00) moved consistently lower over time when compared to price activity during Pre-Fix and Post-Fix portions of the trading day.23 This trading pattern is consistent with manipulation and cannot be explained by random variation.

23

The indices for each trading period (Pre-Fix, Fix and Post-Fix) in the chart on this page were calculated by taking the compound returns of gold prices for each period and ignoring fluctuations outside outside of the period, resulting in a series of daily eight-hour returns. returns. A compounded series with a starting Index value of 100 was calculated, where the movement each day is given by the compound gold futures price returns for that trading period on the given day. 34


101.

If partic participants ipants in the the London London Fixes Fixes were not leaking leaking infor informatio mation n or manipul manipulating ating

prices during the London PM Fix call, it would be unlikely for price activity in the market when the London Fix call begins to be predictive of prices during the remainder of the call and of the direction of the London Fix itself. However, price activity in the first minutes immediately after the start of the call 24 was highly predictive of subsequent prices during the call and of the ultimate price of the fixing, as the table below shows. This suggests that participants on the call were trading based on information gleaned in the first moments of the call or disseminated before the call began.

102.

Period

% of Time Price Activity Immediately After Start of Call Predicted the Overall Move During Call Window

2010

67%-70%

2011

67%-70%

2012

70%-75%

2013

78%-82%

2010-2013

70%-75%

The price price activ activity ity surr surround ounding ing the the London London Fix Fix does not confo conform rm to to what one one

would expect in the lead up to, and announcement of, other regularly scheduled releases of important impor tant market inform information ation.. Rather Rather,, pricing pricing around the London Fixes is anomal anomalous ous when compared to the impact of other economic announcements which market participants can trade in anticipation of. The chart at ¶89 shows that on average gold prices move in a volatile fashion before the London Fix price is announced, either during, or even before the beginning of the call

begins. When other important economic numbers are announced, the price action before the 24

The estimation window “immediately after the start of the call” is defined as a function of the length of the fixing call on each day. Specifically, if the fixing call is less than or equal to 3 minutes in length, the initial price activity is measured during the first minute. If the call is between 4 and a nd 5 minutes in length, the first two minutes are used for initial estimation, while the first three minutes are used for initial estimation for all calls greater than 5 minu tes in length. 35

Case 1:14-cv-05153-VEC Document 2-1 Filed 07/09/14 Page 1 of 22

announcement is relatively muted, and the price moves sharply at the moment of announcement, presumably because the substance of the announcement has not been leaked beforehand and manipulation is not taking place. 103.

The foll following owing two charts demons demonstrat tratee this this patte pattern rn using the average intr intra-day a-day

price movement movemen t of gold futures on days d ays of important economic announcements. The first chart shows the effect of non-farm payroll (“NFP”) numbers announced monthly by the Bureau of Labor Statistics. The second chart shows the effect of seven announcements of the Federal Funds Rate by the Federal Reserve from March through December 2013.25

25

The Federal Reserve has changed the time of day during which it makes the Federal Funds Rate announcement several times during the Class Period. The period March –December 2013 was chosen because announcements were uniformly made at 2pm New York time. Similar charts for other time periods can be found in Appendix D. 36


104.

The disti distinct nct price movemen movementt at the very very moment of release release that is the the hallmark hallmark of

a non-leaked, non-manipulated announcement is most starkly shown in the charts below which depict the “rolling forecast error” of gold prices on dates of the NFP and Federal Funds Rate announcements. Rolling forecast error is simply a measure of how much the magnitude of a change in prices deviates from what econometric eco nometric principles would predict.

37


105.

When the the rolli rolling ng forec forecast ast error error chart chartss for the the Fed Funds Funds Rate Rate and and the NFP NFP above above

are compared with the one for the London Fix at ¶93, it is clear that where the former two exhibit a nearly vertical increase in forecast error ( i.e., the increase in statistically anomalous price movement) at the precise moment of announcement, forecast errors for the London Fix begin

38


even before the 15:00 start time of London PM call, not to mention well before the actual London Fix price price is announced. announced. 106.

The anoma anomalou louss price price activit activity y surro surround unding ing the the London London Fixes Fixes cannot cannot be explai explained ned

by generic market forces, such as contemporaneous economic developments or release of o f news unrelated to the London Fixes. To illustrate this this point, the below charts plot the price movement of gold for Februa February ry 3, 2012 (ori (original ginally ly charted charted at ¶85). ¶85). As the charts demons demonstrate trate,, other other commodities (as represented by the Dow-Jones UBS Commodities Index) were not subject to the same price fluctuations fluctuations as gold during the period of the London London Fixes, neither were bond or equity markets (represented by the Emerging Market Bonds Index and the MSCI world index, respectively). A fourth chart chart compares gold gold with the aforementioned three indices, and two others: the U.S Dollar Index and S&P 500 for February 3, 2012.26

26

Attached as Appendix C are corresponding charts for the the remaining four illustrative illustrative trading days cited previously at ¶¶84-88: June 14, 2012, November 15, 2012, February 1, 2013 and May 21 2013. These charts exhibit the same lack lack of correlation between moves in gold prices prices and other asset prices that those for February 3, 2012 do. 39


40


107.

In summa summary, ry, the the price price activi activity ty surro surround unding ing the the London London Fixes Fixes is indi indicati cative ve of

manipulation and not natural market forces for the following reasons: a. Aroun Around d the period period of the the London London Fix calls, calls, gold gold prices prices experience experience anomalous anomalous volatility in price. b. This volatility is present not on isolated trading days but manifests even more clearly when averaged across years of trade data. c. The anomalous anomalous price changes changes during during the the call were were not maintai maintained ned afterward afterwards, s, but in fact were in some part reversed with an unusual frequency and to an anomalous degree. d. The anomalous anomalous price moves moves occurred occurred during peaks in tradi trading ng volume, volume, when when the market should be at its most efficient.

41


e. The pricing pricing anomalies anomalies streng strengthened thened in intensity intensity over over time, time, demonstrati demonstrating ng that they are not an inevitable result of an innocent fixing process. f. There were were upward upward and downwa downward rd manipulat manipulations ions over over a period period of of years, years, price price activity surrounding the London Fix periods had a net negative effect on gold prices in comparison to other periods. This tends to indicate that artificial forces were acting on the market during those periods. g. Trading activi activity ty during during immediately immediately after after the beginning beginning of of the London London Fix was highly predictive of activity during the rest of the call, and of the final London Fix price, suggesting that manipulative traders were moving the prices of gold based on information gleaned for the London Fix calls. h. The price price activity activity surroun surrounding ding the the London Fixes is is not typical typical of of the price price activity one would expect to attend a regularly scheduled announcement of news material to the gold market. i.

The anomalous price activity in the gold market is not mirrored by other precious metals or broader market indices, further eliminating innocent explanations and supporting a conclusion that manipulation occurred.

E.

Gove verrnm nmeent In Inve vesstig iga atio ion ns and and St Stu udi diees

108.

In recent month months, s, numerou numerouss report reportss have have confirm confirmed ed investi investigatio gations ns or or studies studies

related into the London Fix and the wrongdoing discussed herein. 109.

On March March 13, 13, 2013, 2013, The The Wall Wall Stre Street et Journ Journal al repo reporte rted d that that the the CFTC CFTC was

“examining the setting of prices in London”.27 The Wall Street Journal noted that the London

27

Katy Burne, Matt Day, and Tatyana Shumsky, U.S. Probes Gold Pricing , THE WALL STREET JOURNAL, March 13, 2013, available at : http://online.wsj.com/news/articles/SB10001424127887324077704578358381575462340 42


Fix “helps determine the value of derivatives whose prices are tied” to gold – further noting that as of September 30, 2012, “U.S. commercial banks had $198 billion of precious metals-related contracts outstanding.”28 110.

In Novemb November er 2013, 2013, it was was repor reported ted that that the the Financi Financial al Conduc Conductt Author Authority ity,, the

United Kingdom’s top financial regulator, had opened an investigation into the London Fix.29 In an article detailing the reported investigation, Bloomberg quoted Thorsten Polleit, chief economist at Frankfurt-based precious-metals broker Degussa Goldhandel GmbH and a former economist at Defendant Barclays Barclays as saying, “Traders involved in this price-determining process have knowledge which, even for a short time, is superior to other people’s knowledge. . . . That is the great flaw of the London Londo n gold-fixing.”30 111.

The Lond London on Bullio Bullion n Market Market Asso Associa ciatio tion n indica indicated ted in Novem November ber that that it it was

reviewing its benchmarks to determine whether the benchmarks conform with IOSCO principles. 31 The IOSCO principles including making prices based on “observable” deals to increase transparency. 32 112.

Rt. Hon. Pat McF McFadde adden, n, a Lab Labour our par party ty law lawmak maker er who sit sitss on on Parli Parliamen ament’s t’s

Treasury Select Committee indicated that the FCA needed to investigate the gold market, stating “The gold market is hugely influential, and there needs to be public trust in the the gold price.” . . . 28

Id .

29

Liam Vaughan, Nicholas Larkin, and Suzi Ring, London Gold Fix Calls Draw Scrutiny Amid Heavy Trading , BLOOMBERG.COM, Nov. 26, 2013, available at: http://www.bloomberg.com/news/2013-11-26/gold-fix-drawing-scrutiny-amid-knowledge-tiedto-eruption.html 30

Id.

31

Nicholas Larkin, London Bullion Market Association is Reviewing Benchmarks, BLOOMBERG.COM, Nov. 22, 2013, available at: http://www.bloomberg.com/news/2013-1122/london-bullion-market-association-is-reviewing-benchmarks.html 32

Id.

43


Question marks have been raised about the benchmark price of gold, and it’s important that regulators investigate.” 33 113.

In a Februa February ry 4, 2014 2014 hear hearing ing befo before re the Hou House se of Com Common monss Trea Treasur sury y

Committee, McFadden questioned FCA CEO Martin Wheatley about the FCA’s investigation into benchma benchmarks rks other than LIBOR LIBOR and the WM/Reuters WM/Reuters rates, rates, asking “We’ve “We’ve had LIBOR. We’ve now got question marks over the foreign exchange markets. Are there any other benchmarks like this which are fixed here in London that you have concerns about or are investigating?” 34 Wheatley responded, “Yes, there are. Those investigations are not public, so I can’t tell what the the investigations investigations are, are, but there are a number of other other benchmarks – Londo London n being the center cen ter it is, there are a number of other benchmarks that operate in London that we are investigating because of concerns that have been raised with us.”35 114.

Defenda Def endant nt DB has has report reportedly edly had had employ employees ees inter intervie viewed wed by Bafin Bafin,, Germany Germany’s ’s

top financial regulator, as a result of Bafin’s investigation into potential manipulation of gold prices. 36 115.

Elke Koenig, the presi president dent of Bafin, Bafin, indica indicated ted that alleg allegation ationss about about manipul manipulation ation

of foreign exchange and precious metals markets (including the gold market) were “particularly serious seri ous because because such reference reference values values are based – unlike LIBOR LIBOR and EURIBOR EURIBOR – typica typically lly on transactions in liquid markets and not on estimates of the banks.”37 Bloomberg characterized his 33

Id .

34

Videorecording, House of Commons Treasury Committee meeting at 1:17:23-1:17:38, Feb. 4, 2014, avai availab lable le at : http://www.parliamentlive.tv/Main/Player.aspx?meetingId=14826 35

Id. at 1:17:39-1:17:53.

36

Karin Matussek and Oliver Suess, Metals, Currency Rigging Is Worse than Libor, Bafin Says, Bloomberg.com, Jan. 17, 2014, available at: http://www.bloomberg.com/news/2014-0116/metals-currency-rigging-worse-than-libor-bafin-s-koenig-says.html 37

Id .

44


statement as indicating that the possible manipulation was “worse than the Libor-rigging scandal.” 38 116.

In fact fact,, two Def Defenda endants nts her heree have been been impl implicat icated ed and pai paid d substa substanti ntial al fines fines as as a

result of investigations into LIBOR-rigging. Defendant Barclays settled with the CFTC, Department of Justice, and Financial Services Authority (the UK’s precursor to the FCA) in June 2012. 39 Barclays avoided a fine from the European Commission by revealing the collusion to the agency.40 Defendant DB was fined €725 million by the European Commission, the most of any LIBOR defendant.41 117.

The sam samee day tha thatt Bafin Bafin made its com commen ments, ts, it was rep report orted ed that that Def Defenda endant nt DB DB

would withdraw from participating in setting gold and silver benchm arks.42 118.

On April April 25, 2014, 2014, Bloo Bloombe mberg. rg.com com repor reported ted that that the FCA FCA indeed indeed inves investig tigati ating ng

the London Fix, with regulators scheduled to observe the fixing process at the offices of defendant SocGen, and that th at regulators would be visiting the offices of all five defendan ts.43

38

Id.

39

See Joshua Gallu, Silla Brush, and Lindsay Fortado, Barclays Libor Fine Sends Stocks Lower As Probes Widen, BLOOMBERG .COM, June 28, 2012, available at: http://www.bloomberg.com/news/2012-06-28/barclays-451-million-libor-fine-paves-the-wayfor-competitors.html 40

Elena Logutenkova, UBS, Barclays Dodge $4.3 billion EU Fines for Rate Rigging, BLOOMBERG.COM, Dec. 4, 2013, available at: http://www.bloomberg.com/news/2013-12-04/ubs barclays-dodge-4-3billion-eu-fines-for-rate-rigging.html barclays-dodge-4-3billion-eu-fines-for-r ate-rigging.html 41

Gaspard Sebag and Aoife White, Deutsche Bank to RBS Fined by EU for Rate Rigging , BLOOMBERG.COM, Dec. 4, 2013, available at: http://www.bloomberg.com/news/2013-1204/deutsche-bank-to-rbs-fined-by-eu-for-rate-rigging.html 42

Maria Kolesnikova and Nicholas Larkin, Deutsche Bank Withdraws from Gold Fixing in BLOOMBERG .COM, Jan. 17, 2014, Commodities Cuts, available at: http://www.bloomberg.com/news/2014-01-17/deutsche-bank-withdraws-from-gold-fixing-incommodities-cutback.html 45


119.

Because Beca use the the FCA does does not not regulat regulatee the market market for for physic physical al gold, gold, the the FCA’s FCA’s

interest in gold manipulation indicates a concern that derivative products based on or linked to the London Fix or other spot prices are the target of manipulation. 120.

As dis discus cussed sed abo above ve at ¶¶ 68-7 68-72, 2, on May May 23, 23, 2014, 2014, the FCA fin fined ed Barcla Barclays ys the

equivalent of $44 million for its role in manipulating the London Fix for its own benefit. be nefit. 121.

There The re is no no indicat indication ion that that the the FCA has has close closed d its inves investig tigati ation on of the the other other

defendants. F.

Indi In dici cia a of of Agre Agreem emen ent, t, Com Combi bina nati tion on,, or Con Consp spir irac acy y

122.

As discus discussed sed above, above, ther theree are numero numerous us indici indiciaa that Defen Defendant dants’ s’ conduc conductt was not

merely coincidental but carefully crafted to disturb the efficient operation of markets for physical gold and gold derivatives. 123.

Defenda Def endants nts have have each financ financial ially ly benefi benefited ted from from the antico anticompe mpetit titive ive conduc conductt

described above. 124.

Certai Cer tain n of the Defen Defendan dants ts have have been the the subjec subjectt of numero numerous us inves investig tigati ations ons and and

proposed investigations, including by the Commodity Futures Trading Commission, Financial Conduct Authority, and Bafin. 125.

Defenda Def endants nts have have engaged engaged in paral parallel lel condu conduct ct that that would would not be consis consistent tent with with

market forces, declining to take advantage advant age of gross inefficiencies by competitors in the market. VII.

ANTITRUST INJURY

126.

Defendants’ Defenda nts’ rest restraint raintss of trade and antico anticompeti mpetitive tive conduc conductt adversel adversely y affecte affected d

competition and prices in the market for ph ysical gold and gold derivatives.

43

Suzi Ring & Nicholas Larkin, FCA Said to Observe London Gold Fixing as Scrutiny Increase, BLOOMBERG.COM, April 25, 2014. 46


127.

Plaintiff Plain tiff and other other Class member memberss were were depri deprived ved of the benefi benefits ts of normal normal marke markett

operation, including market-determined pricing. As a consequence of Defendants’ conduct, Plaintiff and the Class suffered substantial financial losses and were, therefore, injured in their business or property. 128.

As shown shown above, above, the the manipula manipulatio tion n detaile detailed d herein herein both artif artifici icially ally infl inflated ated and and

artificial artif icially ly suppress suppressed ed the price price of gold, gold, injuring injuring both long and short short holde holders rs of gold futures futures and options optio ns contra contracts. cts. To the the extent the aggreg aggregate ate trend trend has been to suppr suppress ess price prices, s, ¶¶99-1 ¶¶99-100, 00, this has resulted in (as of the last available “This Month in Gold Futures Market” Report from the CFTC 44) an extraordinarily positive result for for Commercial Traders in gold futures contracts (who held between 352,500 and 381,200 short futures contracts, as opposed to merely 140,900 to 145,100 long futures contracts in the same period. This heavy weight toward shorting gold futures contracts means a net drop in in gold prices would be extremely lucrative for commercial traders.45 “Commercial” Traders are entities, such as Defendants, that use futures or options for hedging purposes, as opposed to “non-commercial” entities that do not own the underlying asset or its financial equivalent and hold only derivatives contracts. 129.. 129

Thee CFT Th CFTC C ban bank k par parti ticip cipat atio ion n re repo port rtss46 demonstrate that these “commercial”

shorts are largely non-U.S. banks like Defendants. Short/Long Positions by Non-U.S. Banks in COMEX Gold Futures Contracts, according to CFTC Date

Long

Short

Net Position

January 2012

7 , 7 10

38,812

Short 31,102

44

These reports were discontinued effective January 2013. See CFTC, This Month in Gold Futures Market, available at: http://www.cftc.gov/oce/web/gold.htm 45

See CFTC, This Month in Gold Futures Market, available at: http://www.cftc.gov/oce/web/gold.htm 46

http://www.cftc.gov/marketreports/bankparticipationreports/index.htm 47


February 2012

9 , 1 61

44,908

Short 35,747

March 2012

11,152

47,409

Short 36,257

April 2012

13,044

50,846

Short 37,802

May 2012

10,372

51,891

Short 41,519

June 2012

9, 5 72

54,413

Short 44,841

July 2012

8 , 5 30

58,479

Short 49,949

August 2012

9 , 1 99

49,772

Short 40,573

September 2012

10, 710

64,144

Short 53,434

October 2012

34,881

113,445

Short 78,564

November 2012

37,503

96,939

Short 59,436

December 2012

35,526

80,033

Short 44,507

January 2013

32,191

78,038

Short 45,847

February 2013

30,272

79,006

Short 48,734

March 2013

29,219

72,545

Short 43,326

April 2013

29,216

73,669

Short 44,453

May 2013

32,483

54,957

Short 22,474

June 2013

24,035

49,075

Short 25,060

July 2013

34,904

58,656

Short 23,752

August 2013

25,956

47,996

Short 22,040

September 2013

23, 626

60,350

Short 36,724

October 2013

24,296

57,665

Short 33,369

November 2013

19,006

58,486

Short 39,480

December 2013

25,508

39,547

Short 14,039

January 2014

26,128

32,492

Short 6,364

February 2014

18,752

48,860

Short 30,108

March 2014

17,526

54,385

Short 36,859

48


April 2014

20,048

59,025

Short 38,977

At no point for which reports are currently available were non-U.S. banks, such as Defendants, long on gold futures contracts. VIII. THE DISCOVER DISCOVERY Y RULE RULE AND AND FRAUDULENT FRAUDULENT CONCE CONCEALMEN ALMENT T

130.

Plaintiff Plain tiff did not disco discover, ver, and could could not have have reason reasonably ably disco discovered vered throug through h the the

exercise of reasonable diligence, the wrongdoing discussed in this complaint, until, at the very earliest, January 2014, when Defendant DB withdrew from the fixing after interviews with Bafin, Germany’s financial regulator. 131.

Before Bef ore the the DB depart departure ure was was annou announced nced and and Bafin’ Bafin’ss presid president ent revea revealed led the the

seriousness of the allegations, Plaintiff could not have stated facts plausibly stating the conspiracy to manipulate the price of gold and gold derivatives. 132.

The activ activity ity Defen Defendant dantss underto undertook ok was of a selfself-con conceal cealing ing natur nature. e. The London London

Fix teleconference is not publicly-accessible. The information Defendants received from their clients about the demand for purchases and sales of gold before and during the teleconference were not publicly-accessible. Without these pieces of information, Plaintiff would not be able to discern market dislocation or the existence of spoof trades. IX.

CLAIMS COUNT I (PRICE-FIX (PRICE-FIXING) ING)

133.

Plainti Plai ntiff ff her hereby eby incor incorpora porates tes each prec precedi eding ng and and succeed succeeding ing para paragra graph ph as thou though gh

fully set forth herein. 134.

Beginn Beg inning ing at leas leastt as early early as Januar January y 1, 2004, 2004, and conti continui nuing ng there thereafte after, r,

Defendants and their coconspirators entered into and engaged in a contract, combination or conspiracy in restraint of trade to artificially manipulate prices of gold and gold derivatives in

49


violation of Section 1 of the Sherman Act (15 U.S.C. § 1). Such contract, combination or conspiracy constitutes a per se violation of the federal antitrust laws and is, in any event, an unreasonable and unlawful restraint of trade. 135.. 135

The con contr tract act,, combi combina nati tion on or con consp spir iracy acy con consi sist sted ed of a co cont ntin inui uing ng agr agree eeme ment nt,,

understanding or concerted action among Defendants and their co-conspirators in furtherance of which Defendants manipulated and determined the price of physical gold and gold derivatives. 136.. 136

Defe De fenda ndant ntss

and and

theirr thei

cocons coco nspi pira rato tors rs’’

cont co ntrac ract, t,

combi com binat natio ion, n,

agree agr eeme ment nt,,

understanding unders tanding or concerted concerted action occurred occurred within the flow flow of, and subst substantial antially ly affected affected interstate commerce. 137.. 137

As a dir direc ectt and and pro proxi xima mate te re resu sult lt of Def Defend endant ants’ s’ sc sche heme me,, Pla Plain inti tiff ff an and d the the

members of the Class have been injured and financially damaged in their respective businesses and property property,, in amounts amounts which are presently presently undete undetermine rmined. d. Plaint Plaintiff’ iff’ss injur injuries ies consis consistt of transacting trans acting at artif artificial icial prices prices in an artificial artificial and manipulated manipulated market. Plaintiff Plaintiff’s ’s injur injuries ies are of the type the antitrust laws were designed to prevent, and flow from that which makes defendants’ conduct unlawful. COUNT II (PRICE MANIPULATION)

138.

Plainti Plai ntiff ff her hereby eby inc incorp orporat orates es each prec precedi eding ng and suc succeed ceeding ing par paragra agraph ph as tho though ugh


Defendants Defenda nts and their coconsp coconspirat irators, ors, throug through h the the acts acts alleged alleged in this this Complai Complaint, nt,

specifically intended to and did cause unlawful and artificial prices of gold and gold derivatives, in violation of the Commodity Exchange Act, 7 U.S.C. § 1, et seq. 140.

Plaint Pla intiff iff and othe others rs who who trans transact acted ed in gol gold d fut futures ures,, includi including ng durin during g the the Class Class

Period transacted at artificial and unlawful prices resulting from Defendants‘ manipulations in

50


violation of the Commodity Exchange Act, 7 U.S.C. § 1, et seq., and as a direct result thereof were injured and suffered damages. 141.

Plaintiff Plaint iff and the the Class Class are each each entitled entitled to damages damages for the violati violations ons of of the the

Commodity Exchange Act alleged herein. 142.

Defendants’ Defendan ts’ conduct proxima proximately tely caused injury to Plaint Plaintiff iff and other other membe members rs of

the Class who transacted in an artificial and manipulated market, at manipulated prices, and with artificial price trends, during the Class Period. 143.

Plaint Pla intiff iff and and other other membe members rs of the the Class Class who who purchas purchased ed or sold sold gold gold futur futures es

contracts, including COMEX gold futures contracts during the Class Period were injured and are each entitled to their actual damages for the violations of the Commodity Exchange Act alleged herein. COUNT III (MANIPULATION BY FALSE FALSE REPORTING, FRAUD, FRAUD, AND DECEIT)

144.

Plainti Plai ntiff ff hereby hereby incorp incorporat orates es each preced preceding ing and succe succeedi eding ng paragra paragraph ph as though though


By their their intent intention ional al and reckle reckless ss miscon misconduct duct,, Defendan Defendants ts each viola violated ted Sectio Section n

6(c)(1) of the Commodity Exchange Act, as amended, 7 U.S.C. § 9, and caused prices prices of gold futures futur es contra contracts, cts, including including COMEX COMEX gold, to be artificial artificial during during the Class Period. Period. Defendants Defendants delivered and caused to be delivered for transmission through the mails and interstate interstate commerce, by multiple means of communication, a false or misleading or inaccurate report concerning the London Fix or other market information or conditions that affect or tend to affect the price of gold and gold futures, which are commodities in interstate commerce, knowing, or acting in reckless disregard of the fact that such report was false, misleading or inaccurate.

51


146.

Underr Section Unde Section 6(c)( 6(c)(1) 1) of the the Commodi Commodity ty Exchan Exchange ge Act, Act, as amende amended, d, codifi codified ed at 7

U.S.C. § 9, and Section 22 of the Commodity Exchange Act, as amended, 7 U.S.C. § 25, it is unlawful for any person, directly or indirectly, to use or employ or attempt to use or employ, in connection with any swap, or a contract of sale of any any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity, any manipulative or deceptive device or contrivance, in in contravention of such such rules and regulations as the the CFTC, which shall promulgate by not later than 1 year after July 21, 2010. 147.

In July July 2011, 2011, the the CFTC CFTC promulg promulgate ated d Rule Rule 180.1(a 180.1(a), ), 17 C.F.R C.F.R.. § 180.1(a 180.1(a)) (2011) (2011),,

which provides, in relevant part: It shall be unlawful for any person, directly or indirectly, in connection with any swap, or contract of sale of any commodity in interstate commerce, or contract for future delivery on or subject to the rules of any registered entity, to intentionally or recklessly use or employ, or attempt to use or employ, any manipulative device, scheme, or artifice to defraud, make, or attempt to make, any untrue or misleading statement of a material fact or to omit to state a material fact necessary in order to make the statements made not untrue or misleading. 148.

Unlawf Unl awful ul manip manipula ulatio tion n under under the Comm Commodi odity ty Exchang Exchangee Act, Act, as amende amended, d, and and

Rule 180.1 includes delivering, or causing to be delivered for transmission transmission through the mails or inters int erstat tatee commer commerce, ce, by any mean meanss of commu communic nicati ation on whats whatsoev oever er conc concern erning ing mark market et information or conditions that that affect or tend to affect the price of any commodity in interstate commerce, commer ce, knowing, or acting acting in reckless reckless disregard disregard of the fact that such report is false, false, misleading or inaccurate. 149.

During Dur ing the the Class Class Period, Period, Defenda Defendants nts used used manipu manipulat lative ive or decep deceptiv tivee devices devices or

contrivances, in connection with contracts of sale of gold in interstate commerce, including, but not limited to, making untrue or misleading statements of material facts, or omitting material facts necessary to make the statements not misleading, including: a.

maki ma king ng unt untru ruee or mis misle lead adin ing g sta state teme ment ntss rega regard rdin ing g the the Lon Londo don n Fix Fix 52


b.

failing to disclose, and omitting, that they engaged in spoofing

c.

fail fa ilin ing g to to dis discl clos ose, e, an and d omit omitti ting ng,, tha thatt they they we were re unl unlaw awfu fully lly co cons nspir pirin ing g

between and among themselves to manipulate COMEX gold prices; d.

issu is suin ing g sta state teme ment ntss and and di dire rect ctly ly eng engagi aging ng in th thee act actss all alleg eged ed her herei ein n

knowingly or with reckless disregard for the truth; and e. 150.

empl em ploy oyin ing g ot othe herr de dece cept ptiv ivee dev devic ices es as de desc scri ribe bed d ab abov ove. e.

Defendants’ Defendan ts’ conduct proxima proximately tely caused injury to Plaint Plaintiff iff and other other membe members rs of

the Class who transacted in an artificial and manipulated market, at manipulated prices, and with artificial price trends, during the Class Period. 151.

Plaintiff Plaint iff and the the Class Class are each each entitled entitled to damages damages for the violati violations ons of of the the

Commodity Exchange Act alleged herein. COUNT IV (PRINCIPAL-AGENT LIABILITY)

152.

Plainti Plai ntiff ff hereby hereby incorp incorporat orates es each preced preceding ing and succe succeedi eding ng paragra paragraph ph as though though

fully set forth herein 153.

Defenda Def endants nts BNS, BNS, Barc Barclay lays, s, DB, DB, HSBC, HSBC, and SocG SocGen en and and others others were were each each an

agent and/or other person on behalf of the other Defendants. Because they acted pursuant to and were members of a conspiracy and unlawful agreement, Defendants acted as one another’s agents during the Class Period. 154.

Thiss include Thi included d when Defenda Defendants nts,, through through their their employ employees ees,, agents, agents, and/or and/or other otherss

directed, developed, executed, and otherwise acted with respect to the scheme alleged herein. Each Defendant Defendant is liable under under Section 2(a)(1) 2(a)(1) of the Commod Commodity ity Exchange Exchange Act, 7 U.S.C. § 2(a)(1)(B), for the manipulative acts or omissions of its agents, employees, or other persons acting on their behalf.

53


155.

Plaint Pla intiff iff and and Class Class member memberss are each each entitle entitled d to damages damages for for the viola violatio tions ns

alleged herein. COUNT V (AIDING AND ABETTING LIABILITY)

156.



All Defe Defenda ndants nts are are also also liabl liablee for aidi aiding ng and abet abetting ting man manipu ipulat lation ion..

158.

Each and every every Defe Defendan ndantt had exten extensiv sivee knowle knowledge dge of the mani manipul pulati ation on and, and, with with

such knowledge, materially assisted the manipulation by the other Defendants. 159.

Each Defen Defendan dantt made and and benefi benefited ted from from the the manipu manipulat lative ive acts acts and and willfu willfully lly

aided, abetted, counseled, induced, and/or procured the commission of violations of the Commodity Commod ity Exchange Act by the other other Defendants Defendants.. 160.

Each Defe Defendan ndantt superv supervise ised d the making making of of and benefi benefited ted from from the manip manipula ulativ tivee

acts and willfully aided, abetted, counseled, induced, and/or procured the commission of violations of the the Commodity Exchange Act by the other Defendants. 161.

Each Defe Defendan ndant, t, by and throu through gh their their respec respectiv tivee partner partners, s, agents agents,, employee employeess

and/or other persons, benefited from the manipulative acts and willfully aided, abetted, counseled, induced, and/or procured the commission of violations of the the Commodity Exchange Act by the the other other Def Defenda endants nts.. 162.

Each Eac h Defendan Defendantt partici participate pated d in the devel developm opment ent of the the manipul manipulati ative ve scheme scheme and

participated in the execution of, and supervised, the manipulative acts. Each Defendant also benefited from the manipulative acts and willfully aided, abetted, counseled, induced, and/or procured the commission of violations of the Commodity Exchange Act by the other Defendants.

54


163.

Defenda Def endants nts each each playe played d their their compon component ent role role and and each knowi knowingly ngly aide aided, d, abette abetted, d,

counseled, induced, and/or procured the violations alleged herein. Defendants did so knowing of each other's other's manipulation manipulation of gold gold market prices, prices, and willfull willfully y intended intended to assist these these manipulation manipu lations, s, which resulted resulted in COMEX COMEX gold futur futures es contracts contracts reaching reaching arti artificia ficiall levels durin during g the Class Period in violation of Section 22(a)(1) of the Commodity Exchange Act, 7 U.S.C. § 25(a)(l). 164.

Plaint Pla intiff iff and and the memb members ers of the the Class Class are are each entitl entitled ed to actua actuall damage damagess for the the

violations violat ions of the Commodity Commodity Exchange Exchange Act Act alleg alleged ed herein. herein. COUNT VI VI (UNJUS (UNJUST T ENRICHMENT) ENRICHMENT)

165.



Because Beca use of the act actss of Def Defenda endants nts and thei theirr cocon coconspi spirat rators ors as alle alleged ged her herein ein,,

Defendants Defen dants have been unjustly unjustly enriched enriched at the expense of Plaintiff Plaintiff and members of the the Class. 167.

Plaint Pla intiff iff and memb members ers of the the Class Class seek seek rest restora oratio tion n of the the monie moniess of whic which h they they

were unfairly and improperly deprived, as described herein. X.

DEMAND FOR JUDGMENT

168.. 168

WHER WH EREF EFOR ORE, E, Pla Plain inti tiff ff,, on beh behal alff of hi hims msel elff an and d the the prop propos osed ed Cla Class ss,,

respectful respe ctfully ly requests that the Court: 169.

Determine Deter mine that this action may be maintain maintained ed as a class class action action pursuan pursuantt to Feder Federal al

Rule of Civil Procedure 23(a) and (b)(3), direct that reasonable notice of this action, as provided by Federal Rule of Civil Procedure 23(c)(2), be given to the class, and declare Plaintiff as the representative of the Class and Plaintiff’s counsel as counsel for the Class;

55


170.

Determ Det ermine ine that that the the Defenda Defendants nts have have viola violated ted Secti Sections ons 1 of of the Sherm Sherman an Act and and

award Plaintif Plaintifff and the Class Class treble treble damages, damages, as well as costs costs and attorn attorneys’ eys’ fees, as well as injunctive relief; 171.

Determ Det ermine ine that that Defe Defendan ndants ts have have viola violated ted the the Commod Commodity ity Exch Exchange ange Act Act and and

award Plaintiff and the Class damages; 172.

Decree Dec ree that that Defend Defendant antss have been been unjust unjustly ly enrich enriched ed by their their wrongf wrongful ul conduct conduct

and award restitution and disgorgement disgorgement to Plaintiff and members of the Class; 173.

Award Awa rd Plai Plainti ntiff ff and the Cla Class ss all avai availab lable le prepre-jud judgme gment nt and pos post-j t-judg udgment ment

interest, to the fullest extent available under law or equity; and 174.

Order Ord er such such other other,, furthe furtherr and gene general ral rel relief ief as is jus justt and pro proper per..

56



Appendix A Average Intraday Price Fluctuations in Gold by Year This Appendix provides an annual breakdown of the average normalized gold price chart presented in ¶93. These charts further highlight how the spikes in gold prices around the twice daily fixings had a more pronounced pronounce d impact in the later years of the sample.

Average Av erage Normal Normalized ized Ph Phys ysical ical Gold Pric Price: e: Jan 19 9 8 - De Dec c 19 9 8 100 0.8

D S U 100 0.6 0 0 0 1 = e100 0.4 s a b , . z o y 100 0.2 o r t r e p e c100 0.0 i r p s e r u t u 999.8 f d e z i l a 999.6 m r o N

AM Fixing

PM Fixing

999.4

London time

Average Av erage Normal Normalized ized Ph Phys ysical ical Gold Gold Price: Price: Jan Jan 19 9 9 - De Dec c 19 9 9 100 0.8

D S U100 0.6 0 0 0 1 =100 0.4 e s a b , . z100 0.2 o y o r t r e100 0.0 p e c i r p 999.8 s e r u t u f 999.6 d e z i l a m r 999.4 o N

AM Fixing

PM Fixing

999.2

London time

1


Average Normali Normalized zed Phys Physical Gol Gold d Pri Price: ce: Jan 2 0 0 0 - Dec 20 2000 10 0 1.0

D100 0.8 S U 0 0100 0.6 0 1 = e100 0.4 s a b , . z100 0.2 o y o r 100 0.0 t r e p e 999.8 c i r p s 999.6 e r u t u 999.4 f d e z i l 999.2 a m r o 999.0 N

AM Fixing

PM Fixing

998.8

London time

Average Normalized Normalized Phy Phys sica icall Gold Gold Pri Price: ce: Jan 20 0 1 - Dec 20 2001 100 0.6

D S100 0.4 U 0 0 0 1 100 0.2 = e s a b100 0.0 , . z o y o 999.8 r t r e p e 999.6 c i r p s e r 999.4 u t u f d 999.2 e z i l a m r o 999.0 N

AM Fixing

PM Fixing

998.8

London time

2


Average Normali Normalized zed Physi Physical cal Gold Gold Pri Price: ce: Jan 20 0 2 - Dec 20 2002 10 0 1.2

D S10 0 1.0 U 0 0 0 1100 0.8 = e s a b100 0.6 , . z o y o r100 0.4 t r e p e100 0.2 c i r p s e100 0.0 r u t u f d 999.8 e z i l a m r 999.6 o N

AM Fixing

PM Fixing

999.4

London time

Average Normalized Normalized Phy Phys sica icall Gold Gold Price: Price: Jan 20 0 3 - Dec 20 2003 10 0 1.2

D S10 0 1.0 U 0 0 0 1100 0.8 = e s100 0.6 a b , . z o100 0.4 y o r t r e100 0.2 p e c i r100 0.0 p s e r u 999.8 t u f d e z 999.6 i l a m r o 999.4 N

AM Fixing

999.2

London time

3

PM Fixing


Average Normali Normalized zed Phys Physical Gol Gold d Pric Price: e: Jan Jan 20 0 4 - Dec 20 2004 100 0.8

D S100 0.6 U 0 0 0 1100 0.4 = e s a b100 0.2 , . z o y o100 0.0 r t r e p e 999.8 c i r p s e r 999.6 u t u f d 999.4 e z i l a m r 999.2 o N

AM Fixing PM Fixing

999.0

London time

Average Av erage Normalized Normalized Phys Physic ical al Gold Gold Pric Price: e: Jan Jan 200 20 0 5 - Dec 20 2005 10 0 1.2

D S10 0 1.0 U 0 0 0 1 100 0.8 = e s a b100 0.6 , . z o y o r100 0.4 t r e p e100 0.2 c i r p s e r100 0.0 u t u f d 999.8 e z i l a m r o 999.6 N

AM Fixing PM Fixing

999.4

London time

4


Average Normali Normalized zed Physi Physical cal Gold Gold Pri Price: ce: Jan Jan 20 0 6 - Dec 20 2006 10 0 1.0

D S100 0.8 U 0 0 100 0.6 0 1 = e s 100 0.4 a b , . z o100 0.2 y o r t r e100 0.0 p e c i r 999.8 p s e r u 999.6 t u f d e 999.4 z i l a m r o 999.2 N

AM Fixing

PM Fixing

999.0

London time

Average Av erage Norm N ormali alized zed Physi Physical cal Gold Gold Pri Price: ce: Jan 20 0 7 - Dec 20 2007 10 0 1.0

D S100 0.8 U 0 0 0 1100 0.6 = e s a b100 0.4 , . z o y o100 0.2 r t r e p e100 0.0 c i r p s e r 999.8 u t u f d 999.6 e z i l a m r o 999.4 N

AM Fixing

999.2

London time

5

PM Fixing


Average Av erage Norm N ormali alized zed Phys Physic ical al Gold Gold Pric Price: e: Jan Jan 20 0 8 - Dec 20 2008 100 0.5

D S U 0 0 0 1100 0.0 = e s a b , . z o 999.5 y o r t r e p e c i r 999.0 p s e r u t u f d e 998.5 z i l a m r o N

AM Fixing

PM Fixing

998.0

London time

Average Normali Normalized zed Physi Physical cal Gold Gold Pri Price: ce: Jan 2 0 0 9 - Dec 20 2009 10 0 1.0

D S U 0 0 0100 0.5 1 = e s a b , . z o100 0.0 y o r t r e p e c i r 999.5 p s e r u t u f d e 999.0 z i l a m r o N

AM Fixing PM Fixing

998.5

London time

6


Average Av erage Normali Normalize zed d Comex Futures Futures Price: Price: Jan 20 10 - De Dec c 20 10 100 1.0

D S U 0 0 0 1100 0.5 = e s a b , . z o100 0.0 y o r t r e p e c i r 999.5 p s e r u t u f d e 999.0 z i l a m r o N

AM Fixing

PM Fixing

998.5

London time

Average Av erage Normal Normalized ized Com Co mex Futures Futures Price: Price: Jan 201 20 11 - De Dec c 20 11 10 0 1.0

D S U 0 0 0100 0.5 1 = e s a b , . z o100 0.0 y o r t r e p e c i r 999.5 p s e r u t u f d e 999.0 z i l a m r o N

AM Fixing

PM Fixing

998.5

London time

7


Average Av erage Normali Normalize zed d Comex Futur Futures es Price: Price: Jan Jan 20 12 - De Dec c 20 12 100 0.6

D S U100 0.4 0 0 0 1 =100 0.2 e s a b , . z100 0.0 o y o r t r e 999.8 p e c i r p 999.6 s e r u t u f 999.4 d e z i l a m 999.2 r o N

AM Fixing

PM Fixing

999.0

London time

Average Av erage Normali Normalize zed d Comex Futur Futures es Price: Price: Jan 2 0 13 - De Dec c 20 13 100 0.5

D S U100 0.0 0 0 0 1 = 999.5 e s a b , . z 999.0 o y o r t r e 998.5 p e c i r p 998.0 s e r u t u f 997.5 d e z i l a m 997.0 r o N

AM Fixing

996.5

London time

8

PM Fixing


Appendix B Linear Forecast Errors and Return Return Forecast Forecast Errors by Year In the chart chartss below is a statistical statistical measure measure of the the extent to which which gold prices prices are different different from from the immediately preceding prices (“Linear Forecast Errors”) and the ex tent to which gold returns are different from immediately preceding gold returns (“Return Forecast Errors”). See ¶93. Physical gold prices for all annual charts pre-2010, and Comex gold futures prices thereafter due to data availability.

1


2


3


4


5


6


7


8


Appendix C CHARTS COMPARING INTRADAY GOLD PRICES WITH PRICES OF OTHER ASSETS FOR SELECTED TRADING DAYS (See ¶106)

January 4, 2012:

September 4, 2012:

9


February 1, 2013:

May 21, 2013:

10


Appendix D THE FEDERAL FUNDS RATE ANNOUNCEMENT AND ITS IMPACT ON GOLD PRICES PRIC ES (See ¶¶103-04)

Federal Funds Rate Announcements Made During April 2011- December 2012 When Announcements Were Made at 12:30pm New York Time:

1


Federal Funds Rate Announcements Made During January 2010-January 2013 When Announcements Were Made at 2:15pm New York Time:

2

Gold Manipulation DB Et Al Full

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