Case 1:14-md-02548-VEC Document 44 Filed 03/16/15 Page 1 of 155 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK IN RE: Case No. 14-MD-2548 (VEC) COMMODITY EXCHANGE, INC., GOLD 14-MC-2548 (VEC) FUTURES AND OPTIONS TRADING LITIGATION SECOND CONSOLIDATED AMENDED CLASS ACTION This Document Relates To All Actions COMPLAINT JURY TRIAL DEMANDED Case 1:14-md-02548-VEC Document 44 Filed 03/16/15 Page 2 of 155 TABLE OF CONTENTS NATURE OF THE ACTION ..........................................................................................................1 JURISDICTION AND VENUE ....................................................................................................10 THE PARTIES...............................................................................................................................11 A. Plaintiffs.............................................................................................................................11 B. Defendants .........................................................................................................................22 FACTUAL ALLEGATIONS ........................................................................................................27 I. BACKGROUND ON THE GOLD MARKET.....................................................................27 A. The London Gold Fixing ...................................................................................................27 B. The LBMA.........................................................................................................................30 C. The London Bullion Market ..............................................................................................31 D. The Many Outlets for Gold Investments ...........................................................................33 E. The Fixing Impacts the Prices of Both Physical and Derivative Gold Investments, and the Share Prices of Gold ETFs....................................................................................36 II. MULTIPLE ECONOMIC ANALYSES REVEAL ARTIFICIAL DOWNWARD SPIKES AROUND THE TIME OF THE PM FIXING .......................................................41 A. To a Statistically Significant Degree, Prices Around the PM Fixing Trended Lower than Previously Prevailing Prices...........................................................................42 B. To a Statistically Certain Degree, Price Movements Around the PM Fixing are Contrary To Price Trend on a Given Day..........................................................................47 C. To a Statistically Significant Degree, the PM Fix Price Fell Into the Extreme Outliers of Prices for that Trading Day..............................................................................50 D. To a Statistically Certain Degree, a Comparison of Minute-by-Minute Prices Reveal a Pattern of Price Spikes Around the Fixing..........................................................51 E. To a Statistically Certain Degree, the PM Fixing Downward Spikes Stand Out as Against Movements at Any Other Time of Day – Even the AM Fixing...........................56 F. The Downward Spikes Can Be Seen in the Daily Data as Well........................................63 i Case 1:14-md-02548-VEC Document 44 Filed 03/16/15 Page 3 of 155 III. PLAINTIFFS HAVE IDENTIFIED SPECIFIC DAYS ON WHICH THEY ALLEGE, BASED ON THESE STATISTICAL STUDIES, THAT MANIPULATION OCCURRED.........................................................................................................................65 IV. THERE IS NO INNOCENT EXPLANATION FOR THE ABNORMALITIES SEEN IN THE PRICING DATA SURROUNDING THE PM FIXING ........................................66 A. None of the Proposed Alternative Explanations are Persuasive........................................67 1. The asymmetrical movements cannot be explained by general market trends..... 67 2. The asymmetrical movements cannot be explained by the fact the Fixing was releasing new information into the market ........................................................... 67 3. The asymmetrical movements cannot be explained by a purported increase in market liquidity..................................................................................................... 70 B. Other External Market Forces Cannot Account for the Anomalous Price Movements Observed Around the Fixing..........................................................................79 V. THE PRICE MOVEMENTS AROUND THE PM FIXING WERE THE RESULT OF DEFENDANTS’ MANIPULATIONS .................................................................................82 A. The Defendants Banks Were Heavily Motivated to Exercise Joint Control Over the Prices for Gold .............................................................................................................85 1. The Defendant Banks were heavily invested in gold............................................ 85 2. Defendants were particularly motivated by their huge “short” COMEX futures positions ................................................................................................................ 88 3. Even “balanced” – or “hedged” – portfolios present the opportunity to profit from daily spikes – particularly if the portfolio is “short” in futures, specifically........ 93 4. The movement of the Fix price is highly correlated with the Defendants’ COMEX positions ................................................................................................................ 96 5. There are numerous other ways to profit from foreknowledge about an upcoming price spike ............................................................................................................. 97 B. The “Tools of the (Manipulation) Trade” Are Well Known to Defendants......................99 C. Further Analysis of the Available Pricing Data Confirms it Was Defendants, Acting Jointly, Behind the Pricing Anomalies ................................................................106 D. Defendants’ Manipulative Activities Impacted the Purported “Auction” Process..........110 E. Numerous Plus Factors Are Probative of Collusion in Connection with the London Gold Fixing.........................................................................................................115 ii Case 1:14-md-02548-VEC Document 44 Filed 03/16/15 Page 4 of 155 VI. ONGOING GOVERNMENT INVESTIGATIONS CORROBORATE PLAINTIFFS’ ALLEGATIONS.................................................................................................................119 A. Multiple Investigations Are Underway Worldwide.........................................................119 B. Barclays Has Been Fined for Manipulating the Fixing, Using the Very Methods Alleged Here ....................................................................................................................122 C. FINMA Found Similar Problems at UBS........................................................................126 D. Other Relevant Findings ..................................................................................................128 VII. DEFENDANTS’ CONDUCT RESTRAINED TRADE, DECREASED COMPETITION, AND ARTIFICIALLY LOWERED PRICES, THEREBY INJURING PLAINTIFFS...................................................................................................130 A. Prices for Gold Investments – Including The Spot Market as Governed by the Fixing – are Inextricably Linked......................................................................................130 B. Defendants’ Artificial Lowering of the Price of Gold, Including the PM Fix Price, Directly Impacted the Market for Gold Investments .......................................................132 C. Plaintiffs, as Sellers in the Market for Gold Investments, Were Injured by Transacting at Lowered Prices Created by Defendants’ Collusive Conduct...................135 D. Defendants’ Manipulative Conduct Caused Sustained Price Suppression of Gold Prices................................................................................................................................135 VIII. EQUITABLE TOLLING OF THE STATUTE OF LIMITATIONS DUE TO DEFENDANTS’ CONCEALMENT OF THE CONSPIRACY ........................................137 IX. CLASS ACTION ALLEGATIONS ...................................................................................140 CAUSES OF ACTION................................................................................................................143 PRAYER FOR RELIEF ..............................................................................................................148 DEMAND FOR JURY TRIAL ...................................................................................................150 iii Case 1:14-md-02548-VEC Document 44 Filed 03/16/15 Page 5 of 155 Plaintiffs American Precious Metals, Ltd.; Norman Bailey; Patricia Benvenuto; Michel de Chabert-Ostland; Edward R. Derksen; Frank Flanagan; Quitman D. Fulmer; Thomas Galligher; KPFF Investment, Inc.; Duane Lewis; Larry Dean Lewis; Kevin Maher; Robert Marechal; David Markun; Trieste Matte; Blanche McKennon; Kelly McKennon; Thomas Moran; Eric Nalven; Nando, Inc.; J. Scott Nicholson; Ken Peters; Santiago Gold Fund LP; Albert Semrau; Steven E. Summer; Richard White; White Oak Fund LP; and David Windmiller (collectively, “Plaintiffs”), individually and on behalf of all those similarly situated bring this class action for treble damages and injunctive relief and allege as follows: NATURE OF THE ACTION