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Fed Facing Lawsuits, Criminal Complaints Over Market Manipulation

Written by Alex Newman

In addition to valiant congressional efforts for increased transparency, the Federal Reserve System and its cohorts are being targeted with criminal complaints and multiple lawsuits that attempt to shed to light on the central bank’s “bailouts” and its manipulation of the stock market, the precious-metals market, and more.

Some startling revelations have already surfaced, like the fact that under Timothy Geithner, the Federal Reserve Bank of New York set up front companies to purchase toxic assets from various firms. It has also become public knowledge that the Fed handed out hundreds of billions to foreign central banks and trillions to financial institutions. But there is still much more hidden in the shadows, and efforts to expose the secrets are growing.  

Fox Business Network announced on April 20 that it was expanding its lawsuit against the Federal Reserve’s secret bailouts. And “The New American” has provided extensive coverage of Bloomberg’s lawsuit, which aims to force the banking cartel to disclose information about its so-called “emergency” lending program, which unconstitutionally and without appropriations from Congress provided trillions of dollars to various financial institutions.

Bloomberg won its original Freedom of Information suit, but the Fed obtained permission to delay disclosure while it appealed the ruling. The Fed lost again on appeal, arguing it was not subject to FOIA requests as a private entity and that disclosure would “harm” the institutions receiving bailouts. But despite the two court rulings, it has not yet given up and may even take the case all the way to the U.S. Supreme Court.

But while the Bloomberg lawsuit proceeds, investors who lost money because of the Fed’s market manipulations are exploring other options. A Florida investor who lost money after deciding to “short” financial institutions based on publicly available data has recently filed three felony criminal complaints with the Federal Bureau of Investigation and the Securities and Exchange Commission against the Fed, the Treasury, and various banks.

“Investors who had short positions or purchased ‘put options’ were defrauded of billions. I purchased short positions and was defrauded. I want to prosecute,” wrote investor, developer, and Republican Liberty Caucus of Florida chairman Will Pitts in his criminal complaint filed with the SEC. “Those guilty by their own admission should be arrested. Those who lost because of this fraud should be compensated for their loss.”

He is also working on initiating a class-action lawsuit to recover damages. “We’re assembling persons who were impacted as a result of these fraudulent activities and have spoken with a number of attorneys,” he told “The New American” in a telephone interview. “For [the Fed] to take action in the market to increase the value of the stocks, they’re directly defrauding everyone who’s on the other side of that trade.”

The efforts revolve around various actions taken by the Fed during the economic crisis under the guise of “stabilizing” the economy. In early-to-mid 2008, well-respected financial analysts evaluating the health of large banks and the real-estate market concluded that they were in bad shape, explained Pitts. Examining the publicly disclosed financial statements of the big financial institutions also revealed trouble ahead.

Based on that information, Pitts first sold his stock in large financial firms like Citibank and Bank of America while taking a short position, essentially betting that their value would go down. Along with countless others, he also decided to purchase various financial products using exchange traded funds (ETFs) that would increase in value as real-estate and the big banks’ fates declined. “But then, a strange thing started happening,” he explained: massive cash infusions and major purchases of equities and stocks in both financials and real-estate.

“When we begin looking at this — and it’s pretty common knowledge now — the central banks were loaning these large financial institutions huge sums of money at virtually zero percent interest,” Pitts recounted. “So they’re taking this huge amount of money that’s being borrowed from the Fed, and really making money doing two things: one is all of the banks buying each others’ stock and running up the value of it to increase their net worth on the books … and then they’re also borrowing huge amounts of money from the Federal Reserve and buying U.S. Treasuries … which means guaranteed returns from the U.S. taxpayer.” 

Like countless others who were not privy to inside information about the Fed’s market manipulations, Pitts “absolutely” would have invested differently if the actions had been disclosed. And even if the Fed can successfully argue that it was not required to divulge the information, “those companies that had these material transactions all had an obligation to disclose these transactions that were occurring, and they didn’t,” he alleged.

The accusations being made in the criminal complaints have already been admitted by the Fed itself in some form or another. For example, in mid-2009, Fed boss Ben Bernanke acknowledged before Congress that the Fed had distributed over $500 billion to 14 foreign central banks from 2007 to the end of 2008 — so-called “liquidity” swaps. The money was then handed out to foreign financial institutions without being disclosed to the public. These actions obviously caused massive losses for otherwise-savvy investors who bet against the bailed-out banks without knowing that the failing firms would be rescued (using fiat money printed by central bankers at citizens’ expense).  

There’s also the acknowledged “emergency” lending totaling more than $2 trillion that the Fed has refused to disclose details about, even after being ordered to do so by federal courts. Another startling example of blatant market manipulation by the Fed came to light earlier this month. Even before the congressionally approved “bankster bailouts” of 2008, the New York Fed — owned by private banks and led at the time by tax dodger and current Treasury Secretary Timothy Geithner — “extended credit” to three limited liability companies it created.

The fake firms then began to openly intervene in the market to help certain firms. Incorporated in Delaware, Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC used the Fed loans to purchase a variety of toxic assets from AIG and Bear Stearns, helping JP Morgan and Goldman Sachs, among others. These asset purchases included residential mortgage-backed securities, multi-sector collateralized debt obligations, and more. The New York Fed admitted to all of this on its website in April, justifying the measures by citing section 13(3) of the unconstitutional Federal Reserve Act.

Using available data, a Bloomberg analysis found that assets purchased by the Fed’s front companies have lost over half of their value. Some of the assets were garbage from the start, despite Fed reassurances. Ben Bernanke told Congress in April of 2008 that all of the Bear Sterns assets unloaded on the Fed (or more accurately, the American people) were “entirely investment grade.” But that was a lie. “After a brief glance at a few bonds, we now know that’s not true,” noted the Financial Times after crunching the numbers.     

But stocks, bonds, and real-estate are not the only markets being manipulated by America’s central bank. Another recently filed lawsuit, which will be the topic of a related article, involves the Fed’s manipulation of the precious-metals market. Once again, average Americans lose while insiders profit.

Despite recent revelations, most of the Fed’s activities remain shrouded in mystery. It continues to fight court rulings ordering it to disclose lending information, but what has already come to light is troubling, to say the least. The Fed’s actions amount to — at minimum — a usurpation of the House of Representative’s constitutional authority to appropriate money, with countless investors suffering as a result. It is to be hoped that as investors, legislators, and taxpayers continue to demand answers, the truth will finally come out and, if warranted, the prosecutions can begin.

King World News: This Could Be The Biggest Fraud in The History Of The World

(This is a MUST LISTEN!)
In this interview with GATA we continue the saga after just having interviewed Andrew Maguire, the whistleblower out of London. This gives a short and long-term view down the rabbit hole through the eyes of 3 of the GATA board members. GATA was so heavily involved not only in breaking the news at the CFTC meeting about the the metals manipulation but also at the same time quite possibly uncovering the largest fraud in history. The Gold Anti-Trust Action Committee was organized in January 1999 to advocate and undertake litigation against illegal collusion to control the price and supply of gold and related financial securities. The committee arose from essays by Bill Murphy, a financial commentator, and by Chris Powell, a newspaper editor in Connecticut, published at Murphy’s Internet site, lemetropolecafe.com. In this GATA Roundtable we will have Bill Murphy, Chris Powell and Adrian Douglas.

Bill Murphy, at 1:40:
“six years ago my car was stolen, my website was hacked, and I was beat up with brass knuckles”

US Papers have been “bought”. Mainstream news did not have one word of this historic fraud! “All my news and radio interviews have been cancelled when I stated I had a bombshell to explain”.

Audio Listen Here..  (please be patient, their server seems to be overloaded)

Don’t Invest In Ridiculously-Rigged (And Thin) Markets

Posted by Karl Denninger

Janet Tavakoli has written an interesting piece over at Huffington Post related to the gold market and a potential cornering attempt:

First, let your greed overcome all regard for the stability of the global market, and overcome your aversion to illegal activities.

….

Pump up the gold story. Get your friends to tell retail investors to buy some gold every month. Get your buddies in the financial business to offer exchange traded gold funds (ETFs) that claim to buy physical gold. This will sound safe to retail investors, but in fact, the ETFs are very risky. This will serve your purpose when you are ready to start a panic. These particular ETFs will allow the “gold” to be commingled with the custodian’s gold, and the custodian can lease out the gold. Moreover, the “gold” custodian can give it to a sub custodian that the manager doesn’t know. The sub custodian can give it to yet another sub custodian unknown to the original custodian. The manager will never audit the gold, and the gold is not “allocated” to a particular investor. Since this is an “exchange traded” gold fund, investors will probably assume the gold is regulated by the Commodities Futures Trading Commission (CFTC), but it isn’t. By the time investors wake up to the probability that there is very little actual gold backing their investment, your plan will be ready to execute.

That could be a problem, right?

Zerohedge has run a piece of alleged manipulation of the market (specifically, selling short an insane number of contracts – which would obligate you to deliver – when you have no possible way to do so.)  This, however, isn’t necessarily manipulation per-se, nor is the assertion that these are “financial” (that is, we trade ‘em for money, not to actually buy or sell physical gold) assets false.  They in fact are; if I sell short a S&P 500 Futures Contract I can assure you that I do not deliver a basket of 500 stocks to the buyer if I’m right (or wrong!)

However, the elements of a scam – which could be the intended outcome – are indeed present.  The person buying or selling a futures contract can have either the intent of actually taking (or making) physical delivery or they can be a pure speculator on price, intending to execute the opposite trade prior to expiration (and thus pocketing either a profit or a loss thereupon.)  So long as the person executing a futures trade is required to post margin on all underwater positions nightly (and provided the market is honest, they are) the “pressure” on them as the market moves the wrong way tends to force correction toward the mean – and is counter-cyclical against imbalances.

But the buyer of an ETF is likely in a different circumstance.  Unlike the sophisticated speculator (like me) who buys and sells futures contracts on things like the S&P 500, currencies, gold and even oil without the intent to take delivery of a thousand barrels of crude in my driveway (that would be kinda messy, especially if the barrels were not included – and they’re not!) many if not most ETF purchasers are under the belief that they are buying actual physical gold or silver that someone is holding for them in a vault somewhere. 

The problem, of course, is that the so-called “gold” might not actually exist. 

For a futures contract with a time-certain expiration this is not a terribly-large problem, since the “discovery date” of the seller’s inability to produce (should you buy a contract and actually notice delivery) has a date on it by which you may demand (and expect) perfected delivery of an actual gold bar.  If there’s a “fail” there the results would be both dramatic and immediately-recognized.

ETFs are a different matter entirely.  These commonly are held for years, dramatically beyond the expiration cycle of the futures markets.  They also are often bought and held by people who believe they are actually holding metal – that is, as a hedge against things like currency debasement or even geopolitical collapse.

What happens if Janet’s scenario is correct?

Panic, that’s what.  A global market meltdown in which a handful of huge banks (who are very, very short in the futures market) suddenly get assigned for delivery – and yet they don’t have, and cannot acquire, enough physical gold to make delivery, because their open interest (in aggregate) exceeds the free supply available to trade.

This bankrupts these large dealers.  It also bankrupts the ETFs, who suddenly are “discovered” as having “leased” out all their gold – that is, they’re holding worthless paper promises to replenish their depository written by someone who has unfortunately become insolvent.

The “gold bugs” (those who hold physical metal) are of course very happy by this course of events, as the “spot” price would go to the moon – instantly.

Is this what’s going on?

Who knows. 

It certainly is the allegation and the number of people running stories that lead you to this conclusion over the last few months has reached a fever pitch.

But before buying into this story on either side be aware that when this was attempted by the Hunt Brothers with silver (and it was nearly the same path that Janet outlines in her article) the CFTC and other “regulators” in the market came in and changed the rules.  The danger here can be extreme, as most people with physical metal (the only people who will benefit if there is a monstrous spike in price – if you’re holding an ETF you will in fact likely get nothing!) cannot dispose of it fast enough to take advantage before the inevitable collapse on the back side of the cornering attempt occurs.

When the Hunt Brothers attempted this silver went from $11/oz to nearly $50 in less than four months – but two months later it had collapsed to below the original $11 price, with much if it happening in a literal single day.

I’ll stay away from this one – the criminals have proved that they can intentionally falsify the valuation of trillions of dollars in “assets” on balance sheets and otherwise cheat with wild abandon, but nobody will bring charges.  There is no reason to believe that you or I will be the ones who are able to get through the tiny little door if indeed this is the game that is being run, and every reason to believe that instead of the starry-eyed profits you dream of you will instead suffer a monstrous loss.

I’ll instead grab my  and watch the pretty fireworks.

The Formula for This Market Rally In Simple Terms

Written by Graham Summers   

I’m about to share with you the basic outlines for this market rally started March 2009. In no way shape or form am I providing official recommendations or investment advice in this post. I am merely pointing out the obvious trends that this rally has followed.

 The first, most obvious trend is the Manic Mondays trend. I’ve commented on the weekly Monday ramp job that has been occurring in the markets for months now. However, Dr. Robert McHugh as done extensive analysis on this trend, showing that for the 43 weeks ended Friday January 8, 2010, stocks have rallied on 30 out of the 43 Mondays.

 Even more significantly, these Monday ramp jobs have contributed the bulk of the market rally’s gains since March 2009. McHugh comments that all told, 80% of the gains stocks have posted since March 2009 have come on Mondays.

 The significance of this trend cannot be overstated. Someone (or several someones) has been pushing S&P 500 futures up virtually every weekend since this rally began. Since most Wall Street traders take their cues from the overnight futures market, this has resulted in massive gap ups on most Monday mornings.

 By the way, the “Monday effect” works even when the market is closed on Monday as yesterday’s action attested. All you need is a weekend and light futures trading to produce a Manic Monday.

The second trend that has dominated this market since the March 2009 bottom is the Bernanke Options Expiration juicing. In simple terms Ben Bernanke has shown a REAL preference for pumping money into the financial system on the exact week when options are expiring. I’ve bolded the expiration weeks in the table below. You’ll notice the LARGEST Fed moves have ALL occurred on expiration weeks.

 You’ll note that on non-expiration weeks, the largest Fed move was a $38 billion capital infusion. However, ON expiration weeks the SMALLEST move is $46 billion. And the largest expiration pump is a whopping $80 billion, which interestingly enough occurred during a time in which stocks were starting to break down. Interestingly enough, the SECOND largest Fed pump occurred in November another time in which stocks were breaking down.

 Coincidence?

 Options expiration week historically is a time of GREAT market manipulation as Wall Street traders try to push their positions into the black so they can close them out at a profit. For the Fed to be making its biggest infusions of capital on ALL of these dates is “a bit odd” to say the least. The fact it has occurred like clockwork for months makes this trend almost as regular as the Manic Monday Ramp Job.

 The final trend that has dominated this market is cousin to the Manic Monday Ramp Job. It is the Night Session Ramp Job. I’ve already mentioned this trend in previous essays so I’ll keep today’s comments short. The simple fact is that from September 13, 2009 until year-end, ALL of the stock market’s gains occurred in the over-night futures session from 4:00 ET to 9:30 AM ET.

 Tyler of ZeroHedge was the first to identify this trend and created the following graphic. It sums up this trend perfectly.

As you can see, for the last three months of 2009, the market basically traded sideways during the normal day session (9:30ET to 4PM ET). In contrast, the after hours futures market (4PM ET to 9:30AM ET) accounted for ALL stock gains.

 So there you have it, the three most dominant trends of this market rally. None of them are pretty. None of them involve fundamentals. And ALL of them are directly related to the Fed’s liquidity pump.

 Good Investing!

 Graham Summers

Front Running the Fed

I had a friend from the old neighborhood who was Comptroller of a major casino in Las Vegas in 1970-80s, where I also was married in 1981. Only lasting win from there, ever.

According to this dour son of Italy the way he could spot a problem, besides the more aggressive methods of observation and detection, would be to examine the returns on a table basis. In the short run they will vary, but in the longer term each game will provide a statistical return that rarely deviates from the forecast, unless someone is cheating. We would walk through the casino, and he would point to a table game and say “at the end of the month, this table will bring in xx percent.”

It was he who introduced me to Bill Friedman’s book, Casino Management, which is a useful read if you wish to learn more about that end of the speculative business from the house perspective.

Attached is some information from a reader. I cannot assess its validity, not being in the bond trading business. But it does sound like someone has tapped into the Fed’s buying plans to monetize the public debt and is front running those buys, essentially ‘stealing’ money from the public. Its what they call ‘a sure thing.’

To try and figure out who might be doing it, I would look for some big player who is showing extraordinary returns on their trading, with consistent profit that is not statistically ‘normal,’ too consistently good. The problem with cheaters is that they sometimes get greedy and call attention to themselves.

In Las Vegas the bigger cheats were often taken out into the desert for further inquiry and final disposition. On Wall Street they are somewhat more arrogant and persistent, defying resolution with that ultimate defiance, “We’ll just find other ways to cheat again.”

Time for a trip to the desert?

Here are a reader’s observations from the bond market.

From a reader:

I used to work for a BB on a prop desk until the financial crisis took hold and they fired the less senior guys on the desk. I now trade US Treasuries, for a small prop firm in xxxxx, to scalp basis trades in mostly on the run securities. Occasionally, I will also take position in the repo markets for off the runs if I see something “mispriced.” Your recent article piqued my interest because we too have noticed “shenanigans,” of sort, in the QE program of USTs.

What we noticed, especially in smaller issues like the 7 Year Cash is that before a Fed buy back would be announced the price would pop significantly as buyers would run through all the offers on two major electronic exchanges (BGC Espeed and ICAP BrokerTec). This occurred more than several times as the 7 Year Cash would be overvalued both by its BNOC by 20-30 ticks and its relative value to similar off the runs. This buyer(s) would lift every offer they could, driving the price substantially above its “value” for sometimes a week at a time. After this buying would occur, the Fed would then announce the purchase of that security sometimes a handle above its approximate value. This “luck” did not just occur in the on the run 7 Year sector, it also occurred in the 30 Year Cash, 3 Year Cash, and more than several off the runs. Again, it was especially prevalent in the less liquid treasury products. Often the “appetite” for these securities would begin approximately 2 weeks to 1 week before the official Fed announcement. The buying was well organized and done in such a way as to completely knock it off kilter from its relationship with like cash Treasuries and the CME Ten Year Contract. If you examine the charts of some of the selected buy backs before the official announcement, you will see a similar occurrence.

While I have not broken this down into a paper to prove it (and I see nothing positive coming out of contacting the ESS-EEE-SEE about this issue), I can assure you that it was occurring on a consistent basis across the entire curve.

A certain issuance would be bid up through the market (substantially above value, as derived by several metrics) only to be later gobbled up by the Fed at the unreasonable price. These player(s) had substantial pockets as we, the small guys (but with a decent capital base), would take the other side of what seemed to be an obvious fade. While this did not occur in every single issuance of the QE program, it occurred often enough to be obvious to any learned observer.

While I am not sure if this can be attributed to purposeful Fed policy or someone at the Fed talking to his pals, I am certain it transpired.”

Corruption is inevitable when the government is engaged in manipulating the markets with public monies. That portion of the Fed’s activities needs to be scrutinized by the GAO on a continual basis. And the activities of the Exchange Stabilization Fund and the Treasury in market intervention should be subject to review by the legislative branch on behalf of the people.

Of course another option is to keep the Fed and the Treasury out of the public markets altogether excepting short term interest rates and specifically identified emergencies.

Analyst charges that government is manipulating markets

By MarketWatch

WASHINGTON (MarketWatch) — The massive stock-market rally in the past nine months is mostly due to secret government buying of stock-index futures, a respected stock-market analyst said Tuesday.

Charles Biderman, chief executive of TrimTabs Investment Research, is the latest and most credible person to charge that the Federal Reserve and the Treasury (in league with top Wall Street firms) is rigging the stock market on a daily basis.

In a special report released Tuesday, Biderman said the $6 trillion increase in U.S. stock-market capitalization since March can’t be explained by the usual sources of funds flowing into the market — such as mutual funds, direct retail investment, pension funds, hedge funds or foreign purchases.

The only logical explanation for the extent of the rally, he suggested, is secret buying by a government committee known colloquially as the Plunge Protection Team. It’s like the dark matter that astrophysicists conjecture must be there, even if we can’t detect it.

The PPT was established by President Ronald Reagan in 1988 after the 1987 stock crash to coordinate the government’s response to market meltdowns. It consists of the Fed chairman, the Treasury secretary, the head of the Securities and Exchange Commission and the head of the Commodity Futures Trading Commission.

Biderman acknowledged that he had no direct evidence that the Fed and other agencies have intervened in the stock market. But he worried about what will happen to the market if the PPT has been buying and suddenly stops.

The Fed, of course, is a major player in the fixed-income markets, buying and selling billions in Treasurys, agency bonds and mortgage-backed securities. It’s taken on hundreds of billions in assets from Bear Stearns, American International Group Inc. /quotes/comstock/13*!aig/quotes/nls/aig (AIG 29.30, -0.03, -0.10%) and many unnamed banks to which it’s lent money. Presumably, all of those positions are duly reported by the central bank each week.

But the Fed has never said it is buying equities or equity futures. Doing so would likely violate the Federal Reserve’s investment policies, and could violate federal law if not disclosed properly.

Aside from the legal issues, the PPT would have operational constraints. It’s hard to believe that the Fed could keep such a conspiracy a secret for 20 years or more. An operation big enough to manipulate markets for months on end would be big enough to develop leaks.

With so much money at stake, anyone with direct knowledge of the conspiracy (such as a $30,000-a-year administrative aide) would be highly tempted to blow the whistle.

Yet Biderman’s accusation of PPT market manipulation is another argument in favor of a complete public audit of the Fed’s books. As any casual reader of this site’s community boards knows, there is a widespread belief that the PPT does manipulate stock prices on a daily basis to enrich its pals and screw individual investors.

It would be useful to prove them wrong. And if they are right, the PPT should be put out of business.

–Rex Nutting, Washington bureau chief