Deutsche Bank, HSBC accused of silver price manipulation

Deutsche Bank AG, HSBC Holdings Plc and Bank of Nova Scotia were accused in a lawsuit of rigging the price of billions of dollars in silver, an allegation similar to earlier suits involving the London gold fix.

The banks unlawfully manipulated the price of the metal and its derivatives, an investor claims in a complaint filed on Friday in federal court in Manhattan. The banks abused their position of controlling the daily silver fix to reap illegitimate profit from trading, hurting other investors in the silver market who use the benchmark in billions of dollars of transactions, according to the suit.

"The extreme level of secrecy creates an environment that is ripe for manipulation," according to the complaint. "Defendants have a strong financial incentive to establish positions in both physical silver and silver derivatives prior to the public release of silver fixing results, allowing them to reap large illegitimate profits."

The lawsuit is the latest to be brought against banks alleging manipulation of a benchmark. Suits have been filed against Deutsche Bank and Bank of Nova Scotia, HSBC and other banks in federal court in New York over allegations involving the London gold fix.

Silver benchmark

"We intend to vigorously defend ourselves against this suit," Diane Flanagan, a spokeswoman for the Bank of Nova Scotia, said in an e-mail. Juanita Gutierrez, a spokeswoman for HSBC, and Amanda Williams, a representative for Deutsche Bank, declined to comment.

J Scott Nicholson, a Washington state resident who filed the case, is seeking to represent a class of investors who have bought silver future contracts since January 1, 2007.

The suit includes claims of aiding and abetting manipulation, as well as violation of antitrust laws and the Commodity Exchange Act. Nicholson seeks unspecified damages.

The 117-year-old system of fixing prices for the $5-trillion silver market is set to change next month.

London Silver Market Fixing Ltd said in May it would stop administering the benchmark, used by everyone from mining companies to central banks to trade or value metal, once Deutsche Bank ends its participation on August 14.

1897 start

The German lender, HSBC and Bank of Nova Scotia conduct the silver fixing, which first took place in 1897 at the office of Sharps & Wilkins with former dealers including Mocatta & Goldsmid, Pixley & Abell, and Samuel Montagu & Co.

Deutsche Bank, Germany's biggest lender, said in January that it would withdraw from participating in setting gold and silver benchmarks in London, a month after announcing that it would cut about 200 jobs in commodities and exit dedicated energy, agriculture, dry-bulk and base-metals trading. JPMorgan Chase & Co, Morgan Stanley and Bank of America Corp also are retreating from raw materials.

Precious metals are getting more attention from regulators after price rigging in everything from interbank lending rates to currencies led to fines and overhauled financial benchmarks.

The UK's Financial Conduct Authority in May fined Barclays Plc after a trader sought to influence the gold fix in 2012. An LBMA survey showed the market wants a new silver system to be an electronic, auction-based process with more direct participants and prices that can be used in trades.

BULLION WOES

In the latest lawsuit brought against banks alleging manipulation of a benchmark, J Scott Nicholson, a Washington state resident, is seeking to represent a class of investors who have bought silver future contracts since January 1, 2007. Here are some details of the suit

* The investor claims the banks - Deutsche Bank AG, HSBC Holdings Plc and Bank of Nova Scotia - unlawfully manipulated the price of the metal and its derivatives

* The banks allegedly abused their position of controlling the daily silver fix to reap illegitimate profit from trading, hurting other investors in the silver market who use the benchmark in billions of dollars of transactions

* The suit includes claims of aiding and abetting manipulation, as well as violation of antitrust laws and the Commodity Exchange Act

* A Bank of Nova Scotia spokeswoman said they intended to vigorously defend themselves against this suit