"...the one CFTC commissioner who often spoke out about how he did feel there was illegal trading activity going on in the silver market."
by Chris Marcus of Arcadia Economics
In Memory of Bart Chilton
Like many others in the precious metals community, I was deeply saddened upon hearing the news of Bart Chilton's passing this weekend.
Bart will forever be known (especially by those in the silver community) as one of the former commissioners of the CFTC. And in particular, the one CFTC commissioner who often spoke out about how he did feel there was illegal trading activity going on in the silver market.
His tenure with the CFTC coincided with several of the investigations into the silver market manipulation. And in addition to acknowledging that he felt the market was being manipulated, he was also the only commissioner who took the time to respond to the many market participants who wrote in expressing their concern.
Of which I was one, as I actually did contact the CFTC commissioners back in 2011 with my own concerns of what I'd been seeing. And indeed Bart was the only one to respond.
He referenced some of the interviews he had done where he acknowledged that he thought there was illegal trading going on, and that he was doing everything he could. Yet also mentioned that it took three out of the five commissioner votes to pass any action. With my own personal interpretation being that he was saying as politically eloquently as possible what he really believed, while also explaining the challenging dynamics of the situation.
Especially as the years have gone by, my appreciation and respect for what he wrote to me, as well as countless others, has continued to grow.
Because while I know there are some who have been critical of Bart, and feel that he should have done more, I always appreciated the position he was in, and found him to be someone of honor and integrity who was doing what it was possible for him to do.
This impression of Bart was only furthered when I contacted him several months ago about doing an interview for a book I've been compiling about the silver market. Where I've been interviewing the top silver experts in the world, to try and put into perspective the stunningly fascinating story that has been going on beneath the surface of the silver market.
In my experience on Wall Street, as well as in the time since, I've found it interesting how I can't remember a single person in mainstream finance who I've ever heard even talk about gold or silver. And I wanted to bring all of these expert perspectives together into one single book. So that for anyone who really wanted to understand what's going on in the silver market before it's too late to act, that the information would be laid out as clearly as possible for all who are interested.
So when I thought about contacting Bart, I thought it would be incredible to get his perspective. Although was not sure if he would be willing to talk about this topic. Or even more importantly, if he would be able to open and up and share what he really felt.
Although to the contrary, not only was Bart incredibly encouraging and receptive to the idea, but in addition to happily offering to do the interview, he shared a lot of stunning information that I don't believe has previously been made public.
Some of the particularly relevant comments that Bart mentioned include:
"Well, there's some stuff that's out there in the public that I'm not sure everybody put together. Most people did. And I would never for example, and I won't now, say that there was a bank and name it that held close to 40% of the silver market at one point.
But the news reports...I mean...people surmise it's JP Morgan Chase. And the news reports and the public record showed that when Bear Stearns collapsed, that their silver positions got transferred over to J.P. Morgan. And we, the CFTC, had to approve those positions, because the Bear Stearns positions, when they came over, combined with J.P's positions were so large that they violated the position limits one trader could hold. So the CFTC had to approve that J.P. could take on the Bear silver positions.
So if people want to do the math, they can can do the math on who had the largest silver (position).
But there was an exception that we made, and that's in the public record...that we made that allowance for a certain time...and that allowance was for them to be able to get out of those positions....and after this time was coming to an end, the runway which we had given for them to get out of the positions in excess of position limits, they were nowhere close to getting out of them.
Matter of fact, at one point they bought even more. Which was in direct conflict of what we had in mind.
So they were granted a little bit more time, a couple of months as I recall, and they did ultimately get down to the position (limit). But it was at that time that they were so large, that I made the comment about how large a particular bank was in the market.
Which sort of shocked people. And it shocked me, quite frankly, that it was so large."
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"The bottom line is we found a lot of things that indicated things were not okay."
Perhaps what I found most interesting was how Bart mentioned that he felt the CFTC had a solid case. Yet was told otherwise. Which led to the definition of manipulation being changed.
To which Bart expressed that had the new standard been in place during the time of the original investigation, that the case would have resulted in a conviction.
"I can tell you that things were suspect, and the investigation that we did uncovered a lot of evidence that would lead to a manipulation case, or an attempted manipulation case.
But the standard of evidence...was a very high bar. And while we did have direct evidence, voicemail evidence, text evidence, trading evidence, and at some point we had price movement evidence. But we never had all of the things that you needed together in one place that were enough for us to go after...there were just holes....and it was frustrating.
At one point we even thought we had enough to go forward with the case and we asked for some forensic economist outside of the CFTC to examine it. And they came back and they said, "no, we don't think so".
By the way, I've never talked about this. That was after about four years. And I said, "whoa, whoa, wait a minute". We thought we had enough evidence, and we hire somebody outside and they say, we don't have enough evidence. Let's go to somebody else.
So people don't know this part. But I essentially extended the investigation yet another year because I didn't believe it. And so we went to yet another forensic economist and had them look at it and they came back with the (same) opinion as the first folks. That we just didn't have the traders, and we didn't have the market participants dead to rights. But we had lots of stuff. And we had real stuff that would have played really well in court.
Not just numbers, but the rhetoric, the banter between traders that we had. And I'm not saying there was lots of it, but there was enough of it that it was damning.
But the damning part had to be backed up by other requirements of evidence under the law. And we didn't get all of that.
It troubled me so much by the way, that I did seek a change in the law. And we ultimately got it. And there's a newer lower standard for manipulation that's been in place since that time...(it was not retroactive)...which was similar to the SEC's standard for manipulation."
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"Would the same evidence back then result in a charge and a potential conviction (under the new rules) on manipulation?
I think so."
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"The stuff we had was pretty damning. But just not enough (at that time)."
In the interview I also asked Bart about my own interpretation of how the mechanics of the manipulation are operated. Which is primarily that when the price of silver is slightly above "the handle" (the round number), such as when silver is trading $15.05 (with $15 being the handle), that selling pressure is applied, stops are triggered, and the high frequency algorithms kick in as well. So in essence, the price gets nudged a bit, which then triggers the avalanche.
With the same traders who were the initial sellers continuously showing up on the Commitment of Traders report as the buyers at the lower price (as silver manipulation expert Ted Butler has detailed quite extensively in the past few years).
To which Bart responded, "it's a good portrayal...it's actually...it's a very good portrayal".
I actually spoke with Ted the Friday before Bart's passing and we talked about Bart, and what his motivation might have been to share what he did. Ted asked if I thought Bart felt like he had something to "get off his chest". Although that wasn't really how I would describe what I perceived from Bart.
But rather that he felt proud of what he had done, and felt it was important that this information be out in the public. Which he expressed to me both before, during, and after our interview.
Again, when I heard the news of his passing I was both stunned and deeply saddened. As I still am.
Although at the same time, deeply grateful that I did have this chance to speak with Bart. As in addition to deeply admiring and respecting how he stood up for what he felt was right, in a situation where I imagine that was not always easy, safe, or convenient to do, in the brief time I got to know him, he just seemed like an incredibly kind, genuine, and honorable man.
I send my condolences and warm thoughts to Bart's family and friends, as I can only imagine how much he will be missed by those that had the chance to know him well. And as someone who personally walked away from Wall Street to speak out about the same issues that Bart bravely warned about, I will forever remember him as exemplifying the true definition of a patriot, and a role model worth aspiring to.
God Bless you Bart. You will be missed.
Sincerely,
Chris Marcus
May 1, 2019