Silver subject to price manipulation, CFTC says

By Asjylyn Loder and Pham-Duy Nguyen
Wednesday, October 27, 2010

As an investigation of the silver market by the top U.S. commodity regulator entered its third year, a member of the Commodity Futures Trading Commission said Tuesday there have been "repeated attempts" to influence prices.

"There have been fraudulent efforts to persuade and deviously control that price," said Commissioner Bart Chilton at a hearing in Washington, alleging there have been violations of the Commodity Exchange Act. "Any such violation of the law in this regard should be prosecuted," he said.

The five-member commission began investigating allegations of price manipulation in the silver futures market in September 2008. The CFTC said in a report that it had received "numerous letters, e-mails and phone calls" in past decades alleging prices were manipulated downward.

Chilton spoke at a hearing on regulations to implement the Dodd-Frank financial overhaul, which became law in July and gave the commission a year to establish rules governing the $615 trillion over-the-counter derivatives market.

The CFTC on Tuesday proposed new rules against manipulation and disruptive trading practices. Proving manipulation has challenged courts and lawmakers since the early attempts to regulate U.S. commodity markets in the 1920s.

The commission voted 5-0 to propose rules that will expand the agency's ability to prohibit fraud and manipulation in commodity markets. The public has 60 days to comment. The proposed rules will expand the commission's authority to the over-the-counter market and may make manipulation easier to prove.

Silver has gained roughly 40 percent this year, touching $24.95 an ounce on Oct. 14 - its highest level in 30 years.

"It is hard to know how important Chilton's comments are with regard to the ongoing silver manipulation allegations," said Mark O'Byrne, executive director of the GoldCore brokerage. "If the CFTC prosecutes those who may have manipulated gold and silver markets, as Chilton urged today, and violated commodities laws, then it could lead to further volatility and higher prices."

Bloomberg News

© 2010 The Washington Post Company