Regulators try to stop silver rumors
Agency inundated with queries about conspiracy
By Kate Gibson, CBS MarketWatch.com
Last Update: 5:50 PM ET May 19, 2004
CHICAGO (CBS.MW) -- While rumors move the markets every day, rarely is one so powerful that the federal government steps in to refute it. But that's what's happening as traders hear that something's wrong in the silver market.
The U.S. Commodity Futures Trading Commission took the unusual step of posting a letter on its Web site last week reassuring investors after a controversial columnist said large banks were manipulating silver prices. See the letter.
Jupiter, Fla.-based writer Ted Butler, a former Drexel Burnham Lambert account executive, has told readers of his column about a two-decades-long conspiracy to manipulate prices downward. He has encouraged them to buy silver on the theory that the manipulation will end and prices will rise.
"My Blackberry (e-mail device) was buzzing continually with e-mails from regular people all over the country, some of them not very polite," CFTC oversight director Michael Gorham said.
"Some people were quite angry," he said. "Others were pleading for help. It was very touching. People like your mom and dad, who couldn't understand what was going on." Gorham said his office received more than 500 letters and e-mail messages.
The New York Mercantile Exchange, where silver futures trade, has received similar correspondence. "We've spoken to and written to Mr. Butler several times in the past, explaining our surveillance process and how our markets are structured," said Nachamah Jacobovits, an exchange spokeswoman.
Butler is paid to write a weekly column published by Investment Rarities, a Minneapolis seller of coins and bullion.
"Normally we would not spend so much taxpayer time and money" on such complaints, Gorham said. But given the number of concerned shareholders, he said, his staff spent several months looking into Butler's claims and determined that "there is absolutely no evidence for the theory that this guy is spinning."
The CFTC actively monitors more than 300 futures contracts, and silver is one, Gorham said, that "has behaved reasonably well."
The director added that the Internet posting is a first for the CFTC in his two years there. "Our job is not to argue with analysts, but we took this step where the analyst has a huge following, and is telling people that the NYMEX and CFTC are not properly policing" the markets.
Butler, a self-described man on a mission, was undeterred by the agency's rebuke and said it confirmed his suspicion. "It took three pages and nine months to tell you there wasn't a problem. A lot of people would tell you there isn't a problem until there is an official denial," Butler said.
He said that the regulatory agency is reluctant to "open up a Pandora's box" by going head-to-head with the large central banks that he believes are in collusion in curbing prices. If it acknowledged a problem, the CFTC would have to admit that it failed in its duties at the expense of small investors for the past 20 years, Butler said.
When asked why he would urge people to buy into what he believes is an unfair playing field, Butler said the market can't remain "artificially depressed forever."
A believer in the laws of supply and demand, Butler said silver prices will rebound as global supplies run out and says it's "happening before our eyes."
Gorham said he knew the CFTC's letter would not convince everyone that the market is sound.
"(For) anybody who is a true believer that silver is manipulated and believes that with a religious fever, I'm sure this won't have much affect," he said.
The agency and Butler also remain at odds over an unpaid fine stemming from the analyst's days in Drexel Burnham Lambert's Miami office.
The CFTC in 1988 lodged a complaint against a DBL customer, Butler and a DBL manager, charging the trio conspired to manipulate the price of orange juice futures.
Butler on Tuesday said he was innocent of the charges and therefore had refused to settle, much less pay a $30,000 penalty imposed in 1993 by the CFTC.
Gorham confirmed that the fine remained unpaid.
Kate Gibson is a staff writer for CBS MarketWatch based in Chicago.
