Letter to CFTC May 28, 2002 The
Honorable James E. Newsome Dear Chairman Newsome: It was my understanding that the Commission's response of April 12, 2002, by Mr. William C. Kokontis, indicated that you intended to terminate the manipulation in the silver market by the 4 or less short traders on the COMEX. Unfortunately, while your response stated that my "allegation would potentially involve violations of Commission and Exchange rules prohibiting price manipulation", the uneconomic and concentrated short position has grown larger In your Commitment of Traders report released May 24, 2002, for positions held, as of May 21, 2002, the 4 or less traders now hold a net short position of over 228 million ounces, the most concentrated net short position in history. Additionally, the 8 or less largest traders hold an unprecedented net short position of over 310 million ounces. Not only are these net short positions historically astounding in size, they are largely unbacked by real silver or bona fide hedges, making them speculative in nature. Open interest statistics since your report's cutoff date, indicate the short position has grown even larger, presaging yet another artificial downward price manipulation by these criminals. Most disturbingly, the 4 or less traders' net short position now constitutes 53.4% of the entire futures open interest in the COMEX silver contract. The 8 or less traders' net short position constitutes 72.4% of the entire market. No other regulated commodity has concentration ratios this high. It is not possible for any market to be considered a free market, when such a small number of traders hold such a dominating position. Common sense should tell you that a 50% or 70% net position in anything would mean effective control. And when such an enormous concentration is an unbacked and unbackable short position, the very existence of the market is threatened. Be sure that these large financial institutions are laughing at your agency, and have no intention of ceasing their manipulative behavior, just like Enron laughed at the regulators.. On May 22, 2002, your agency instituted an Enron "Hotline", in which you attempt to solicit public comment on the manipulation of the California energy markets by Enron and other companies. That manipulation took place one and a half years ago, and Enron filed for bankruptcy six months ago. In all due respect, your hotline is too little, too late. Consumers in California were defrauded out of billions of dollars due to this manipulation. Just like Enron arrogantly assured everyone how it was the free market that caused the extreme price movements in natural gas and electricity, the large short silver manipulators are explaining to you that silver's low price is not the result of their uneconomic and naked short sales. You must not believe their lies. Any market, where a handful of powerful and well-financed traders, working in concert, can amass a position greater than 50% or 70% of the entire market, is a controlled and manipulated market. Period. When that position is also greater than all the known available real material in the world, it becomes a criminal manipulation almost beyond comprehension. In silver, a tight-knit group of COMEX speculators control the vast majority of the short side, almost 75% of the market. This concentrated and coordinated position is almost three times all the known silver bullion in the world. That means these traders don't have, never had, and can't get the real backing to their naked short sales. This is fraud, pure and simple. It means that illegal price control is their only motive. To prevent just such a market perversion, is precisely why we have a body of commodity law. The Commission certainly wouldn't allow, nor has it allowed, such a concentrated long side position. Why are these short side speculators, working together, allowed to hold such an uneconomic and concentrated position? Are they above the law?
Ted Butler
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