Wall Street: Blatant Piracy

There is a little parable today on the blatant piracy taking place on Wall Street and the continued regulatory near-vacuum. Chris Pia of Moore Capital [$10B Hedge Fund]got caught in August 2008 “close banging” [ which is merely a trading artifice in which the closing price is manipulated by repeated barrages of buy or sell orders to get a closing point that causes a derivative instrument to be in (or out of) the money] precious metal trades. The CFTC-Commodities Futures Trading Commission which regulates commodity trading, caught the Moore Capital trader in the act and has prosecuted him and Moore Capital.

Today the Wall Street Journal had a small story disclosing that Chris Pia  got hit with ” a big fine in metals trading case”; but no jail time and minimal restrictions on trading. However, one has to go to the ZeroHedge blog for the rest of the story. First, Chris Pia got fined “a near record $1M” and he no longer works for Moore Capital but has been set up  in a hedge fund called PIA Capital Management[$500M under management – so management fees in a year will cover the fine ten times over]. Moore Capital paid a near record $25M fine for “lack of supervsory control”. Again no jail time for anybody at Moore Capital and no restrictions on trading. But here is the Zero Hedge  take on the situation:

We don’t have any bad blood with Mr. Pia: “The new fund, headquartered in Greenwich, Conn., has about $500 million under management, and is down 0.6% for the year.” Since it is relatively difficult to be down (or just barely up), if performing alleged illegal market manipulative scams, we are confident he has learned his lesson. Yet for every Pia, there are 1,000 LBMAs, who perform precisely the same act on the Comex all day every day, in an attempt to constantly push down the key Central Banker nemesis: “gold.” We are confident that the CFTC and the DOJ will get right on with their investigation of comparable manipulation in the gold and silver markets. Because after all, nobody has anything to hide there… And gold would still be where it was if it weren’t for consistently shady PM activity in the market.

We hope Mr Pia will come forth to the media out of his own volution and discuss what else the broader public should be aware about manipulative practices, be they in the FX market, or in commodities. Alas, we are not holding our breath. Nor are we holding our breath that the DOJ, which has now be ruminating for about about 4 months as to whether or not to launch an investigation into silver market manipulation by JPM, will ever come to an affirmative conclusion. After all, they have said on so many occasions there is absolutely nothing wrong with the PM market, how can one possibly not believe them?…

Felix Salmon at Reuters largely agrees with ZeroHedge that “close banging” and other ‘pump and dump” schemes are regular practices not just in the commodity markets but the broader stock and bond markets as well. In effect, both sources are asking – what is the CFTC doing here? Is this a warning shot to the Steet from the Obama admin – “we could get tough”. Then ho-hum, Wall Street is engaged in blatant piracy with a wide range of commodity and stock market manipulations, what else is news?

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