Precious metals investors cheered after a U.S. district judge ruled that two lawsuits accusing a number of major banks, including Bank of Nova Scotia, of fixing gold and silver prices for about a decade can proceed.
In one lawsuit, U.S. District Judge Valerie Caproni ruled that gold investors can pursue their lawsuit against four banks: Barclays PLC, Scotiabank, HSBC Holdings PLC and Société Générale SA.
"From the gold plaintiffs' standpoint, it's a very substantial victory," Dan Brockett, a partner at Quinn Emanuel Urquhart & Sullivan who represents the investors, said in a phone interview with Reuters on Wednesday.
In a separate lawsuit, the same judge said that silver investors can pursue their case against Scotiabank and HSBC. No terms have been disclosed. A spokesperson for Scotiabank declined to comment, saying that the matter is still before the courts.
The cases follow a turbulent period for precious metals that rewarded many investors during a rally that ended five years ago. Between 2000 and 2011, the price of an ounce of gold surged from about $270 (U.S.) to a record high of $1,900 – a gain of more than 600 per cent – as investors bet stimulative monetary policy would erode the value of the U.S. dollar and push the inflation rate higher.
But between the high point in 2011 and the start of this year, gold has tumbled 45 per cent.
While the two legal cases are separate, they both involve allegations that banks either exploited distortions in precious metals trading, allowing them to pocket gains at the expense of investors, or fixed prices.
The plaintiffs alleged that banks were "uniquely positioned to effectively 'name their own' Fix Price and thereby gain an unfair advantage with respect to the contracts, derivatives, and physical positions that they held in the market."
The plaintiffs noted that between 2001 and 2012, the spot price of gold decreased on between 60 and 75 per cent of trading days – an occurrence, they believe, "is statistically highly improbable under the circumstances where the chances of a price increase or decrease are roughly equal."
In her 73-page decision, Ms. Caproni said the investors plausibly alleged that the banks recklessly created "artificial price dynamics" for gold, and that their misconduct was the "proximate cause" of the distortions.
She let the investors pursue antitrust claims for alleged unlawful restraint of trade from January, 2006, to December, 2012. The judge dismissed a claim for unjust enrichment.
Zero Hedge, a financial website that often reports on what it sees as inconsistencies in precious metals trading, believes the district judge's decision allowing the cases to proceed marks a first for this sort of class-action lawsuit.
"And so the discovery process begins, which will expose just how much market manipulation takes place in the silver [initially as there is a parallel lawsuit taking place with regard to gold] market by major banks," Zero Hedge wrote in a post on Wednesday.
The U.S. judge dismissed UBS Group AG as a defendant in the lawsuit by silver investors, saying there was nothing to show it manipulated prices.
Deutsche Bank AG settled related claims by silver investors in April. Gold investors plan to seek preliminary approval of a settlement soon, their lawyer Vincent Briganti, a partner at Lowey Dannenberg Cohen & Hart, said on Wednesday.
Terms have not been disclosed, but Deutsche Bank has put the expected payment in escrow, Mr. Brockett said.
With files from Reuters