GATA Lawsuit Page 4
70. The GF5020 per share price on the new shares issued in 1999 equals 1457.317 grams, or 46.8538 troy ounces, which at US$280/ounce equals $13,119, more than the amount that the BIS is proposing to pay its private shareholders but less than the net asset value per share assigned by Morgan. In stating the freeze-out price for its private shareholders in current Swiss francs rather than gold francs, the BIS violated both its statutes and all its prior practices, particularly with respect to transactions on capital account.
71. The principal justifications given by the BIS and Morgan for discounting the freeze-out price to less than half of net asset value are that private shareholders do not have voting rights and their shares have low trading liquidity. No BIS shares have voting rights. The right to vote pertains to each member central bank (or approved proxy therefor) based on the number of shares allocated to, and taken down under, that bank's non-fungible issue without regard to whether ownership of the shares rests with the central bank or in private hands. All original shareholders, whether private persons or central banks, paid in exactly the same amount of gold per issued share. The right to vote was not then, and has not since, ever been given a value, let alone a value in derogation of the full property value of the shares. The effort to compare the BIS to a corporation in which there are two classes of shares, voting and non-voting, is without any foundation in the Statutes of the BIS or its prior practices.
72. The liquidity argument is similarly bogus. No mention or consideration is given to the observed fact that the liquidity of the Belgian and French issues is much lower than that of the American issue. If liquidity were a valid consideration, the discount applied to the Belgian and French issues would be greater than that applied to the American issue, and holders of the American issue would receive a higher price. What is more, there are many steps that the BIS could take, particularly in cooperation with its member central banks or other financial institutions, to increase the market liquidity of its privately held shares, including the issuance of public certificates against these shares as authorized under Article 16 of its Statutes.
73. Describing the rationale for the freeze-out, the BIS states: "This measure is intended to enable the BIS to pursue better its objectives of promoting international monetary and financial cooperation." Further on, the note continues:
Indeed, unlike a commercial bank, the prime objective of the BIS is to employ its resources in support of its public interest functions. ... The existence of a small number of private shareholders, whose interest is essentially financial, is no longer seen to be in line with the international role and future development of the organisation. The BIS is, moreover, the only international organisation in the monetary and financial field to have private shareholders (in contrast to the IMF, the World Bank and the OECD).
74. As the note itself admits, the BIS is unique in having private shareholders whereas the IMF and the World Bank, both created in the wake of World War II, do not. However, the United States joined both of these Bretton Woods organizations pursuant to treaties presented by the President and approved by the Senate. What is more, U.S. contributions to both organizations required appropriations approved by Congress.
75. The United States was not a party to the Convention establishing the BIS. Participation of the Federal Reserve in the BIS rests solely on its dual public/private nature and the private shares originally subscribed in the United States. A major reason for this unique structure is that when the BIS was formed amidst the isolationist atmosphere of 1929-30, it was assumed that Congress would neither approve the Convention nor authorize a subscription of shares by the Fed. In fact, the Secretary of State expressly forbade the Fed to participate either directly or indirectly in the BIS, and neither Congress nor the President has ever taken any official action with respect to the United States joining the BIS or participating in its affairs.
76. The BIS's note fails to give the precise language of the several amendments proposed to implement the freeze-out. However, the note does affirm that "... shares withdrawn from private shareholders will not be cancelled, but will be redistributed among central bank shareholders of the BIS on 8 January 2001 in the manner determined by the EGM." This language suggests that some undisclosed proposal for redistributing the shares must already exist. Unless the American issue is to be purchased by the Fed, there will be no basis for its continued voting or participation in affairs of the BIS. However, since the Fed is not presently a shareholder, it does not qualify as a potential distributee under a literal reading of the language quoted.
77. In addition to their capital contributions, the private shareholders are responsible for three important attributes of the BIS: (1) creating plausible justification for some minimal level of American participation through the Fed or, in its absence, some acceptable private American financial institution; (2) requiring that the BIS's operations meet general standards of fiduciary duty to ordinary shareholders, including the pursuit of sound banking practices and publication of audited financial reports; and (3) providing the potential sanction of private shareholder actions should the BIS, under the direction of its central bank members or through the collusion of some, operate in a manner that violates its Statutes.
78. A basic guiding principle of the BIS is set forth in Article 19 of its Statutes, which states: "The operations of the Bank shall be in conformity with the monetary policy of the central banks of the countries concerned." As Henry H. Schloss in The Bank for International Settlements (North-Holland Publishing Co., Amsterdam, 1958) points out (p. 41): "This provision was important in allaying fears of those who objected to an international superpower which could destroy a country's sovereignty."
Count 1
(Price Fixing)
79. This count runs against all defendants, and incorporates by reference all the allegations of part IV, paragraphs 34-66.
80. The manipulative activities of the defendants in the gold market constitute horizontal price fixing and are illegal per se as set forth by the Supreme Court in United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223-224 (1940):
Under the Sherman Act a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se. ... Where the means for price-fixing are purchases or sales of the commodity in a market operation..., such power may be found to exist though the combination does not control a substantial part of the commodity. In such a case that power may be established if as a result of market conditions, the resources available to the combinations, the timing and the strategic placement of orders and the like, effective means are at hand to accomplish the desired objective. But there may be effective influence over the market though the group in question does not control it. Price-fixing agreements may have utility to members of the group though the power possessed or exerted falls far short of domination and control. ... Proof that a combination was formed for the purpose of fixing prices and that it caused them to be fixed or contributed to that result is proof of the completion of a price-fixing conspiracy under s. 1 of the Act.
81. Mr. Justice Douglas, who wrote this opinion of the Court, described perfectly the current international gold price fixing cartel a half century before its time. The defendants, through an intentional and coordinated scheme involving the use of gold derivatives when possible and leased official gold when necessary, have conspired to restrain gold prices and to prevent them from rising to the levels that would otherwise prevail in a free market. This scheme has been carried out on various world gold markets, including but not limited to the COMEX, through orchestrated sales in needed amounts at critical times and price levels.
82. This price fixing conspiracy involves an unholy alliance of certain high public officials and large bullion banks. The former have participated in order to camouflage and mitigate their own public policy failures, and specifically to prevent rising gold prices from: (1) signaling a warning of future U.S. inflation; (2) affecting the international standing of the U.S. dollar; (3) calling further attention to huge and unprecedented U.S. trade deficits; (4) impeding the inflows of foreign capital necessary to offset these large trade deficits; (5) causing political embarrassment to the Clinton administration and its claims of economic success; and (6) inflicting severe financial losses on favored banks and other financial institutions that have funded themselves using the gold carry trade.
83. Through their participation in the price fixing conspiracy, the defendant bullion banks have made many hundreds of millions of dollars while assisting their political friends, who have done whatever they can to protect the bullion banks from the risks of their short positions in physical gold as well as from any effective form of legal sanction.
Count 2
(Securities Fraud)
84. This count runs against the BIS, Alan Greenspan, William J. McDonough and Morgan (collectively the "BIS defendants"), and incorporates by reference all the allegations of count 1 plus part V, paragraphs 67-78.
85. The BIS defendants are persons within the meaning of the Exchange Act. Section 10(b) thereof and Rule 10b-5 promulgated thereunder make it unlawful for any person in connection with the purchase or sale of any security, whether or not listed in the United States, by use the mails or any other instrumentality of interstate commerce: (a) to employ any device, scheme or artifice to defraud; (b) to make any untrue or misleading representation, whether by affirmation or omission, as to a material fact; or (c) to engage in any practice that operates as a fraud or deceit.
86. As set forth in Count 1, the BIS defendants have acted jointly and in concert with the other defendants to manipulate gold prices to lower levels than would otherwise have prevailed. Although central banks are major holders of gold, their real power comes from their issuance and control of paper currencies. When they try to enhance their reputations by manipulating gold prices in today's free market, they damage all investments that closely correlate with the price of gold, including the value of BIS shares.
87. Historically there is a high correlation between gold prices and market prices on the Swiss Exchange for BIS shares. This correlation, which continued to manifest itself in the wake of the Washington Agreement, rests in part on the approximately 200 tonnes of physical gold that the BIS holds for its own account. Although the percentage of the share price directly attributable to its own gold holdings has declined as its other reserves have grown, there remain over 12 ounces of gold per share, equal to around $3400/share at $280/ounce gold. Additionally, as described in paragraphs 69-70, since the BIS maintains its books in gold francs, the gold price acts directly on its accounts, affecting any calculation of net asset value. Because the price of gold directly impacts both the market value and the net asset value of its shares, any actions by the BIS aimed at depressing gold prices operate in direct opposition to the interests of its private shareholders.
88. With full knowledge of the manipulative activities in the gold market and with specific intent to defraud the BIS's private shareholders, including the plaintiff, the BIS defendants have sought to take advantage of artificially and illegally depressed gold prices to freeze-out the BIS's private shareholders at a grossly unfair and inadequate share price. In furtherance of this fraudulent scheme, Morgan prepared a valuation opinion at the request of the BIS specifically for use in connection with the freeze-out. As a participant in the gold price fixing conspiracy and with full knowledge thereof, Morgan had to know that its valuation opinion could and would be used to perpetrate a fraud.
89. The BIS defendants have knowingly and intentionally failed to disclose material facts, and knowingly and intentionally made false and misleading statements of material facts, with respect to the manipulation of gold prices, including but not limited to: (1) the leasing of gold by central banks for the specific purpose of halting increases in gold prices; (2) the manner and means of handling LTCM's large short position in gold at the time of its collapse; (3) the true reasons for the British gold auctions; (4) the efforts of the Fed and the Bank of England to "quell" and "manage" the gold price after the Washington Agreement; (5) the manner and means by which gold reserves of the IMF are currently being employed in an effort to restrain gold prices; (6) the role played by the ESF in manipulating gold prices; and (7) the official support being given to Morgan, Chase, Deutsche Bank and perhaps other bullion banks to enable them to maintain and enlarge their huge volumes of gold derivatives.
90. The total notional amount of gold derivatives reported by Morgan, Chase and Citibank at June 30, 2000, converted to metric tonnes at $280/ounce, amounts to 8461 tonnes, slightly more than the total official gold reserves of the United States. The year-end 1999 gold derivatives of Deutsche Bank converted at the year-end gold price of $290/ounce amount to roughly 5000 metric tonnes, or some 1500 tonnes more than Germany's official gold reserves. Gold derivatives positions of these magnitudes concentrated in four banks are simply too large and too risky to represent normal business done in ordinary course.
91. The BIS defendants have knowingly and intentionally failed to disclose material facts, and knowingly and intentionally made false and misleading statements of material facts, with respect to other matters relevant to the proposed freeze-out of the BIS's private shareholders, including but not limited to: (1) the critical role of gold prices in determining the value of BIS shares; (2) the unprecedented practice of trying to ascribe or assign a monetary value to voting rights in the BIS; (3) the issuance of new shares to the European Central Bank and other central banks in 1999 at a price substantially in excess of the proposed freeze-out price; (4) the proposed redistribution of the private shares to central banks already holding shares, including to which banks and at what prices these shares are to be distributed; and (5) the effect that withdrawal of the American issue will have on the Fed's participation in the BIS in view of the fact that it is not a shareholder.
Count 3
(Common Law Fraud and Breach of Fiduciary Duty)
92. This count runs against the BIS, Alan Greenspan, William J. McDonough and Morgan, and incorporates by reference all the allegations of counts 1 and 2.
93. Quite apart from the provisions of the Exchange Act, count 2 sets forth a claim for common law fraud. The fraudulent scheme, which is extensive, blatant and intentional, also involves clear and knowing violations of law, including the Sherman Act, the Constitution, and Articles 19 and 20 of the Statutes of the BIS, by all the BIS defendants. Accordingly, punitive damages are fully warranted against each.
94. The BIS, Alan Greenspan and William J. McDonough have also breached their fiduciary duty to the plaintiff by issuing new shares in the BIS at less than full net asset value. Whatever argument might be made in favor of issuing a few shares at low prices to new central banks to encourage them to join the BIS, a nominal amount of shares would be sufficient for this purpose. Issuing more than a nominal amount of shares to the European Central Bank, which is basically an association of major central banks that are already members of the BIS, or to other central banks constitutes unwarranted and unjustified dilution.
Count 4
(Constitutional Violations)
95. This count runs against the BIS, Alan Greenspan, William J. McDonough and Lawrence H. Summers, Secretary of the Treasury, and incorporates by reference all prior allegations in so far as relevant.
96. Since 1994, Alan Greenspan and William J. McDonough have served as directors of the BIS, assuming the two seats on its board allocated to the American issue. So far as can be determined from the public record, neither of them has been authorized so to serve by Congress, the President or the Secretary of State.
97. The monetary provisions of the Constitution grant to Congress sole and exclusive power to determine the gold value of the dollar. "The Congress shall have power ... To coin Money, regulate the Value thereof, and of foreign coin." U.S. Const., Art. 1, s. 8, cl. 5. "No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and Silver Coin a Tender in Payment of Debts." U.S. Const., Art. 1, s. 10, cl. 1. The Supreme Court has refused to decide whether Congress may constitutionally sever any meaningful link between the dollar and gold or silver, i.e., whether the U.S. monetary system in place since the closing of the gold window in 1971 is constitutional. But quite apart from this issue, if there is to be a link between the dollar and gold, the Constitution vests in Congress exclusive power to define it. This determination does not and cannot rest in the uncontrolled discretion of the Fed or the ESF, particularly when that discretion is exercised in secret and way from public view.
98. In his letter of January 19, 2000, to Senator Lieberman, Fed Chairman Greenspan conceded: "Most importantly, the Federal Reserve is in complete agreement with the proposition that any such transactions on our part, aimed at manipulating the price of gold or otherwise interfering in the free trade of gold, would be wholly inappropriate." Similarly, various officials working under the Secretary of Treasury, but not Secretary Summers himself, have purported to deny that the ESF has intervened in the gold market. Although these denials do not reflect the truth, they do reflect actual knowledge that any such interventions would be and are illegal and unconstitutional.
99. Because the Fed cannot conduct any monetary policy that violates the Constitution or laws of the United States, neither can the BIS when the Fed, with or without proper U.S. authorization, is a participant in its activities. Coordinating the London Gold Pool from 1961 to 1968 to maintain official gold parities established by law and international treaty is one thing. Recreating a similar operation in today's free gold market is quite another, particularly when that operation is used as a means to circumvent the Constitution and thus also constitutes a violation by the BIS of Article 19 of its Statutes.
100. These four defendants have conspired in a scheme which is directed, among other things, at taking the plaintiff's six shares of the American issue of the BIS without paying him fair value therefor or granting him due process of law in connection therewith.
Relief Requested
Wherefore, the plaintiff requests the following relief:
(1) A permanent injunction enjoining Alan Greenspan, William J. McDonough, their subordinates and their successors in office, and the Secretary of the Treasury, acting through the Exchange Stabilization Fund or otherwise, from intervening in the gold market, directly or indirectly, for the purpose of affecting or with intent to affect gold prices;
(2) A permanent injunction enjoining J.P. Morgan & Co. Inc., Chase Manhattan Corp., Citigroup, Inc., Goldman Sachs Group, Inc., and Deutsche Bank AG, or any of their officers, employees, agents or subsidiaries, from manipulating or trying to manipulate gold prices, directly or indirectly, on the Commodities Exchange in New York or elsewhere;
(3) An order directing Alan Greenspan and William J. McDonough to resign forthwith as directors of the Bank for International Settlements, to withdraw their designations of alternates to serve in their absence, and to refrain from any further participation in its affairs or activities;
(4) An order directing the Bank for International Settlements to redeem and cancel all shares of its American issue, including the six shares owned by the plaintiff, paying for each share in gold an amount equal to its net asset value in gold francs, plus an appropriate amount for goodwill;
(5) An award of damages to compensate for the decrease in the gold franc value of the plaintiff's shares of the American issue of the Bank for International Settlements resulting from the illegal manipulation of gold prices by the defendants;
(6) An award of damages to compensate for the decreased dividend payments received by the plaintiff on his depositary shares of Gold-Denominated Preferred Stock, Series II, of Freeport-McMoran Copper & Gold, Inc., resulting from the illegal manipulation of gold prices by the defendants;
(7) An award of treble damages, costs and attorneys' fees on the plaintiff's price fixing claims;
(8) An award of punitive damages on the plaintiff's common law fraud and breach of fiduciary duty claims;
(9) Such other relief as the Court may deem appropriate.
Demand for Jury Trial
The plaintiff demands trial by jury for all issues so triable.
By the plaintiff,
/s/ Reginald H. Howe
________________________
Reginald H. Howe, Pro Se
49 Tyler Road
Belmont, Massachusetts 02478
e-mail: row@ix.netcom.com
December 7, 2000
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Best Regards, J.T. |
