In Ted Butler's Archive

The Cop On The Beat

November 13, 2007

The Honorable Bart Chilton


US Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st St, NW

Washington, DC 20581

Dear Commissioner Chilton;

It was refreshing to read your speech of November 6 in Memphis, before the American Public Gas Association, titled, “The Cop on the Beat – Protecting Consumers.”

In that speech, you assured the audience that the CFTC was, indeed, the cop on the beat, when it came to dealing with fraud, abuse and manipulation in the markets. Specifically, you stated;

“We are not some ‘Andy Griffith’ operation. We are more like ‘Elliot Ness’ or ‘James Bond,’ or in the case of crooked operations we are shutting down; we are more like, ‘The Terminator.’”

Based upon your clear words, I can only assume that you are unaware of the specific issues of abuse and manipulation that have been alleged in the silver market. In August, hundreds of concerned investors wrote to your Acting Chairman Lukken and to the CEO of the NYMEX, James Newsome (a former CFTC Chairman), asking three simple questions, as a result of my article, “Fighting Back.” In a subsequent article, “The Royal Scam,” two additional simple questions were asked.

Although almost three months have passed, neither Acting Chairman Lukken, nor Mr. Newsome have replied to these very simple questions, regarding the unusual concentration on the short side of the COMEX silver market;


  1. If a net concentrated silver short position, held by 4 or less traders, of the equivalent of over 260 million ounces is not manipulative to price, what amount would be manipulative?
  2. Should a trader’s identity be shielded if allegations of manipulation are made?
  3. Please list those markets where the net concentrated short position, held by 4 or less traders, is greater than 150 days of global production, as is the case in silver.
  4. What is the purpose behind the compiling and publishing of concentration data in every market?
  5. When does concentration rise to the level of manipulation?

Since August, the COMEX gold futures market has also developed the characteristics of a manipulation in progress, due to an unusual concentration on the short side, where the 4 and 8 largest traders have amassed a concentrated short position larger than at any point in history. As I am sure you know, concentration and manipulation go hand in hand.

In addition, concentrated short positions, when ultimately resolved, will necessarily cause an unusually large price reaction, either up or down, that has nothing to do with real world fundamental supply and demand considerations. This is against the most basic premise of commodity law.

Lastly, over the past few weeks, there has been an unusual build up in intra-market spread positions in both the COMEX silver and gold futures market to multi-decade records in each. I am aware of no legitimate economic justification for such an increase in these spread positions.

In fact, the only plausible explanation for these intra-market spreads is to camouflage the true extent of the concentration, in percentage terms, because the spreads artificially overstate the true open interest in COMEX gold and silver.

By removing these uneconomic spread transactions (all the non-commercial spread positions and a reasonable adjustment for the commercial spreads which are not reported) from the most recent Commitment of Traders Report, the 4 largest silver traders are net short more than 50% of the entire market, and not the 34.8% reported. In gold, the true percentage of the 4 largest traders’ net short position is 45%, not the 27.1% reported. These are outrageous concentrations and are easily verified by the CFTC.

Given the clear message in your public speech, I respectfully call on you to have the Commission and the NYMEX answer the above questions and the new concerns about the artificial inflation of the COMEX gold and silver open interest via the spreads. By not responding, doubts are created as to the Commission’s resolve about enforcement of the law. It is to no common good for the belief and appearance of manipulation to exist.

Respectfully yours,

Theodore Butler


Readers might consider contacting Commissioner Chilton on this issue and contacting (or following up on previous contacts) Acting Chairman Walter Lukken and NYMEX CEO James Newsome, as well.

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