CFTC Response to Silver Problem

Silver Stock Report

by Jason Hommel, Jan 14, 2003

    Editor’s Note: The following communiqué exchanges between Jason Hommel and the CFTC about the Silver Problem.

    Open Letter To the Authorities of the Silver Markets

    In reply to David Kass, Senior Economist, CFTC.

    Date: January 8, 2003
    From: “Kass, David” dkass@CFTC.GOV

    Dear Mr. Hommel,

    Mike Gorham has asked me to respond to your recent email. It is clear that you have read and considered Mr. Gorham’s response to Mr. Butler’s allegations concerning manipulation of the silver market, so I will not repeat the lengthy discussion of the various regulatory tools and Programs that we have in place to monitor futures trading. Rather I will note that the Commission has responded, as recently as last month, directly Mr. Butler (as well as to others like yourself that have been monitoring the exchange of correspondence). We have carefully examined his allegations and found them to be not credible and not supported by facts. Nonetheless, we take very seriously our responsibility for regulating the commodity futures and option markets and will remain vigilant with respect to every such market.

    If you or anyone else has any, specific, first-hand evidence concerning violations of the Commodity Exchange Act, please forward it. The Commission staff, however, will be unable to provide you with any specific information about alleged violations or about any individuals that may be mentioned, because of prohibitions in the Act concerning disclosure of confidential information about the business dealings of any specific trader and because it is the Commission’s policy not to disclose whether it is investigating a specific matter, unless and until such time as a legal action is taken.

    I hope this information is helpful to you.


    David A. Kass

    Senior Economist

    Date: January 12, 2003
    To: “Kass, David” dkass@CFTC.GOV,,

    Dear David A. Kass & Michael Gorham,

    Thank you for responding and showing that you have read my “Open Letter To the Authorities of the Silver Markets.”

    So that you know, my open letter to you was published at, which has as many as 164,000 daily visitors from 174 countries. It was also published at,,,,, the Yahoo! Message boards, as well as a few other message boards on the internet. So, I’m giving you fair warning that this issue is in the broad public record and that many people are concerned about this issue, (I received 18 supportive emails) and that many people know that you, the COMEX, and the CFTC are informed of the issues. Therefore, you will not be able to continue to avoid this issue for very long.

    Just so that there is no confusion, my letter was not about allegations made by Ted Butler. My letter was about the comments by Mike Gorham that clearly show that the silver market would, indeed, be manipulated by the large short positions if they don’t have silver to back up their positions, and if they cannot deliver silver to the longs who intend to take delivery.

    And you did not answer my key question, which is, “Do they have the silver to back up their short positions and deliver silver?”

    I understand that it is your policy to not divulge whether you are investigating, and I understand that you will not divulge the specifics of my previous request, which was how much silver do they have to back their short positions, whether it’s 2% or 90%, and that you therefore refuse to define what “substantial percentage” means, given that this would be “confidential information about the business dealings of any specific trader”.

    But I am not asking about the identity and positions of specific traders. I’m asking about the integrity of the market that you oversee, and I’m asking what you intend to do to see that the shorts do not default on their delivery obligations. If they default, it would be proof of manipulation, fraud, and probably negligence on the part of the regulators such as yourselves (and perhaps willful negligence since you are now clearly informed of the issues) that could be grounds for civil and criminal lawsuits.

    I am curious about another statement in your response, which was this, “If you or anyone else has any, specific, first-hand evidence concerning violations of the Commodity Exchange Act, please forward it.”

    Now, I mentioned that it was public knowledge that Warren Buffet was prevented from investing in any more silver, and that it is currently still discussed among silver investors as to whether or not he was thwarted from taking full delivery of his 130 million ounces. Therefore, since you are asking for “first-hand evidence”, then let me ask specifically, are you now asking for Warren Buffet to testify on this matter, and/or forward evidence of his experience in 1997 to the CFTC? This is a specific question, and I expect to receive an answer directly related to this question, either a simple “Yes, we want Warren Buffet to forward evidence and testify,” or “No, we do not.”

    Also, you did not address my second most important concern of my previous letter, so I will ask a direct question. Does the CFTC intend to enforce position limit requirements that are currently being violated? It is my understanding that you do not need any evidence from anyone outside your own organization to handle and enforce this issue, since you know the position limit requirements, and only you know the identities of the traders with the large short positions. The short positions are simply larger than the laws allow, if I’m not mistaken. If you don’t do anything, again, I believe this could be grounds for future civil and criminal lawsuits against the individuals at the CFTC who refuse to do their jobs.

    Let me give you fair warning that if you are acting as part of any high level government aided conspiracy to suppress the silver price, you should greatly fear being brought to justice. This is the United States of America, and we still have elections in this country. Political winds can change, particularly after a default on silver that could cause the price of precious metals to skyrocket and cause people to lose confidence in the currency and wipe out the savings of grandmothers who are bondholders. People would very likely be elected who would appoint persons of integrity to office and judges to the Federal bench who will not be afraid to bring to justice those responsible for allowing the corruption of our free markets to take place. It would be far better to allow the free market to move prices up gradually and orderly to the fair market price.

    According to the Coin Act of 1792, those who debased the currency, “or otherwise with a fraudulent intent” were to suffer the death penalty:

    Penalty of Death for de-basing the coins. Section 19. And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of the fine gold or fine silver therein contained, or shall be of less weight or value than the same out to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offenses, shall be deemed guilty of felony, and shall suffer death.

    Political winds could change to bring such a penalty back in fashion, especially if people are hurt severely by the CFTC’s actions or lack of actions. I strongly suggest you do a little history research and see how the public treated officials in France after they debased the currency.

    And if the pressures of doing your jobs is too overwhelming and you if you have trouble sleeping at night, I suggest you quickly resign, perhaps for “personal or health reasons” and let someone else take responsibility when the short positions blow up.

    Finally, to David A. Kass, I understand you cannot answer certain specific questions. I also understand that you are a Senior Economist, and not a lawyer or prosecuting attorney. So let me ask a general question, directly related to your area of expertise, that might help me to determine what is going on over there at the COMEX and CFTC. Economically speaking, can deficits in a commodity last forever? At, they highlighted in a press release in 2002, “The physical silver market operated in a deficit for the twelfth consecutive year in 2001, with newly refined supplies falling short of industrial demand by 83.8 million ounces.” In your view, as a Senior Economist, giving me your personal view, given the information that is available to the public, such as what the CPM group says, do you feel that now is a good time to invest in silver?


    Jason Hommel

    BCC, (blind carbon copy) to the rest of the people who emailed me in support of my original open letter.