26 Questions For Senators On J.P. Morgan Chase

Wednesday, July 31, 2002

Dear Friend of GATA and Gold:

GATA Chairman Bill Murphy has sent the following letter to the U.S. Senate's Permanent Subcommittee on Investigations, and we ask that our supporters in the United States send similar letters to their own senators.

CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc.

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Dear Senator:

J.P. Morgan Chase Chief Executive Officer William B. Harrison's response to the Senate's Permanent Subcommittee on Investigations was notable for what it did not say.

Morgan Chase and Citigroup have been unlawfully manipulating the price of gold for many years, according to the findings of the Gold Anti-Trust Action Committee, of which I am chairman. Our evidence of that manipulation may be reviewed at www.GATA.org.

The committee might want to query Morgan Chase and Citigroup Weill about their gold derivative positions, as these are related to the Senate's investigation. According to the U.S. Comptroller of the Currency, two-thirds of the total gold derivatives at reporting banks are concentrated at these two institutions. Significantly, the gold derivatives at Morgan and Citibank jumped in the first quarter of this year, in stark contrast with gold derivatives at the other reporting banks.

Following are some questions you might like to ask Mr. Harrison. He should have no problem answering them, since he stated the following in his written response to the committee: "As the largest corporate lender in the world, transparency is key to our business."

1. Have J.P. Morgan Chase, its subsidiaries, its special-purpose entities, related companies, or agents acting on its behalf conducted any gold-related transactions with the U.S. Federal Reserve System, the U.S. Treasury Department, the U.S. Exchange Stabilization Fund, or any other part of the U.S. government, directly or via an intermediary, in the last 20 years?

2. If so, specifically what transactions were these?

3. Do such arrangements continue? If so, what is their status?

4. What is the size of such transactions?

5. What was the purpose of such transactions? Were they conducted for investment reasons, or was there a stated or implied intent to depress the price of gold?

6. According to the Quarter 1 2002 derivatives report from the Office of the Comptroller of the Currency, the notional value of gold derivatives on the books of Morgan Chase stood at $45.234 billion, a 12.24 percent increase from the Quarter 4 2001 figure of $41.049 billion. Exactly what accounts for this large increase? Is the expansion of the gold derivative book the result of increased gold borrowing or swapping with one or more central banks?

7. Does the figure of $45.234 billion effectively represent the size of Morgan Chase's gold loan book? Further, does this figure represent position data indicating the size of Morgan Chase's gold loan book at a point in time, or is it transaction data representing the turnover of various gold derivatives?

8. Is Morgan Chase aware of any effort on the part of bullion banks or central banks aimed at depressing the price of gold?

9. Has Morgan Chase, including its predecessor, subsidiary, and related companies or related entities, ever engaged in a gold swap with the Federal Reserve, the U.S. Treasury Department, the U.S. Exchange Stabilization Fund, or another U.S. government agency? If so, how large was the transaction and what was its purpose? Does such an arrangement continue?

10. Has any government entity, domestic or foreign, provided any sort of guarantee to cover losses suffered by Morgan Chase in the gold market? If so, specifically what guarantees? Did Morgan Chase engage in any gold-related transactions with the knowledge that a government entity was prepared to cover any of Morgan Chase's losses?

11. Morgan Chase maintains the largest gold derivative position of all U.S. banks at $41 billion. Does Morgan Chase carry those gold derivatives as balance-sheet assets?

12. What entity is the original source of gold used for those derivatives? What records exist for any such transactions?

13. Was the gold involved purchased? If so, where, when, and at what price? If the gold was borrowed, how is it the Morgan Chase gold derivatives are now listed as balance-sheet assets?

14. Are the Morgan Chase gold derivatives established largely to enhance the counterparty's short or long side of the commodities trade?

15. Was Enron ever a counterparty to any Morgan Chase precious metals derivatives?

16. Did Morgan Chase's long-standing precious metals derivatives trading manager, Dinsa Mehta, recently leave his job? Why?

17. How much in terms of troy ounces and U.S. dollars are Morgan Chase's direct, indirect, and contingent liabilities to pay gold? What is the maturity of each of those liabilities?

I believe that Morgan Chase is a subsidiary of the Morgan bank holding company. So you might want to expand the investigation to the non-bank parent as well as the bank subsidiary to something like the following:

18. Have Morgan Chase (the holding company and banking subsidiary), its subsidiaries, special-purpose entities, related companies, or agents conducted any gold-related transactions with the U.S. Federal Reserve System, the U.S. Treasury Department, the U.S. Exchange Stabilization Fund, or any other U.S. government entity, either directly or via an intermediary in the last 20 years?

19. Was Morgan Chase ever formally implicated in inappropriate metals market trading practices? Did it pay a fine? In that inappropriate metals trading activity (the Hamanaka, Sumitomo copper market case in 1993), did Morgan Chase use offshore accounts similar to those in the Enron operations? What was the design goal of the trades -- to enhance the counter-party's short or long side of the trade? Did Morgan Chase or Sumitomo's Hamanaka first suggest the offshore account technique?

You might also like to ask Enron the following questions:

1. Did Enron possess a precious metals trading license from the London Bullion Market Association? What did that license cost?

2. What was the nature (which metal) and magnitude (quarterly size) of Enron's precious metals trades?

3. Were precious metals trades integrated in any way with Enron's energy trades?

4. Were the Enron precious metals trades facilitated in any way by Morgan Chase or any of its offshore affiliated entities such as Mahonia? Which Morgan Chase entities were involved? To what quarterly magnitude?

5. Who first suggested that Enron get involved in precious metals activities? When was this suggestion made?

6. Was Enron ever a counterparty to any Morgan Chase precious metals derivatives?

7. Did Morgan Chase's long-standing precious metals derivatives trading manager Dinsa Mehta recently leave his duties? Why?

It would be my pleasure to go Washington to meet with your committee on this matter.

All the best,

BILL MURPHY, Chairman Gold Anti-Trust Action Committee

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