After watching the silver market action ever since 2008, I started wondering how (if I was a psychopath) I would commit the perfect fraud in the market. I came to the following conclusions:
1) Set up an ETF that tracks the value of silver with yourself as the custodian – but make sure that the sponsors cannot interfere with how you do business. This way, you give yourself legal cover.
2) Wait for investors to buy shares of your ETF. You get the money eventually and use it to buy the actual silver.
3) Take the silver bars bought and either 1) re-cast them or 2) melt them into scrap and sell to a refinery to re-cast. For example, if you bought Bar #123, you either 1) re-cast it with a refinery you control as Bar #456 or 2) melt Bar #123 into scrap and sell the scrap to a normal refinery to be re-cast as Bar #456. As the original #123 no longer exists after it was melted, nobody can identify the source of the scrap.
Note: This solved the problem in step 2) where your silver purchases pushed up the market price. Metal in = metal out so the price is unaffected by your purchase.
In one blow, you have 1) neutralized investor buys by diverting their money into your fund and away from the actual silver and 2) created a false account in the ETF that shows a stockpile which doesn’t exist, leading to 3) a lower silver price as the supply/demand chart that the market perceives is now flawed.
4) To add to the illusion that your stockpile exists, you order silver-plated molybdenum bars from China that are to all appearances identical to the bars you bought and add them to your stash – but you make sure you never sell them.
Now, for extra money, you enter the futures and options markets.
5) You write large quantities of calls on your ETF.
6) You call up your friends at the silver exchange and ask them to raise the margin requirements when you are ready.
7) Your friends also give you the ability to sell unlimited paper contracts in the market. You tell them to raise the margin requirements and simultaneously bomb the price of silver right before options expiration.
8) Wait for panic to set in. After you drop the contracts on the futures market, every investor caught by the initial dump and the raised margin requirements either sells out as their stop-losses are triggered or has a margin call, forcing them to dump their shares.
9) The fall in futures prices starts spreading to the option market and the ETF shares, taking them down.
10) The call options you wrote expire worthless, so you win on every contract you wrote.
11) The ETF shares perform badly, so fewer investors buy in.
12) Rinse and repeat. You now make money on the options, futures, and the physical markets while the little guy gets cleaned out every time.
When business as usual doesn’t work anymore, you implement the special procedures. Now it’s time to exit the trade with your freedom intact.
13) You spook investors in the futures markets away from the silver exchange by letting a clearinghouse go bust – and you suck out the client money that has been re-hypothecated just to further mess with them. Now, everybody knows you can control the markets at will, so they leave the futures exchange.
14) Now that nobody but you is on the futures exchange, you can drive the price down further or buy back your previously short-sold contracts at a lower price. Eventually, when demand for the contract is just too low, you close the silver exchange.
15) You make sure people hear rumors about your ETF being illegitimate – but you don’t leak anything that proves it. As your bar numbers are unique in the marketplace (since you already swapped the bars out for moly bars), there is no proof of any wrongdoing on your part unless auditors actually cut into the bars.
16) To prevent people from ever cutting into the bars, you use the rumors to drive the price of the ETF down to a point where you re-purchase the shares at a massive discount.
17) Now that you have all the shares, you shut down the fund due to “a lack of market interest” in the silver ETF and melt down the moly bars.
18) Now, with no ETF, there cannot be any options on the ETF. So that market gets shut down as well.
19) Since every element of the fraud is now shut down by you and not the market, you have just got away with fraud, market manipulation, conversion, and outright theft.
20) Pat yourself on the back and laugh at the rubes. Sip a martini while you watch the price of silver skyrocket now that you are out of the market – and of course, ensure that you personally hold some silver as well.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.