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Yet Another Reason Not to Trust the Big Commercial Investment Firms

In June 2007, Reuters reported the following story:

Morgan Stanley will pay $4.4 million to settle a class-action lawsuit with brokerage clients who bought precious metals and paid storage fees, according to a court filing.
The proposed settlement, which must be approved by the federal court in Manhattan, includes a cash component of $1.5 million and economic and remedial benefits valued at about $2.9 million, according to a court filing on Monday. The suit, filed in August 2005, alleged that Morgan Stanley told clients it was selling them precious metals that they would own in full and that the company would store. But Morgan Stanley either made no investment specifically on behalf of those clients, or it made entirely different investments of lesser value and security, according to the complaint.

About 3 years later, yet more fraud committed by JP Morgan has surfaced in which they co-mingled $8.6 billion of clients’ assets with its own for seven years without their clients’ knowledge:

JPMorgan Chase & Co.s London unit was fined a record 33.3 million pounds ($48.9 million) by Britain’s financial regulator for not properly separating client money from the firm’s accounts. An average of $8.6 billion wasn’t properly segregated by JPMorgan Securities Ltd. in an error that went undetected for seven years, the Financial Services Authority said in a statement today. Client money held by the bank’s futures and options business wasn’t put in a separate overnight customer account, the FSA said.

The bankruptcy of Lehman Brothers Holdings Inc., which roiled financial markets worldwide in 2008, forced the regulator to put financial companies on notice that they must properly separate client funds. New York-based Lehman’s creditors filed more than $830 billion of claims and regulators worldwide are trying to unravel how money moved through its global units.

“The FSA has repeatedly emphasized the importance of ensuring that client money is adequately protected,” said Margaret Cole, the FSA Enforcement Director. “This penalty sends out a strong message to firms of all sizes that they must ensure client money is segregated in accordance with FSA rules. Firms need to sit up and take notice of this action — we have several more cases in the pipeline.” Had the company gone bankrupt, clients could have lost all their money, according to the regulator.

And with the Department of Justice now investigating JP Morgan for fraud and manipulation in the silver futures markets, one would pretty much have to possess the mental prowess of an ant to continue trusting JP Morgan by purchasing the SLV ETF and believing that holding the SLV will provide any protection to your financial wealth during the second phase of this monetary crisis.


About the author: JS Kim is the Chief Investment Strategist and Managing Director of maalamalama, LLC, a fiercely independent wealth consultancy company that guides investors in the best ways to invest in gold and silver through the progression of this global financial crisis. Since its inception in June, 2007, until August 26, 2010 his Crisis Investment Opportunities newsletter has returned a cumulative profit of 120.62%.

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