PhD thesis stirs up a $1 billion gold-price trial for global banks

Submitted by cpowell on Fri, 2016-10-14 12:32. Section: Daily Dispatches By Andrew Burrell
The Australian, Sydney
Friday, October 14, 2016
http://www.theaustralian.com.au/business/mining-energy/phd-thesis-stirs-up-a-1bn-goldprice-trial-for-global-banks/news-story/64e4c8158de0599949971f1f8b9d0c0b

PERTH, Australia -- An Australian academic's discovery of global gold price collusion has sparked a looming US trial in which four of the world's major banks are being sued for up to $1 billion over claims they rigged the price of the precious metal at the expense of investors over a decade.

Perth-based Andrew Caminschi can be revealed as the academic who unwittingly exposed a scandal during a painstaking study of tens of millions of gold transactions that took him 18 months.

"It was needle in the haystack-type stuff," Associate Professor Caminschi said yesterday of the anomalies he discovered in the data. "But once we found it, it was pretty damning."

In a key development, a US judge ruled last week that the four banks -- Barclays, Bank of Nova Scotia, HSBC and Societe Generale -- had a case to answer and that a lawsuit filed by investors would proceed to trial.

Germany's Deutsche Bank was also accused of manipulation but settled its case in April and has agreed to help the plaintiffs in their claims against the ­remaining defendants.

Assistant Professor Caminschi, 42, said he would act as an expert consultant at the trial in New York and admitted he was surprised his otherwise obscure PhD thesis at the University of Western Australia -- for which he had to build his own server -- had damaged the banks and led to a shake-up of the century-old gold pricing system.

"I never thought it would get to this," he said. "I didn't go out cartel-busting or bank-bashing -- it was more like the data was just yelling at me."

During his research, the ­academic discovered apparent man­ipu­lation during the twice-daily meetings held by banks in London that determined the benchmark price of gold, which was then used by dealers, central banks and mining companies to trade the precious metal.

The analysis of 14 years of raw data found that during these meetings, and before the benchmark price became known, trading volumes in gold derivatives would rise substantially. This suggested the banks were trading on, and potentially profiting from, information that was not available to the wider market -- a theory that had been rumoured for years but never proven.

"I went into my supervisor's office and I had this heat map and there was a thin white line which runs through the heat map which symbolised areas of very, very intense trading," ­Associate Professor Caminschi recalled.

"We were only expecting to see that white line when the news came out, when people would adjust their positions based on the news.

"When I showed it to my supervisor, and after I explained it, he said, ‘Oh shit'."
The research was first published in an academic journal in 2013.

It was later picked up by industry publications and financial news provider Bloomberg, sparking attention from regu­lators and leading to scores of lawsuits.