The suit is being underwritten by Blanchard & Co., the New Orleans coin and bullion dealer, and builds on Blanchard's own anti-trust suit against Barrick and Morgan Chase in U.S. District Court in New Orleans. The first suit, which is in the "discovery" or evidence- collecting phase, charges Barrick and Morgan Chase with manipulation of the gold market. That suit seeks injunctive relief -- a court order to stop Barrick and Morgan Chase from manipulating the gold market -- and is expected to go to trial in April 2005.
The class-action lawsuit, in which gold investors Greg McKenzie and A.J. Miller are the lead plaintiffs, will attempt to quantify the financial harm done by Barrick and Morgan Chase to gold investors and devise a remedy for their restitution.
"We expect to obtain compensation for all gold owners, not only for their losses from their gold investments but also for the profits they should have realized," Blanchard CEO Donald W. Doyle Jr. said in an interview with the Gold Anti-Trust Action Committee.
GATA consultant Reginald H. Howe brought a similar federal lawsuit in Boston in 2000. It was dismissed on jurisdictional grounds in 2002. Since then GATA has documented and publicized evidence of manipulation of the gold market by Barrick, Morgan Chase, other bullion banks, and the U.S. government.
"The exact number of gold owners who are members of the class is unknown at this time and can be determined only through appropriate discovery and expert testimony," Doyle told GATA. "But we allege, on information and belief, that the members of the class owned, during the period at issue, about 96.5 million ounces of gold having a market value of $38.58 billion at $400 per ounce. Once a judgment is obtained and the amount of damages suffered by the class members is determined, those damages will automatically be tripled under the mandatory provisions of the federal anti-trust laws.
"In 1983 Barrick Gold Corp. was a start-up company with a single mine in Canada and a founder with no experience in the gold business," Doyle said. "By 2001 Barrick had amassed off-balance-sheet assets that were worth more than the market capitalization of the next five biggest gold-mining companies in the world combined. Barrick made $2.3 billion on its short sales of gold and made a profit on those short sales for 62 consecutive quarters. A short sale is inherently a high-risk speculation. How many true speculations have ever been profitable for 62 consecutive quarters?"
Blanchard's original lawsuit charges essentially that Morgan Chase provided Barrick with so much borrowed gold -- presumably obtained from central banks -- on such favorable terms that Barrick could overwhelm the market and move prices up or down at will and not have to repay the borrowed gold for many years if at all. In some years, Blanchard maintains, Barrick was able to supply to the market more gold than was supplied by all the bullion banks combined.
In an attempt to have Blanchard's lawsuit dismissed, Barrick, according to GATA, seemed to acknowledge the plaintiff's premises. Barrick submitted a motion arguing that in borrowing gold and selling it into the market, the company was acting as the agent of central banks and carrying out their policies in the gold market and thus should share their immunity from lawsuits.
U.S. District Judge Helen Berrigan rejected Barrick's motion and sent the case on for discovery and trial.
"While the price of gold fell by more than 25 percent," Doyle said, "Barrick was able to increase its annual operating cash flow by more than 400 percent. Barrick became the dominant gold mining company in the world through acquisitions made with the profits from its short sales of gold. By suppressing and depressing gold prices, Barrick forced its competitors to sell gold assets and companies at fire-sale prices.
"The measures that Blanchard has taken have already been good for the gold industry and our clients. Since we began discussions with Barrick in this lawsuit, the company has reduced its hedging position by 10 million ounces, adding gold demand and subtracting gold supply. On December 2, 2003, Barrick's president and chief operating officer announced that Barrick had given up hedging for good. By consenting to the termination of its short sales of gold -- assuming that Barrick honors its commitment -- the company took a major remedial step sought by Blanchard's original complaint.
"I believe that the class action will be successful in recovering damages and putting a stop to practices that have suppressed and depressed the price of gold and all tangible assets," Doyle concluded.
Blanchard's Internet site with information about its litigation is: http://www.savegold.org/.