UNITED STATES DISTRICT COURT District of Massachusetts
Civil Action No. 00-CV-12485-RCL___________________________________________ ) Reginald H. Howe, ) Plaintiff, ) ) v. ) ) Bank for International Settlements, et al.,) Defendants. ) ___________________________________________)
The plaintiff, Reginald H. Howe, deposes and says as follows:
1. Submitted herewith as Exhibits A and B, respectively, are true copies of the following official documents relating to the Bank for International Settlements ("BIS") as contained in volume 104 of the League of Nations --Treaty Series (104 L.N.T.S.):
Exhibit A: No. 2398. Convention respecting the Bank for International Settlements, with Annex (English language version only).
Exhibit B: No. 2394. Agreement regarding the complete and final Settlement of the Question of Reparations, etc. (introductory pages, Article XV providing for an arbitration tribunal ("Tribunal"), and Annex XII containing the procedural rules of the Tribunal).
The Declaration of Gunter D. Baer, Secretary General of the BIS, contains as its Exhibit A an unreported copy of Exhibit B in its entirety, which contains many pages wholly unrelated to this case and is thus unduly cumbersome as well as being a very difficult copy to read. Baer Exhibits B (Convention) and C (Constituent Charter) are, collectively, an unofficial and unreported partial copy of Exhibit A; they contain omissions or differences material to this case:
(A) Article 3 of the 1930 Convention provides in relevant part: "The present Convention is entered into for a period of fifteen years." Footnote 2 to Baer Exhibit B states: "On 10th June 1930 the Convention was prolonged for the existence of the Bank." Because I had been unable to confirm the accuracy of this statement through research at the International Legal Studies Library at Harvard Law School, I raised this issue with counsel for the BIS in an early telephone conversation in which I also offered to cooperate in preparing a stipulation of facts. My offer to cooperate on a stipulation was rejected; and the Baer affidavit contains no official evidence of any extension of the Convention.
(B) The Constituent Charter incorporated in the 1930 Convention made express reference to the "Statutes of the Bank" incorporated in the Annex. Paragraph (4) of the Constituent Charter provides: "Articles 2, 3, 4, 9, 15, 20, 25, 28, 46, 53, 56, 59 and 60 of the said Statutes shall not be amended except subject to the following conditions: the amendment must be adopted by a two-thirds majority of the Board, approved by a majority of the General Meeting and sanctioned by a law supplementing the present Charter." [Emphasis supplied.] The emphasized language refers back to Article 1 of the Convention, which provides in relevant part that Switzerland undertakes "... not to sanction amendments to the Statutes of the Bank referred to in paragraph 4 of the charter otherwise than in agreement with the other signatory Governments."
(C) Paragraph 4 of Baer Exhibit C identifies by number different articles, presumably due to changes in numbering resulting from amendments to the Statutes since 1930. Accordingly, for purposes of determining which articles or subject matters may only be amended pursuant to the special procedures required by the Convention, including the sanction of a special law, it is necessary to read the numbers in the 1930 Constituent Charter against the original 1930 version of the Statutes to which the Charter referred. Most relevant to the present case are Articles 3 and 9 of the original Statutes. Article 3, quoted in paragraph 3 below, remains unchanged in content or number. Article 9 provided:
1. The capital of the Bank may be increased or reduced on the proposal of the Board acting by a two-thirds majority and adopted by a two-thirds majority at the General meeting.
2. In the event of an increase in the authorised capital of the Bank and of a further issue of shares, the distribution among countries shall be decided by a two-thirds majority of the Board. The central banks of Belgium, England, France, Germany, Italy, Japan and the United States of America, or some other financial institution of the last-named country acceptable to the foregoing central banks, shall be entitled to subscribe or arrange for the subscription in equal proportions of at least 55 per cent, of such additional shares.
3. No part of the amount not taken by the banks of these seven countries shall be subscribed in any other country unless it is interested in Reparations or at the time of issue its currency, in the opinion of the Board, satisfies the practical requirements of the gold or gold exchange standard. [Emphasis supplied.]
(D) Except for the elimination of Japan from paragraph 2, paragraphs 1 and 2 above are the same as paragraphs (1) and (2) of Article 8 of the Statutes in effect both immediately before (Baer Exhibit D) and after (Baer Exhibit E) the amendments of January 8, 2001. In both cases, Article 8 contains a substitute or new paragraph 3 as follows:
(3) In extending invitations to subscribe for the amount of the increase in capital not taken up by the banks referred to in clause (2), consideration shall be given by the Board to the desirability of associating with the Bank the largest possible number of central banks that make a substantial contribution to international monetary co-operation and to the Bank's activities.
(E) Footnote 1 to Baer Exhibits D and E avers that only amendments adopted on 9th June 1969 and 8th July 1975 were sanctioned in accordance with Article 1 of the Convention, but does not identify precisely which Articles of the Statutes were thus amended. The 1969 amendments are discussed at pages 176-178 of the Bank's 39th Annual Report for the year ending March 31, 1969, and at pages 183-185 of its 40th Annual Report for the subsequent fiscal year. True copies of these pages are submitted herewith as Exhibits C1 and C2, respectively. These amendments dealt primarily with adjusting the Bank's capital structure, although some were directed at updating other provisions. However, there is no discussion of any change to paragraph (3) of original Article 9 insofar as that paragraph relates to using currencies that "satisf[y] the practical requirements of the gold or gold exchange standard." Because the Bretton Woods version of the gold exchange standard was in effect at the time, no such change would have been indicated. Yet in this particular respect paragraph 3 was redundant in light of Article 21 of the original Statutes, currently Article 20, providing: "The operations of the Bank for its own account shall only be carried out in currencies which in the opinion of the Board satisfy the practical requirements of the gold or gold exchange standard." However, the effective transfer of this provision to Article 20 would carry with it the prohibition against amendment without sanction by special law. Indeed, that impediment may well explain the continued presence of Article 20 in the Statutes, compliance with it being impossible under today's monetary conditions.
(F) The 1975 amendments related to what were then Articles 51 and 52 of the Statutes providing for the mandatory payment of dividends. The amendments and the reasons for them were described at pages 160-162 of the BIS's 45th Annual Report for the year ending March 31, 1975, true copies of which are submitted herewith as Exhibit C3. I made copies of these pages in or about 1988-89 at Harvard's ILS Library, have retained them in my files since, and relied on them in purchasing my shares in October 1989. Of particular relevance to me at the time, and of relevance today, is the following paragraph beginning on the bottom of page 161:
In view of the importance of the proposed reform it is considered that private shareholders -- i.e. members of the general public who, not being central banks, have no right of representation at General Meetings pursuant to Article 14 of the Statutes -- should be provided with the opportunity, if they so wish, to dispose of their shares on fair terms. A repurchase offer will therefore be submitted to these shareholders by the Bank, acting on behalf of a consortium of central banks, as soon as the above-mentioned amendments to the Bank's Statutes have been approved by the Extraordinary General Meeting to be held on 8th July 1975. The offer will remain open for acceptance for three months as from that date. The offer price, which has been fixed at Sw.fr. 3,100 per share (ex dividend), will be the same for all shares held by the general public, irrespective of the issue of which they form a part.
2. Paragraph 8 of the Baer affidavit presents an incomplete as well as misleading description of: (1) the reasons why the Federal Reserve "declined to purchase any shares of the U.S. issue" when the BIS was formed; and (2) the method for subscribing the entire American issue publicly in the United States, which was not a signatory to the Convention, versus subscribing only parts of the French and Belgian issues publicly in France and Belgium, which were signatories and whose central banks also subscribed for shares. On May 16, 1929, while the BIS was in process of being established, then Secretary of State Henry L. Stimson issued the following public statement reported in Supplement to The American Journal of International Law (American Society of International Law, 1930), vol. 24, p. 102 n:
In respect to the statements which have appeared in the press in regard to the participation of any Federal Reserve officials in the creation or management of the new proposed International Bank, I wish to make clear the position of this government:
While we look with interest and sympathy upon the efforts being made by the Committee of Experts to suggest a solution and a settlement of the vexing questions of German reparations, this government does not desire to have any American official, directly or indirectly, participate in the collection of German reparations through the agency of this bank or otherwise. Ever since the close of the war the American Government has consistently taken this position; it has never accepted membership on the Reparations Commission; it declined to join the Allied Powers in the confiscation of sequestered German property and the application of that property to its war claims. The comparatively small sums which it receives under the Dawes Plan are applied solely to the settlement of the claims judicially ascertained by the Mixed Claims Commission (United States-Germany) in fulfillment of an agreement with Germany, and to repayment of the expenses of the American Army of Occupation in Coblenz, which remained in such occupation on the request of both the Allied nations and Germany. It does not now wish to take any step which would indicate a reversal of that attitude and for that reason it will not permit any officials of the Federal Reserve system either to themselves serve or to select American representatives as members of the proposed International Bank.
3. Paragraph 14 of the Baer affidavit describes the BIS as "not devoted to maximizing shareholder value" and asserts a "conflict between the BIS's public policy objectives and the purely financial interests of its private shareholders" as if these characteristics were somehow novel and not contemplated by the Convention. The objects of the Bank, as set out Article 3 of the Statutes, remain unchanged: "to promote the co-operation of central banks and to provide additional facilities for international financial operations; and to act as trustee or agent in regard to international financial settlements entrusted to it under agreements with the parties concerned." The operations of the Bank and the American role therein during the first 25 years of its existence were described by Roger Auboin, a former deputy manager of the BIS, in The Bank for International Settlements, 1930-1955 (Essays in International Finance, No. 22, May 1955, Princeton University), pp. 5-7:
The United States monetary authorities have never taken up the seats on the Board of the BIS to which the original American subscription entitled them. For the periods 1930-1935 and 1940-1946, however, the Board elected as President of the Bank persons of American nationality, and it has always appointed a New York bank to exercise at General Meetings the right of voting carried by the shares of the American issue. In addition, close personal contact is maintained between the principal officials of the BIS and officers of the U.S. Federal Reserve System. The Federal Reserve Bank of New York is the Bank's correspondent as regards the American market.
The BIS is, then, an international bank, and both "international" and "bank" deserve emphasis. It was founded by central banks which at one and the same time are its shareholders and customers and provide its directors. It has grown up as a truly European organization, although maintaining close technical relations with the American market. It is an official organization possessing a Charter guaranteed by international convention and enjoying certain special advantages.
But even so, the BIS is essentially a bank and needs to be mindful of its standing, the liquidity of its balance sheet, and the results shown by its profit and loss account. The BIS receives no instructions from any government, except when it is acting in the capacity of agent in the performance of some specific function, and it is not subsidized by any country. The methods which it employs are essentially commercial.
4. During 1988 and 1989, I had a brokerage account with International Assets Advisory Corp., an American firm based in Winter Park, Florida. In a research note dated August 25, 1988, a true copy of which is submitted herewith as Exhibit D, this firm issued a buy recommendation for shares of the BIS, suggesting them "as a proxy for gold." Following receipt of that recommendation, I conducted further research on the BIS. As a registered investment advisor with private clients at the time, I regarded the BIS as a potential investment not only for myself but also for them. The assertion in paragraph 11 of the Baer affidavit that the "economic value of private ownership of a BIS share was limited to the right to receive dividends" is incorrect and does not reflect either my view of their value as an investment nor the views of several BIS shareholders with whom I have spoken over the years. In the course of my research, I obtained a chart correlating share prices of the BIS's American issue with gold prices from 1975 to 1988. A true copy of that chart is submitted herewith as Exhibit E. It confirmed that BIS shares had acted as a reasonably good proxy for gold, a characteristic they continued to display during the sharp rally in gold prices in the fall of 1999. Since gold bullion itself does not provide a yield, and since gold mining companies even if they pay dividends are subject to many different types of risk not applicable to the BIS, its shares offered exposure to gold with relatively low risk but reasonably decent yield, particularly compared to gold lease rates. The most serious risk that I could identify with respect to the BIS was the possibility that its controlling central banks might take some action unduly prejudicial to its private shareholders. Exhibit C3, particularly the portion thereof quoted at the end of paragraph 1(F) above, provided me with some reassurance on this point, which is precisely why I made and retained copies of those pages.
5. On October 2, 1989, I purchased through International Assets Advisory ten (10) shares of the BIS's American issue. Submitted herewith as Exhibit F is a copy of the confirmation slip for that transaction. These ten shares were held in street name over the next eight years, and during this period I sold a total of four shares. In July 1997, according to instructions provided by The Bank of New York, I requested that the remaining six shares be registered in my name on the books of the BIS. Under cover of a letter dated September 9, 1997, from Union Bank of Switzerland and "according to order of The Bank of New York," I received share certificate no. 031419 dated August 28, 1997, for six shares, serial numbers 066526-066531. A true copy of this share certificate is submitted herewith as Exhibit G, together with a true copy of the note attached thereto regarding the accompanying "payment instructions form" requesting designation of a bank account for payment of the annual dividend by bank transfer. I completed this form and returned it as directed.
6. From 1989 through 1997, I engaged at various times in correspondence with the BIS relating to its annual reports, registration of shares, and share prices and other details of the French and Belgian issues as well as the American. Besides copies of annual reports, I also received copies of press releases, dividend announcements and other materials normally sent to private shareholders. In both 1992 and 1993, the BIS issued a profile piece which it included with a copy of the traditional June press release on its annual meeting. Submitted herewith as Exhibit H is a true copy of the June 1993 profile piece. Of particular note is the first paragraph of part 7, "The BIS as a Bank," headed "The Balance Sheet of the BIS," which states: "At 31st March 1993 the Bank's balance-sheet total stood at 60 billion gold francs, with the Bank's own funds (capital and reserves) at 1.7 billion gold francs. Expressed in US dollars with gold at the then current market price the figures could be put at US$ 122.4 billion and US$ 4.1 billion respectively." A similar statement was included in the June 1992 profile piece, with the comparable US dollar figures at US$ 99.8 billion and US$ 3.9 billion, respectively.
7. At the end of 1995, The Wall Street Transcript (December 18, 1995) published an interview with Jean-Marie Eveillard, portfolio manager of SoGen Gold Fund, in which he discussed his fund's major holdings, including the BIS (p. 120,897):
There's the Bank for International Settlements, which is the central banks' central bank. The stock trades in Basle, Switzerland, and it's a gold-related security because, basically, the net asset value of the stock is a combination of about $5000 in quasi-cash and $5000 in gold bullion in the vaults of the bank in Switzerland, because there is 13 ounces of gold bullion behind every share, and that's about $5000. So that's a combination of quasi-cash and gold bullion, together $10,000. And the stock trades at about the equivalent of $8500, so I get a combination of cash and gold at a discount of 15 percent. In fact, the discount is probably a lot higher than that, because there are reserves on the liability side of the balance sheet which is traditional Swiss accounting fashion, actually are equity. So the true discount is probably more like 30 or 40 percent.
8. Until 1994, no American official served as a director or alternate director of the BIS. Then, as reported in the BIS's 65th Annual Report for the fiscal year ended March 31, 1995 (pp. 205-206):
At its meeting on 12th July 1994 the Board took note of, and welcomed, the intention of the Federal Reserve System of the United States of America to occupy the two seats on the Board of Directors to which the central bank of the United States had been entitled since 1930. An Extraordinary General Meeting was convened on 13th September 1994 to approve a minor change in the Statutes of the Bank to take account of the evolution of the Federal Reserve System to its present structure. Alan Greenspan, Chairman of the Board of Governors of the Federal Reserve System, became an ex officio member of the Board on 13th September 1994 and appointed William J. McDonough, President of the Federal Reserve Bank of New York, as a member of the Board for a period of three years from 13th September 1994. ...
Alan Greenspan appointed Alan S. Blinder as his Alternate and Edwin M. Truman as his Alternate in the absence of Alan S. Blinder.
9. Submitted herewith as Exhibit I is a true copy of that portion of the transcript of the Federal Open Market Committee conference call on July 20, 1994, relating to the impending public announcement by the BIS that the defendants Alan Greenspan and William J. McDonough would assume the two seats on its board allocated to the Federal Reserve. The full transcript is available online at www.federalreserve.gov/fomc/transcripts/1994/940720ConfCall.pdf. The assertion in paragraph 11 of the Baer affidavit that liquidation of the BIS "is obviously theoretical" does not correspond with Mr. Greenspan's observation: "With the advent of the Maastricht Treaty and the development of the European Monetary Institute [now the European Central Bank], the potential of the BIS being effectively neutered because of the overlap of the jurisdictions of the EMI and the BIS has led the BIS to move toward a much more global role ... ." Nor does Mr. Baer's assertion square with the express contemplation of liquidation after fifteen years contained in the first sentence of Article 3 of the Convention. Today, liquidation is the only alternative consistent with current Article 20 of the Statutes requiring that operations for the Bank's own account be conducted in currencies conforming to the gold or gold exchange standard.
10. Under cover of a letter dated January 18, 2001, a true copy of which is submitted herewith as Exhibit J, Marti Thomas, Acting Assistant Secretary of the Treasury, sent to Chris Powell, Secretary-Treasurer of the Gold Anti-Trust Action Committee, a copy of a report from the Office of Inspector General, United States Department of the Treasury, entitled "Audited Fiscal Years 1999 and 1998 Financial Statements of the Exchange Stabilization Fund," dated January 5, 2000. Submitted herewith as Exhibit K is a true copy of the report attached to the letter. Footnote 7c to this report describes a 1998 transaction in which the Exchange Stabilization Fund ("ESF") guaranteed up to $5 billion of a $13.2 billion BIS credit facility for Brazil. Subsequently the BIS paid commissions to the ESF on this transaction in total amount of $118.2 million.
11. Submitted herewith as Exhibit L is a true copy of the press release issued by the BIS on September 11, 2000, announcing the proposed compulsory withdrawal of all privately held shares. Baer Exhibit K is a copy of the Note to private shareholders dated September 15, 2000, that was sent to me and posted by the BIS at its website (www.bis.org). Just as misstatements in paragraph 8 of the Baer affidavit gloss over major differences between the public subscription of the American issue and the public subscriptions of the French and Belgian issues, paragraph 9 fails to identify the very different liquidity characteristics of these issues or to point out that the American issue was generally by far the most liquid due to having a much larger float than the other two. What is more, in recent years the restrictions on transfer were rendered largely nugatory by the ever receding possibility of any call under Article 7 of the Statutes for the unpaid balance combined with increasing use of registration in street name, which the BIS apparently did not oppose. Nothing compelled me to register my shares. In my opinion, any problems of limited liquidity could easily have been ameliorated by sensible measures aimed specifically at improving liquidity, such as issuing certificates for fractional shares or making the American issue available for trading in the United States. What is more, although I have no statistics on the matter, I am quite certain that trading in BIS shares was far more liquid during periods of buoyant gold prices than of stagnant or especially falling ones.
12. A copy of the Statutes of the Bank for International Settlements as amended through November 8, 1999, and in effect until January 8, 2001, is Baer Exhibit D. Nowhere in these Statutes, or in any prior versions of the Statutes that I have seen, is there any reference to the privately owned shares being subject to redemption or any other form of compulsory withdrawal. Nor do these Statutes contain any procedures for implementing a compulsory withdrawal of privately held shares comparable to the minority freeze-out procedures contained, for example, in corporation statutes of certain states in the United States and provinces of Canada. At no time prior to September 11, 2000, did any literature or other material by or about the BIS from any source come to my attention to suggest that a compulsory withdrawal of the privately held shares was within its authority or contemplation.
13. Within a few days of the September 11 announcement and after reading the Note at its website, I telephoned the BIS and spoke with a Mr. Giorgio Glinni in the Shares Section. After registering my objection to discounting the value of privately held shares based on the lack of voting rights, I requested: (1) a copy of the valuation report prepared by J. P. Morgan & Cie; and (2) whatever information was available on the "Tribunal" referred to in Article 54 of the Statutes, including its address, rules, and references to any prior cases before it involving the BIS. Mr. Glinni told me that he would check on both matters and call me back. Later the same day, Mr. Glinni called to report that: (1) the BIS considered the valuation report to be a confidential document and accordingly refused to release a copy to me; and (2) someone in the legal department would call me within a day or two with information about the Tribunal. Although Mr. Glinni was emphatic that someone "would certainly" call, no one from the legal or any other department at the BIS ever called me with any information about the Tribunal. Indeed, so far as I am aware, the BIS did not provide any relevant information regarding the Tribunal until on or about January 18, 2001, when it posted at its website the notice referred to in paragraph 17 below.
14. Within a few days after my telephone conversations with Mr. Glinni, I began work on a legal memorandum analyzing the rights and remedies that might be available to the BIS's private shareholders. The earliest version of this memorandum was posted at my website on October 27, 2000, followed by a completed version a few days later. This version remains available at my website (www.goldensextant.com/BIS.html). In preparing this memorandum, I consulted the 70th Annual Report of the BIS for the year ending March 31, 2000, which describes the process under which it issued new shares in 1999 to the European Central Bank and certain other central banks as follows (at pp. 172-173):
With a view to further strengthening central bank cooperation, the board of Directors decided on 8 November 1999 to invite the Banco Central de la República Argentina, the European Central Bank, Bank Indonesia, Bank Negara Malaysia and the Bank of Thailand to become members of the Bank and subscribe 3,000 shares each of the third tranche of the capital of the BIS. By the close of the financial year [31 March 2000], which also marked the end of the subscription period, all except Bank Indonesia had taken up the Board's offer, thereby becoming members of the BIS.
The Board's decision on this sixth issue of the third tranche of the Bank's capital was taken in accordance with Articles 6 and 8(3) of the Statutes. The founder central banks represented on the Board waived their rights to the subscription in equal proportions of at least 55% of any additional shares (ie 8,250 of the 15,000 shares issued for subscription). It was decided that these 8,250 shares would be made available to new shareholding central banks.
At its meeting in November, the Board fixed the issue price until the end of the subscription period at 5,020 gold francs per share, equivalent to 1,475.317 [sic] grams of fine gold. [Note: It appears that the 7 and 5 were inadvertently transposed, and that the correct figure is 1,457.317 grams.] As the Bank's shares are paid up to the extent of 25%, or 625 gold francs per share, the issue price of 5,020 gold francs included a premium of 4,395 gold francs per share. The subscribing central banks were given the option of settling the issue price for the new shares either in gold or by paying, in a convertible currency acceptable to the BIS, the amount which would be necessary to purchase the same weight of gold on the market on the value date of the payment.
As a consequence of the subscription of 12,000 new shares of the third tranche of the Bank's capital by the close of the financial year, the number of the Bank's issued shares has risen from 517,165 to 529,165 shares, and the amount of the paid-up capital of the Bank appearing in the Balance Sheet at 31 March 2000 has increased by 7.5 million gold francs to stand at 330.7 million gold francs. The aggregate premium received from the subscribing central banks amounted to 52.7 million gold francs, of which 750,000 gold francs has been allocated to the legal reserve fund and 51,990,000 gold francs to the general reserve fund.
At the stated weight of .29032258 grams, the per share price of 5,020 gold francs equals 1,457.317 grams, or 46.8538 troy ounces of gold, which at US$ 280/oz. equals US$ 13,119 (CHF 22,619 at CHF 1 = US$ 0.58).
15. Submitted herewith as Exhibit M is a true copy of the press release issued by the BIS on January 8, 2001, announcing the compulsory withdrawal of all shares held by its private shareholders. Baer Exhibit E is a copy of the Statutes of the Bank for International Settlements as amended on January 8, 2001.
16. Submitted herewith as Exhibit N is a true copy of a letter dated January 10, 2001, from Urban Backstrom, president of the BIS, to all registered private shareholders, together with true copies of the Note to private shareholders and accompanying Annex enclosed therewith. These documents were mailed to me and received at my Belmont address. Submitted herewith as Exhibit O is a true copy of a letter dated January 21, 2001, sent by me to Mr. Backstrom and a true copy of the reply thereto from the BIS. Following receipt of this reply, I completed the "declaration and payment instruction form" and mailed it to the BIS together with the original of my stock certificate. In due course, by wire transfer to my bank in Belmont, I received payment in the amount of US$ 9238.40/share net of a $20 wire transfer charge.
17. Submitted herewith as Exhibit P is a true copy of a document entitled "Information on the Hague Arbitral Tribunal (BIS)" posted by the BIS at its website on or about January 18, 2001. Prior to the posting of this document, the BIS made no information available either to me, or at its website, or anywhere else to my knowledge, regarding the present existence, composition or means of contacting this Tribunal.
18. Paragraph 12 of the Baer affidavit does not address when, where or how the so-called "current members" of this Tribunal were appointed. Exhibit G to the Baer affidavit is the Brussels Protocol of 30th July 1936 (197 L.N.T.S. 31) amending, inter alia, paragraph (10) of the Constituent Charter. The Brussels Protocol demonstrates the method by which the signatories to the Convention have amended it legally in the past. Article 4 of the Brussels Protocol provides in relevant part:
The Governments not signatories of the Agreement with Germany signed at the Hague on 20th January 1930, may become Parties to the present Convention by signing, subject to ratification if necessary, the original of this Convention ... . The signature thus appended by a Government not a signatory to the Agreement with Germany will imply accession to Articles X and XV of the Agreement with Germany of the 20th January 1930, as well as Annex XII of the same Agreement, laying down the procedure before the Arbitral Tribunal, to whose jurisdiction the Governments in question will thus have submitted themselves, so far as concerns the application and interpretation of the said Article X and of the present Convention.
19. Because the United States never became a signatory to the Agreement with Germany and has not signed the Convention, it has never submitted to the jurisdiction of the Tribunal. Because the Federal Reserve is not (or at least not yet so far as is publicly known) a shareholder, it has not submitted to the jurisdiction of the Tribunal. Accordingly, the Federal Reserve is today not just the only central bank member of the BIS without shares; it is the only central bank member that is not subject to the jurisdiction of the Tribunal.
B. Gold Price Fixing and the ESF's Gold Swaps
20. Submitted herewith as Exhibit Q is a true copy of the article entitled "Anomalous Selling in COMEX Gold, 1985 to November 2000" by G. Michael Bolser posted at my website (www.goldensextant.com/commentaryBA.html) on December 6, 2000, and referred to in the Complaint, paragraphs 46-48.
21. At my request, Donald A. Lindley has prepared a graphic depicting the bimonthly scheduling of British gold auctions alongside the bimonthly cycles of COMEX options on gold futures contracts. A true copy of this graphic is submitted herewith as Exhibit R, and was posted at my website on January 18, 2001 (www.goldensextant.com/commentary16.html#anchor10789). Don is a registered land surveyor in Pennsylvania. He has compiled on a daily basis over several years from public sources a very complete record of statistical and other data on COMEX gold futures and options, much of which he enters into his own technical trading system called the "option cube."
22. COMEX gold options and futures trade on bimonthly cycles, i.e., a series expires every other month, with the options on the futures contracts expiring on the second Friday of the contract month and the futures themselves expiring the following Friday. The expiration of each option cycle causes a sharp and noticeable decline in total open interest. These option expiration days are shown on Exhibit R by vertical declines in the colored lines depicting options open interest: gold for call options on futures and mauve for put options.
23. Since their announcement in May 1999 (Complaint, paragraphs 42-43), there have been eleven British gold auctions of 25 metric tonnes each. The dates of the first ten are shown by green triangles on Exhibit R. The eleventh auction, which is not shown, took place on March 14, 2001, five days after the March 9, 2001, option expiration day. The yellow triangles indicate the dates of the press releases announcing the exact date of the next auction. For the first nine auctions, these press releases came about a week ahead of the auction. Beginning with the tenth auction, the date was set in the press release announcing the results of the prior auction. As an examination of Exhibit R shows, the British auctions have all taken place within a few days of the expiration days for COMEX gold options.
24. The rules for the British auctions require that bids be submitted through qualified bullion banks, and further provide that each lot of 25 tonnes will be sold in its entirety at the lowest accepted bid, subject to proration for all bidders at that bid.
25. In my opinion, the scheduling and procedures for the British gold auctions can be explained only as a deliberate attempt to funnel physical gold to selected bullion banks at favorable prices for the purpose of providing them with the delta for writing the next series of COMEX gold options, particularly call options which may be used by traders to support short selling strategies in COMEX gold futures. The delta is the mathematically determined amount of the underlying commodity that the writer of an option must buy or sell to maintain a risk neutral position.
26. Since the filing of the complaint on December 7, 2000, additional statistical evidence of gold price fixing activities on the COMEX has come to my attention. Submitted herewith as Exhibit S is a true copy of an article entitled "NY Strangulation of World Gold Market - 1 Year" by Harry J. Clawar posted at www.gold-eagle.com/editorials_01/clawar020201.html on February 2, 2001. Earlier articles by Dr. Clawar provided important background for the research of Mr. Bolser contained in Exhibit Q.
27. The principal world gold price quotations are the London AM and PM fixes and the COMEX close. Normal open outcry COMEX trading hours run from 8:20 a.m. to 2:30 p.m. New York time. The London AM fix takes place at 10:30 a.m. London time; the London PM fix at 3:00 p.m. (10:00 a.m. New York time). Taking "overseas" trading as the period from the New York close to the London AM fix, Dr. Clawar reports in Exhibit S that for the year beginning January 25, 2000, net increases in gold prices in overseas trading amounted to approximately $160/ounce, while at the same time net decreases in New York trading equaled $173/ounce.
28. Submitted herewith as Exhibit T is a true copy of an article entitled "Tracks in the Trading: When Did the Gold Price Manipulation Begin?" by Dimitri Speck posted at www.gold-eagle.com/editorials_01/speck022301.html on February 23, 2001. This article provides further evidence that from 1993 to the present date, there has existed anomalous downward pressure on COMEX gold prices in comparison to overseas prices, and thus lends further support to the conclusions of Dr. Clawar and Mr. Bolser.
29. Submitted herewith as Exhibit U1 and U2, respectively, are true copies of the Status Reports of U.S. Treasury Owned Gold for September 30, 2000, and August 31, 2000 (online copies available at www.fms.treas.gov/gold/00-09.html and www.fms.treas.gov/gold/00-08.html). These reports show a change in nomenclature for gold stored in the U.S. Mint at West Point, N.Y., where the August "Gold Bullion Reserve" of 54,097,041.330 ounces (approximately 1683 metric tonnes) became in September "Custodial Gold Bullion" of 54,067,331.379 ounces (approximately 1682 tonnes). The "Gold Bullion Reserve" account at the U.S. Mint in Denver, Colo., however, did not undergo a similar change in nomenclature. The amount also remained unchanged at 43,853,707.279 ounces. So far, inquires by an associate of mine to Shirley.Moore@fms.treas.gov about the reasons for the change in accounting nomenclature at West Point have gone unanswered. However, the changed nomenclature has continued through the report for February 28, 2001 (www.fms.treas.gov/gold/01-02.html). What is more, the search function at this U.S. Treasury website does not reveal any uses of the phrase "custodial gold bullion" other than in the six status reports from September 30, 2000.
30. Submitted herewith as Exhibit V is a true copy of "Fedpoint 14: Exchange Stabilization Fund" (www.ny.frb.org/pihome/fedpoint/fed14.html) downloaded from the website of the N.Y. Fed. It describes currency swaps and other ESF activities, which are generally carried out through the N.Y. Fed acting as its fiscal agent.
31. Submitted herewith as Exhibit W are true copies of pages 68 and 69 from the transcript of the Federal Open Market Committee meeting on January 31, 1995, relating to questions raised by then Federal Reserve Board Governor Lawrence Lindsey about the legal authority of the ESF to engage in the financial rescue package for Mexico then under discussion. The full transcript is available online at www.federalreserve.gov/fomc/transcripts/1995/950201Meeting.pdf. Responding to a question by Mr. Lindsey, J. Virgil Mattingly, the general counsel of the Fed and FOMC, stated (p. 69):
It's pretty clear that these ESF operations are authorized. I don't think there is a legal problem in terms of the authority. The statute [31 U.S.C. s. 5302] is very broadly worded in terms of words like credit' -- it has covered things like the gold swaps -- and it confers broad authority. Counsel at the White House called the Treasury's General Counsel today and asked "Are you sure?" And the Treasury's General Counsel said "I am sure." Everyone is satisfied that a legal issue is not involved, if that helps. [Emphasis supplied.]
32. Mr. Mattingly's reference to "the gold swaps" raises an important issue for discovery. Ordinarily the term "gold swap" refers to the spot exchange of gold for cash or securities together with a promise that the transaction will be unwound at an agreed future date and price. Gold swaps are sometimes used by central banks in the developing world to acquire needed foreign exchange, effectively offering gold as security for repayment. In recent years, however, gold swaps have also been used as a substitute for gold loans by certain central banks, which then earn interest on the cash or securities deposited with them while a bullion bank or other party has use of the gold. For example, the World Gold Council has reported transactions of this sort by the central banks of Austria and Portugal (www.gold.org/Gra/Pr/Gf980701.htm) as well as other nations (www.gold.org/Gra/Pr/CIORStats.htm). A different type of gold swap is a "location swap" in which gold in one depositary or storage facility is temporarily swapped for that in another. Location swaps are often used to facilitate transportation or delivery requirements, particularly over short time periods.
33. Whether Mr. Mattingly's reference to "the gold swaps" was to ordinary gold swaps, location swaps, or a combination thereof, is not clear. Nor is it clear whether he was referring to a program known to some or all participants in the FOMC meeting, or to one or more special transactions with respect to which he had issued an opinion, or to some other set of transactions. What is clear is that he was referring to gold swaps that, so far as the plaintiff is aware, have never been identified in any other publicly available materials relating to the ESF, including Exhibits K and V submitted herewith. Nor does it appear that Mr. Mattingly was referring to transactions in earlier eras, e.g., under the gold standard, gold exchange standard or Bretton Woods system since currency swaps during those periods, even if described as gold swaps, would not be precedent for an expansive reading of 31 U.S.C. s. 5302. See, e.g., M.D. Bordo and A.J. Schwartz, "From the Exchange Stabilization Fund to the International Monetary Fund," October 27, 2000 (www.wcfia.harvard.edu/frieden/peif/bordo.pdf).
34. Submitted herewith as Exhibit X is a true copy of a letter from the plaintiff to James R. Carroll, Esq., counsel for Citigroup, dated January 4, 2001. The plaintiff has received no response to this letter.
35. On April 10, 2001, at Deutsche Bank's website in the "Directory of Deutsche Bank offices" under "Deutsche Bank Locations" in the USA, five offices were listed in Massachusetts: Deutsche Bank Securities Inc. at One Federal Street, 28th floor; Deutsche Morgan Grenfell Technology Group at One Federal Street, 21st floor; Deutsche Banc Alex. Brown at 101 Federal Street; and Deutsche Financial Services with offices in both Waltham and Worcester. The 1999 Bell Atlantic White Pages for the Boston Area contains two listings for "Deutsche Bank" at One Federal Street, tel. 443-8500 and 988-8600, with a separate listing and number for "Deutsche Morgan Grenfell/C J Lawrence."
36. Prior to filing the complaint in this action, the plaintiff visited the two separate offices of Deutsche Bank AG at One Federal Street and its office at 101 Federal Street, Boston, Massachusetts. At one of these offices, plainly visible from the hallway without entering the office, was a large gold colored "Deutsche Bank AG" logo mounted on the wall. On April 11, 2001, the plaintiff revisited the office on the 21st floor at One Federal Street, where a sign on the wall visible from the hallway proclaims "Deutsche Bank Securities" but does not mention Deutsche Banc Alex. Brown. Its offices, which were at 101 Federal Street, are now relocated to 225 Franklin Street, where it has just moved into the 24th and 25th floors. As yet, there are no corporate plaques, signs or logos at those floors. However, the building directory on the wall in the lobby contains separate listings for "Deutsche Banc" and "Deutsche Banc Alex. Brown," both on the 25th floor. The Deutsche Bank office that was on the 28th floor at One Federal Street is no longer there.
37. In a press release dated June 4, 1999, following its acquisition of Bankers Trust, Deutsche Bank outlined a policy of strengthening the Deutsche Bank brand worldwide, adding: "In certain areas of US Investment Banking, Alex. Brown, which has a history of almost 200 years, will be retained under the Deutsche Bank brand for marketing purposes to achieve a managed brand equity transfer over time." The annual report of Deutsche Bank AG for 2000 contains a section entitled: "Risk Report for Deutsche Bank AG," which makes clear
(at p. 9) that its "internal structure according to Group Divisions is determined by customers' needs" whereas its "external legal structure is determined by local legislation and therefore does not necessarily follow the internal structure." The report continues:
For example, local legislation can determine whether the Group's business in a certain country in handled by a branch of Deutsche Bank AG or by a separate subsidiary. However, the management has to monitor the risks in the bank's business -- irrespective of whether it is transacted by a branch or a subsidiary.
Signed under the penalties of perjury as of the date written below.By the plaintiff, /s/ Reginald H. Howe Reginald H. Howe, Pro Se e-mail: email@example.comApril 12, 2001
EXHIBITS TO PLAINTIFF'S AFFIDAVIT TABLE OF CONTENTS A. Bank for International Settlements
Exhibit A: No. 2398. Convention respecting the Bank for International Settlements, with Annex (English language version only)
Exhibit B: No. 2394. Agreement regarding the complete and final Settlement of the Question of Reparations, etc., including introductory pages, Article XV providing for an arbitration tribunal ("Tribunal"), and Annex XII containing the procedural rules of the Tribunal
Exhibit C1: BIS's 39th Annual Report for year ending March 31, 1969, pages 176-178, relating to amendments regarding capital structure
Exhibit C2: BIS's 40th Annual Report for year ending March 31, 1970, pages 183-185, relating to amendments regarding capital structure
Exhibit C3: BIS's 45th Annual Report for year ending March 31, 1976, pages 160-162, relating to amendments of Articles 51 and 52 providing for dividends
Exhibit D: Research note dated August 25, 1988, from International Assets Advisory Corp. issuing a buy recommendation for shares of the BIS
Exhibit E: Chart correlating share prices of the BIS's American issue with gold prices from 1975 to 1988.
Exhibit F: Copy of plaintiff's confirmation slip for purchase of 10 shares of the BIS's American issue on October 2, 1989
Exhibit G: Plaintiff's share certificate no. 031419 dated August 28, 1997, for six shares of the BIS's American issue, serial numbers 066526-066531
Exhibit H: June 1993 profile piece issued by the BIS
Exhibit I: Copy of portion of transcript of Federal Open Market Committee conference call on July 20, 1994, relating to the impending public announcement by the BIS that Alan Greenspan and William J. McDonough would assume the two seats on its board allocated to the Federal Reserve
Exhibit J: Letter dated January 18, 2001, from Marti Thomas, Acting Assistant Secretary of the Treasury, to Chris Powell, Secretary-Treasurer of the Gold Anti-Trust Action Committee
Exhibit K: Copy of "Audited Fiscal Years 1999 and 1998 Financial Statements of the Exchange Stabilization Fund."
Exhibit L: Press release issued by the BIS on September 11, 2000, announcing the proposed withdrawal of all privately held shares
Exhibit M: Press release issued by the BIS on January 8, 2001, announcing the withdrawal of all privately held shares
Exhibit N: Letter dated January 10, 2001, from Urban Backstrom, president of the BIS, to all registered private shareholders, together with copies of the enclosed Note to private shareholders and accompanying Annex
Exhibit O: Letter dated January 21, 2001, from the plaintiff to Mr. Backstrom, the reply from the BIS
Exhibit P: Document entitled "Information on the Hague Arbitral Tribunal (BIS)" posted by the BIS at its website on or about January 18, 2001
B. Gold Price Fixing and the ESF's Gold Swaps
Exhibit Q: Article entitled "Anomalous Selling in COMEX Gold, 1985 to November 2000" by G. Michael Bolser
Exhibit R: Graphic depicting the bimonthly scheduling of British gold auctions alongside the bimonthly cycles of COMEX options on gold futures contracts
Exhibit S: Article entitled "NY Strangulation of World Gold Market - 1 Year" by Harry J. Clawar posted at the Gold Eagle website on February 2, 2001
Exhibit T: Article entitled "Tracks in the Trading: When Did the Gold Price Manipulation Begin?" by Dimitri Speck posted at the Gold Eagle website on February 23, 2001
Exhibit U1: Status Report of U.S. Treasury Owned Gold for September 30, 2000
Exhibit U2: Status Report of U.S. Treasury Owned Gold for August 31, 2000
Exhibit V: "Fedpoint 14: Exchange Stabilization Fund" from website of the New York Federal Reserve Bank
Exhibit W: Copies of pages 68 and 69 from the transcript of the Federal Open Market Committee meeting on January 31, 1995, referring to "gold swaps" by the Exchange Stabilization Fund
Exhibit X: Letter dated January 4, 2001, from the plaintiff to James R. Carroll, Esq., counsel for Citigroup
Exhibit Y: [blank]
Exhibits attached to Greenspan Memorandum (Tab Z contains copies of Greenspan Exhibits B through E)
Exhibit B: Extract from minutes of Federal Reserve Board meeting on June 6, 1994, relating to Federal Reserve representation on BIS board of directors
Exhibit C: Letter dated June 15, 1994, from Secretary of State Warren Christopher to Alan Greenspan and letter dated May 25, 1994, from Secretary of the Treasury Lloyd Bentsen to Alan Greenspan
Exhibit D: Memorandum dated May 6, 1997, for J. Virgil Mattingly, Jr., General Counsel, Federal Reserve Board, from Richard L. Shiffrin, Deputy Assistant Attorney General, re: Directorships of the BIS
Exhibit E: Copy of letter dated January 19, 2000, from Alan Greenspan to Senator Joseph I. Lieberman
Index to Relevant Exhibits of BIS (In Affidavit of Gunter D. Baer, Secretary General, BIS)
Exhibit D: Statutes of the Bank for International Settlements as amended through 8th November 1999, and in effect until 8th January 2001
Exhibit E: Statutes of the Bank for International Settlements as amended on 8th January 2001
Exhibit F: Extracts from Report of the International Financial Institution Advisory Commission (Meltzer Report) submitted to Congress in March 2000 (http://phantom-x.gsia.cmu.edu/IFIAC/Report.html).
Exhibit G: Brussels Protocol regarding the immunities of the BIS (of 30th July 1936)
Exhibit H: Agreement between the Swiss Federal Council and the Bank for International Settlements to determine the Bank's legal status in Switzerland (as of 10th February 1987)
Exhibit K: Note from the BIS to private shareholders dated September 15, 2000, describing proposed withdrawal of all privately held shares