UNITED STATES DISTRICT COURT
District of Massachusetts
Civil Action No. 00-CV-12485-RCL
Reginald H. Howe,
Bank for International Settlements, et al.,
PLAINTIFF’S OPPOSITION TO MOTIONS OF J. P. MORGAN CHASE,
GOLDMAN SACHS AND DEUTSCHE BANK
FOR LEAVE TO FILE REPLY MEMORANDA
IN SUPPORT OF THEIR MOTIONS TO DISMISS
The plaintiff, Reginald H. Howe, opposes the separate motions of J. P. Morgan Chase and Goldman Sachs and Deutsche Bank for leave to file reply memoranda in response to the plaintiff’s consolidated opposition to all defendants’ motions to dismiss, including theirs. Should the Court allow the filing of the two memoranda submitted with these motions, the plaintiff respectfully requests that the Court also accept this opposition as the plaintiff’s response thereto.
Statement of the Case
From March 15 through April 10, 2001, the defendants filed seven motions to dismiss and two related procedural motions, all supported by briefs having a total combined length of 126 pages. On April 19, 2001, in response to all these motions and briefs, the plaintiff filed a consolidated opposition (cited as “CO”) of 62 pages. Five weeks later, Paul O’Neill and Alan Greenspan sought leave, granted June 4, to file reply memoranda, and the Bank for International Settlements sought similar leave, denied June 5. More than six weeks after the plaintiff filed his consolidated opposition, J. P. Morgan Chase and Goldman Sachs and Deutsche Bank filed motions for leave to file reply memoranda. Counsel for Goldman Sachs and Deutsche Bank advised the plaintiff on or about May 1, 2001, that they were considering filing such a memorandum, but made no further contact on the matter until May 29. On June 5, 2001, Citigroup filed a document to join in and adopt the motion and reply memorandum of Goldman Sachs and Deutsche Bank.
I. THE REPLY MEMORANDA ARE UNREASONABLY
LATE AND DEAL WITH MATTERS THAT SHOULD
HAVE BEEN ADDRESSED PREVIOUSLY.
When reply briefs are allowed as of right in the appellate courts, they must ordinarily be filed within 14 days of the principal briefs to which they respond. No reason or excuse is offered for a delay of six weeks before moving for leave to file reply memoranda in this case. Neither memo addresses anything that was not apparent six weeks ago or any relevant case decided in the intervening period. On the contrary, the memo of Goldman Sachs and Deutsche Bank principally covers (at 2-4) two cases on antitrust standing, Sanner v. Board of Trade of City of Chicago, 62 F.3d 918 (CA7 1995), and In re Copper Antitrust Litigation, 98 F.Supp.2d 1039 (W.D.Wis. 2000), that have obvious application to this case (CO 40-42) but were for some unexplained reason omitted from their original brief.
II. AS A PRACTICAL MATTER AND DUE TO THE GOVERNMENT’S
OWN CONDUCT, FEW POTENTIAL PLAINTIFFS ARE AVAILABLE TO ENFORCE
THE SHERMAN ACT AGAINST THE PUBLIC OFFICIALS AND BULLION BANKS
MANIPULATING GOLD PRICES.
The discussion of these antitrust cases in the memo of Goldman Sachs and Deutsche Bank continues to try to portray the plaintiff as a common equity shareholder in a gold mining company rather than as what he is: the holder of FCX gold preferred shares, which pay dividends and are redeemable at the dollar prices of specified quantities of gold; and the former holder of BIS shares, which must be valued in gold francs or their equivalent weight of gold (CO 20-21, 41). As their memo suggests (at 4) and as the plaintiff has acknowledged, common equity shareholders ordinarily do not have antitrust standing to challenge price fixing affecting the companies in which they hold shares. However, the plaintiff is not aware of any reported case discussing this general rule in the context of the gold mining industry, where special circumstances might warrant an exception.
In any event, besides the direct one-for-one link connecting gold prices to the plaintiff’s FCX gold preferred shares and his former BIS shares, there are two special circumstances that add further support the plaintiff’s standing here.
First, notwithstanding its normal aggressive pursuit of suspected price fixing (“The World Gets Tough On Price Fixers,” The New York Times, June 3, 2001, sec. 3, pg. 1; “Five Paint Firms Are Scrutinized For Price Fixing,” The Wall Street Journal, June 4, 2001, pg. A4), the DOJ has left no doubt in this case that it intends vigorously to defend top current and former federal officials alleged to have illegally manipulated gold prices rather than to investigate and prosecute the price fixing itself. Indeed, half of Secretary O’Neill’s reply memo addresses the plaintiff’s damages claim against his predecessor. Accordingly, notwithstanding the change in administrations in Washington, the normal remedies against illegal price fixing provided by the DOJ appear unavailable with respect to the manipulation of gold prices alleged in the complaint.
Second, because gold banking is highly concentrated in a small number of banks, most gold mining companies cannot bring claims of price fixing in the gold market without naming as defendants one or more of the bullion banks on their credit lines and/or hedging facilities. As of December 31, 2000, the Office of the Controller of the Currency reported that the total notional value of all off balance sheet gold derivatives in U.S. commercial banks amounted to $ 87 billion, of which Chase and Morgan each held $ 30 billion, giving the new J. P. Morgan Chase more than two-thirds of the total, with the remaining amount about equally split between Citibank and the all other category.
In its decision dated December 11, 2000, approving the Chase/Morgan merger under the Bank Holding Company Act, the Federal Reserve Board dismissed concerns about undue concentration in precious metals banking (Federal Reserve Bulletin, February 2001, pg. 78, n. 12):
ICP [Inner City Press/Community on the Move] asserts that after the enactment of the Gramm-Leach-Bliley Act (Pub. L. No. 106-102, 113 Stat. 1338 (1999)), the cluster approach no longer is appropriate, and that certain products and services provided by Morgan Guaranty, including syndicated lending, precious metal trading, debt underwriting, and foreign currency exchange, should be analyzed as separate product markets. … The passage of the act, however, does not suggest that the cluster of banking products and services no longer is the appropriate line of commerce for analyzing the competitive effect of bank affiliations. ICP also argues that the elimination of Morgan Guaranty as a counter-party or participant in the markets for specific products and services listed above would impair significantly the operations of these markets. Even if the approach advocated by ICP were adopted, the Board notes that these activities are conducted on a national or global scale, with numerous other large institutions and sophisticated participants.
In United States v. Philadelphia National Bank, 374 U.S. 322, 356 (1963), followed in United States v. Phillipsburg National Bank, 399 U.S. 350, 359 (1970), and United States v. Connecticut National Bank, 418 U.S. 656, 662-664 (1974), the Court determined that for purposes of evaluating the competitive effects of bank mergers, “the cluster of products (various kinds of credit) and services (such as checking accounts and trust administration) denoted by the term ‘commercial banking’ … composes a distinct line of commerce.” In each of these cases, the Court applied this definition to enhance competition among commercial banks and to exclude from consideration competing services offered by other types of financial institutions. In no case of which the plaintiff is aware has the Court used the “cluster” concept of commercial banking services to justify the heavy concentration of a single specialized service in a very few commercial banks. On the contrary, in Philadelphia National Bank, supra, 374 U.S. at 359, the Court emphasized, quoting Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961), that the “area of effective competition in the known line of commerce must be charted by careful selection of the market area in which the seller operates, and to which the purchaser can practicably turn for supplies.” [Emphasis by the Court in Philadelphia National Bank.]
As a practical matter, for both their credit lines and hedging activities, gold mining companies must use commercial banks with active precious metals trading and gold derivatives businesses. By permitting three banks now reduced to two to control five-sixths of the gold derivatives in all U.S. commercial banks, the government has not only restricted the banking options of U.S. as well as foreign gold mining companies, but also made it much more difficult for these companies to complain aggressively of anti-competitive activities by these banks.
The absurdity, not to mention danger, of allowing the cluster concept to insulate the derivatives businesses of commercial banks from competition analysis is underscored by their off balance sheet interest rate derivatives. Table 8 of the OCC derivatives report for December 31, 2000, shows Chase with $ 10.7 trillion in notional value, Morgan with $ 5.5 trillion, and all others combined with $ 9.4 trillion of interest rate derivatives. The LTCM affair suggests that concentrating $ 16.1 trillion or 63% of these derivatives in one bank is to play Russian roulette with the U.S. financial system (Complaint, para. 53). So, too, is the manipulation of gold prices alleged in the complaint. That J. P. Morgan Chase, traditionally the Fed’s bank (CO 16), is deeply implicated in both is unlikely to prove coincidental.
For the foregoing reasons, the plaintiff requests that the motions of J. P. Morgan Chase and Goldman Sachs and Deutsche Bank for leave to file reply memoranda be denied, but requests that if leave is granted, the Court also accept this opposition as the plaintiff’s response thereto.
By the plaintiff,
/s/ Reginald H. Howe
Reginald H. Howe, Pro Se
June 8, 2001
Certificate of Service
I, Reginald H. Howe, hereby certify that on the above date a true copy of the foregoing document was served by hand on counsel of record for all parties.
___________________________ Reginald H. Howe
UNITED STATES DISTRICT COURT
District of Massachusetts
Civil Action No.
Reginald H. Howe,
Bank for International Settlements, et al.,
PLAINTIFF’S QUALIFIED OPPOSITION TO REPLY MEMORANDA OF
PAUL O’NEILL, ALAN GREENSPAN, AND THE BIS IN SUPPORT OF
THEIR MOTIONS TO DISMISS
The plaintiff, Reginald H. Howe, submits this qualified opposition to the separate motions of Paul O’Neill, Alan Greenspan, and the Bank for International Settlements for leave to file reply memoranda in response to the plaintiff’s consolidated opposition to all defendants’ motions to dismiss, including theirs. Should the Court allow the filing of the memoranda submitted with these motions, the plaintiff respectfully requests that the Court also accept this qualified opposition as the plaintiff’s response thereto.
Statement of the Case
From March 15 through April 10, 2001, the defendants filed seven motions to dismiss and two related procedural motions, all supported by briefs having a total combined length of 126 pages, including 45 pages from Messrs. O’Neill and Greenspan and 20 from the BIS in support of their four motions. On April 19, 2001, in response to the defendants’ entire barrage, the plaintiff filed a consolidated opposition (cited as “CO”) of 62 pages. Now, five weeks later, these three defendants seek leave to file three additional memoranda totaling 23 pages. When reply briefs are allowed as of right in the appellate courts, they must ordinarily be filed within 14 days of the principal briefs to which they respond.
Although these proposed reply memoranda thus stretch reasonable limits of both total combined pages and time for filing, the plaintiff does not urge their rejection on these grounds if the Court believes that they might nevertheless be helpful. However, since these reply memoranda inaccurately, incompletely or erroneously describe important aspects of the matters addressed, the plaintiff believes that they are unlikely to assist the Court unless responded to in a way that not only corrects these deficiencies but also may bring certain key issues into better focus. Accordingly, that is the purpose of this qualified opposition.
I. THE O’NEILL MEMO TRIES TO OBSCURE THE BASIC
LEGAL AND CONSTITUTIONAL ISSUE, WHICH IS
WHETHER THE SECRETARY OF THE TREASURY
CAN USE THE ESF TO MANIPULATE GOLD PRICES.
With respect to the Exchange Stabilization Fund, the plaintiff does not rest his claim for damages against former treasury secretary Summers simply on his use of the ESF “to deal in gold” (O’Neill memo at 2), which under certain circumstances and for certain reasons may be permissible (CO 29), but on his use of the ESF for the express purpose of manipulating gold prices. Nor does the plaintiff assert “that the Constitution forbids the government from acting to depress the price of gold” (O’Neill memo at 3). What the Constitution does forbid is what Congress has not done: delegate to the President and the Secretary of the Treasury authority to set the dollar gold price in their uncontrolled and absolute discretion.
Far from questioning “the power of Congress to regulate the dollar value of gold” (O’Neill memo at 3), the plaintiff affirms this power. He asserts: (1) the Constitution vests in Congress exclusive power to determine the gold weight or value of the dollar (CO 25); (2) since 1971, Congress has by various acts mandated that the gold value of the dollar be determined solely by free market forces (CO 25-27); and (3) because of these actions by Congress, the President and the Secretary of Treasury lack even colorable authority to use the Exchange Stabilization Fund — established in 1934 for the purpose of helping to maintain the fixed $35/ounce gold price set by Congress at that time — to intervene in today’s “free” gold market for the purpose of manipulating, suppressing or otherwise affecting dollar gold prices (CO 27-29).
The O’Neill memo does not address any of these points, and its silence on the last point is particularly significant. Neither Secretary O’Neill nor the DOJ appears willing to argue publicly in unambiguous language that former treasury secretary Summers had authority, or at least a reasonable basis to believe that he had authority, to use the ESF to manipulate the free market price of gold. This argument, could it be convincingly made, would undercut the plaintiff’s damage claims against Mr. Summers because executive branch officials have a qualified immunity for actions taken in a reasonable though mistaken belief that they are constitutional (CO 24). Failure to make this argument, however, supports the plaintiff’s assertion that Mr. Summers knew or should have known that he lacked authority to manipulate gold prices (CO 29-31).
The plaintiff’s damage claims against Mr. Summers rest on two causes of action that are also misstated in the O’Neill memo.
The first arises under the Fifth Amendment, which prohibits government officials from invading private property rights without due process and supports a direct private right of action for damages against those who do so while acting beyond or abusing their authority. Apparently because of the wealth of case authority supporting this proposition (CO 23-24), the O’Neill memo asserts that “Howe relies not on the Fifth Amendment, but on Article 1, s. 8 of the Constitution” and that “there is no judicial precedent recognizing a private right of action under [this provision, which grants Congress the power, inter alia, “To coin Money, regulate the Value thereof, and of foreign coin.”]
If Congress, acting under Article 1, s. 8, fixed the dollar at a specified weight of gold and the Secretary of the Treasury thereafter took action to cause the plaintiff to receive fewer dollars for his gold than the Congressional parity required, the plaintiff asserts that he would have a direct cause of action against the Secretary under the Fifth Amendment. That is essentially what has happened in this case, except that instead of setting a fixed dollar gold price, Congress has mandated that gold should trade at free market prices, which the plaintiff alleges were manipulated downward by former secretary Summers through the ESF.
The plaintiff’s second cause of action against Mr. Summers arises under the Sherman Act for per se illegal price fixing (CO 43-44). By eliminating any official monetary role for gold and making it an ordinary commodity under U.S. law, Congress made price fixing in the gold market as wrongful as in any other market and subject to the same statutory remedies. But here again, instead of addressing the claim actually made by the plaintiff, the O’Neill memo (at 3-4) sets up a completely irrelevant straw, i.e., that the plaintiff must somehow be asserting a private right of action under 31 U.S.C. s. 5302, which he is not, and then proceeds to knock it down with recent Supreme Court decisions limiting implied rights of action for damages.
II. NO LIMITATIONS ON JUDICIAL REVIEW IN THE APA OR ELSEWHERE BAR
THE PLAINTIFF’S CLAIMS FOR INJUNCTIVE RELIEF TO PREVENT MANIPULATION OF GOLD
PRICES BY THE FED OR ESF BECAUSE THESE CLAIMS ARISE UNDER THE
CONSTITUTION AND GO TO THE EXISTENCE OF AUTHORITY, NOT TO THE EXERCISE
OF DISCRETIONARY AUTHORITY.
Although for different reasons, both the O’Neill and Greenspan memos argue that the plaintiff cannot obtain injunctive or other declaratory under the Administrative Procedure Act, 5 U.S.C. s. 701 et seq. The APA is of no relevance to the plaintiff’s claims for damages, but does provide a basis for injunctive or declaratory relief against Messrs. O’Neill and Greenspan acting in their official capacities (CO 24).
The O’Neill memo (at 5-7), relying on the provision in 31 U.S.C. s. 5302(a)(2) that decisions of the Secretary under the ESF “are final and may not be reviewed by another officer or employee of the Government,” argues that s. 701(a)(1) of the APA, which makes it inapplicable to cases where “statutes preclude judicial review,” precludes its application in this case. If a district court judge is an “officer” of the United States within the meaning of s. 5302(a)(2), so is a Justice of the Supreme Court, and the provision would preclude review even by that Court of decisions of the Secretary under the ESF, including claims of constitutional violations such as the plaintiff makes in this case.
In Califano v. Sanders, 430 U.S. 99, 109 (1977), the Court recognized “the well-established principle that when constitutional questions are in issue, the availability of judicial review is presumed, and we will not read a statutory scheme to take the ‘extraordinary’ step of foreclosing jurisdiction unless Congress’ intent to do so is manifested by ‘clear and convincing’ evidence.” Indeed, where a statute must be read to foreclose judicial consideration of constitutional questions, the constitutionality of the statute itself is brought into question. Johnson v. Robison, 415 U.S. 361, 366-367 (1974). Accord, Webster v. Doe, 486 U.S. 592, 603 (1988), and cases cited. Accordingly, the word “reviewed” in 31 U.S.C. s. 5302(a)(2) should not be construed to include judicial review, but only review by other officers of the executive branch, such as inspector generals, auditors, and the like.
Nor is there any practical need to construe s. 5302(a)(2) to bar all judicial review. As the O’Neill memo (at 7-9) points out, s. 701(a)(2) of the APA also makes it inapplicable to “agency action … committed to agency discretion by law.” Thus, as the O’Neill memo argues, the discretionary and foreign policy judgments pursuant to which the ESF conducts interventions in the foreign exchange markets may well be inappropriate subjects for judicial review.
These, however, are activities for which the ESF possesses well-recognized authority (CO 39). The gold market is not the foreign exchange market. The fundamental question in this case does not relate to the exercise of discretionary authority admitted to exist; it relates to whether any authority exists that would permit the ESF to intervene in the gold market for the purpose and with the intent of affecting gold prices.
The O’Neill memo (at 7) correctly notes that 31 U.S.C. s. 5302 requires the ESF to operate in a manner “consistent with the obligations of the Government in the International Monetary Fund on orderly exchange arrangements and a stable system of exchange rates.” However, as the plaintiff has previously pointed out (CO 26), Art. IV, s. 12(a), as amended, of the IMF’s Articles of Agreement commits members to “the objective of avoiding the management of the price, or the establishment of a fixed price, in the gold market.”
The Greenspan memo (at 3-5) appears to argue that the plaintiff’s allegations of Mr. Greenspan’s (or the Fed’s) involvement in manipulation of gold prices are insufficient to establish a basis for relief against Mr. Greenspan in his official capacity under the APA. The factual bases for the plaintiff’s claims in this regard have been covered previously (CO 11, 13-19, 29-31). In this connection, although the alleged statement of Bank of England Governor and BIS director Eddie George set forth at paragraph 55 of the complaint has received wide circulation on the Internet and elsewhere, the plaintiff has yet to be made aware of any denials. In any event, there are none in any of the defendants’ briefs, where among all the flak about the plaintiff’s allegations lacking specificity, there is not a single mention of this statement.
III. IF THE FED DOES NOT HAVE TO PURCHASE BIS SHARES, ITS CONTINUED
MEMBERSHIP IN THE BANK CAN REST ONLY ON CAPITAL INVESTED IN THE BIS BY THE
FORMER PRIVATE HOLDERS OF THE AMERICAN ISSUE BUT NOT RETURNED TO THEM
DUE TO AN UNFAIRLY LOW FREEZE-OUT PRICE.
The proffered Greenspan reply memo (at 1-2) argues that there is no plan for the Fed to acquire any shares in the BIS, and that the Fed can continue to vote the shares of the American issue even though they now reside in the treasury of the BIS.
Every central bank member of the BIS has always had capital invested in the Bank by one of two methods or a combination thereof: directly for its own account or indirectly through shares publicly subscribed in its home country. Were capital investment in the Bank not required by one or the other of these methods, there would have been no need to subscribe the American issue in the United States. The shares could have been sold anywhere or to other central banks and the votes assigned to the Fed. If as a result of the freeze-out, holders of the American issue were paid full and fair value for their shares, there is no current capital investment in the Bank on account of these shares, notwithstanding that they are held as treasury shares instead of being canceled.
On the other hand, if the private holders did not receive the full and fair value for their shares, as the plaintiff contends, then there remains a residual amount of American capital investment in the Bank that theoretically could support the Fed’s continued membership. However, in that event, this residual capital investment has effectively been transferred to the Fed with no payment therefor to its prior owners, including the plaintiff. Indeed, by acknowledging that “the right to vote the shares of the American issue is unrelated to their ownership” (at 2), the Greenspan memo effectively concedes that the BIS lacked any sound rationale for discounting the net asset value of their shares due to their nonvoting status.
In any event, the argument that the Fed cannot purchase the redeemed shares of the American issue because it is not currently a “central bank shareholder” of the BIS is a largely factual rather than legal assertion, and thus not determinable on a motion to dismiss. The BIS treats its Statutes essentially as corporate bylaws, which it changes or disregards at its whim (CO 20, 54-55).
In addition to whether the Fed’s continued membership is supported by any invested capital as is the case with all other member banks, there are other factual issues regarding the Fed’s continued membership which the plaintiff is entitled to explore: (1) the reasons for permitting the Fed to remain the only member of the BIS which has not accepted the jurisdiction of the arbitral “Tribunal” (CO 51); (2) the rationale, if there is one, under which Messrs. Greenspan, McDonough and Summers decided to continue U.S. membership in the “new” BIS without complying with the constitutional procedures through which the United States ordinarily joins public international organizations (CO 31-33); and (3) the efforts, if any, that Messrs. Greenspan and McDonough made to fulfill their fiduciary duties to private holders of the American issue in connection with the freeze-out (CO 45-48), particularly since they now concede that the nonvoting status of these shares was not a valid reason for discounting their net asset value.
IV. THE ARBITRATION TRIBUNAL IS NEITHER
DESIGNED NOR CAPABLE OF FULLY AND FAIRLY
ADJUDICATING THE ISSUES RAISED BY THIS CASE.
The BIS reply memo (at 1-3) does not dispute that the Tribunal, although established as a permanently sitting body under the relevant treaty, did not exist when this case was filed on December 7, 2000, and thus was unavailable to the plaintiff at that time (CO 53). Nor does the BIS anywhere suggest that the antiquated procedural rules of the Tribunal meet modern due process requirements, particularly for a case of this type (CO 55-56).
Its argument (BIS reply memo at 3-6) that the Tribunal should be treated as presumptively unbiased because it was reconstituted in January 2001 by “governments” — not by the central banks of those governments acting at the request of the BIS — is disingenuous. Two of those governments, France and Belgium, have a direct interest in the freeze-out since parts of their BIS issues were involved. As for the United Kingdom, this case puts squarely at issue the true reasons for the British gold auctions, which the Bank of England has carried out pursuant to orders from the British Treasury apparently emanating directly from the prime minister (CO 12-13, 42-43). Whatever the theoretical possibility that the Tribunal might hear some other case, it was recreated after more than a half century of desuetude expressly to hear disputes arising from the freeze-out.
With respect to the scope of the arbitration provision, the BIS does not and cannot show: (1) that the U.S. Federal Reserve or Messrs. Greenspan or McDonough are in any way subject to the jurisdiction of the Tribunal (CO 51); or (2) that the Tribunal has jurisdiction to render judgment on any of the plaintiff’s claims relating to price fixing (CO 43-44, 54), securities fraud (CO 44-50, 54), the constitutional requirements for U.S. membership in the new, restructured BIS (CO 31-33, 54), or the misuse of the BIS by American officials to manipulate gold prices (34-35). Other arguments raised in the BIS reply memo relating to the scope of the arbitration provision and the factual disputes relating thereto are sufficiently covered in the plaintiff’s consolidated opposition and affidavit filed in support thereof.
For the foregoing reasons, the plaintiff suggests that the reply memoranda submitted by Messrs. O’Neill, Greenspan, and the BIS are unlikely to be of much assistance to the Court, takes no position on whether the Court should grant the motions for leave to file them, but requests that if leave is granted, the Court also accept this qualified opposition as the plaintiff’s response thereto.
By the plaintiff,
/s/ Reginald H. Howe
Reginald H. Howe, Pro Se
May 31, 2001
Certificate of Service
I, Reginald H. Howe, hereby certify that on the above date a true copy of the foregoing document was served by hand on counsel for the parties directly involved and by first-class mail, postage prepaid, on counsel of record for all other parties.
___________________________ Reginald H. Howe