District of Massachusetts

Civil Action
No. 00-CV-12485-RCL


Reginald H. Howe,


Bank for International Settlements, et al.,


[denied by the court, September 27, 2001]

The plaintiff, Reginald H. Howe, moves pursuant to Local Rule 7.1(b)(3) for leave to file a second affidavit in the form submitted herewith.

This motion is based on the following grounds.

(1) Important factual allegations of the Complaint, which was filed on December 7, 2000, are based on data reported at regular intervals by official sources, including the U.S. Treasury, the Federal Reserve, and the Bank for International Settlements. One purpose of the affidavit submitted herewith is to update and make current these data series, which contain significant new information as well as revisions and other changes to data previously reported.

(2) Plaintiff’s Consolidated Opposition to All Motions to Dismiss and Related Motions was filed on April 19, 2001, together with Plaintiff’s Affidavit dated April 12. Another purpose of the affidavit submitted herewith is to provide a summary of significant relevant evidence uncovered since April 12.

(3) In addition, this affidavit together with the prior one will put the plaintiff in substantial compliance with Rule 26(a)(1), Fed. R. Civ. P., regarding mandatory initial disclosures.

By the plaintiff,
Reginald H. Howe, Pro Se
e-mail: row@ix.netcom.com

September 18, 2001


Certificate of Counsel under Local Rule 7.1

I, Reginald H. Howe, hereby certify that I have conferred with appropriate counsel in an effort to resolve or otherwise narrow the issues raised by this motion, and have been unable to obtain their assent thereto.

Reginald H. Howe

Certificate of Service

I, Reginald H. Howe, hereby certify that on September 18, 2001, a true copy of the foregoing document, together with a true copy of the accompanying affidavit, was served by hand on counsel of record for each party.

Reginald H. Howe



District of Massachusetts

Civil Action
No. 00-CV-12485-RCL


Reginald H. Howe,


Bank for International Settlements, et al.,


The plaintiff, Reginald H. Howe, deposes and says as follows:

1. The purpose of this affidavit is: (1) to update the factual allegations of the Complaint dated December 7, 2000, that rest on data reported at regular intervals by official sources; and (2) to provide a summary of relevant additional evidence uncovered since the Plaintiff’s Affidavit dated April 12, 2001, filed with Plaintiff’s Consolidated Opposition on April 19. In addition, this affidavit together with the prior one will put the plaintiff in substantial compliance with Rule 26(a)(1), Fed. R. Civ. P., regarding mandatory initial disclosures.

A. Updating Data from Official Sources

2. Foreign Earmarked Gold at the Federal Reserve. Paragraph 40 of the Complaint addresses gold leasing by foreign central banks, alleging that: (1) foreign earmarked gold held at the Federal Reserve decreased by almost 1550 metric tonnes from January 1995 through December 1999; and (2) during this period surges in outflows coincided with strong gold prices, apparently confirming that central banks were indeed leasing or selling gold to suppress its price. Month-end balances of total foreign earmarked gold held by the Fed are reported in table 3.13 of the Federal Reserve Bulletin. (These tables are available online at www.federalreserve.gov/releases/Bulletin/.) The pattern alleged in the Complaint was depicted graphically in commentaries posted at my website (www.goldensextant.com): The Fed: Up to its Earmarks in Gold Price Manipulation? (May 15, 2000); and Central Banks vs. Gold: Winning Battles but Losing the War? (June 11, 2000).

3. The chart in the latter commentary carried the monthly figures on foreign earmarked gold in table 3.13 through March 2000. The figures since then are given in the table below, which suggests that in recent months the central banks have further increased their gold lending and/or selling activities.

                 Earmarked Gold    Decrease from Prior Month
               ($mil.@42.22/oz.)      ($mil.)     (tonnes)

April 2000           9,711               0            0
May 2000             9,711               0            0
June 2000            9,688              23           17
July 2000            9,688               0            0
August 2000          9,674              14           10
September 2000       9,620              54           40
October 2000         9,565              55           41
November 2000        9,505              60           44
December 2000        9,451              54           40
January 2001         9,397              54           40
February 2001        9,343              54           40
March 2001           9,289              54           40
April 2001           9,235              54           40
May 2001             9,154              81           60
June 2001            9,100              54           40

4. As is readily apparent from the foregoing table, starting in September 2000 monthly outflows of foreign earmarked gold stabilized at around 40 tonnes/month until May 2001, when 60 tonnes of earmarked gold left the Fed as gold prices surged to nearly $300/ounce in their best rally to September of this year. The current rate of outflow represents a substantial increase over the prior three years. For calendar 1998, total outflows amounted to 309 tonnes; for 1999, 302 tonnes; and for 2000, 355 tonnes. Annualized, the rate of outflow for the first six months of 2001 exceeds 500 tonnes, which is 100 tonnes more than the total annual central bank gold sales authorized under the Washington Agreement.

5. Although table 3.13 does not provide any indication of the specific central banks or international organizations withdrawing this gold, the size of the outflows indicates that they must be coming from one or a very few large holders. Three obvious possibilities are: (1) the International Monetary Fund, perhaps moving gold through the BIS as suggested in paragraph 41 of the Complaint; (2) a coordinated scheme organized through the BIS, possibly involving gold swaps with the United States; or (3) draw downs by Switzerland in connection with its program of official gold sales.

6. Gold Held by the Exchange Stabilization Fund. Paragraphs 62-64 of the Complaint identify instances of month-end discrepancies from 1974 through January 2000 between the Federal Reserve’s gold certificate account, which includes certificates for all gold held by the Treasury excluding only the Exchange Stabilization Fund, and the total U.S. gold stock including gold held by the ESF, as reported in tables 1.18 and 3.12, respectively, of the Federal Reserve Bulletin. By definition, these discrepancies reflect positive or negative month-end gold balances at the ESF, and thus necessarily imply corresponding gold trading activities by the ESF. (The monthly 3.12 tables can be found online at www.federalreserve.gov/releases/Bulletin/; the monthly 1.18 tables are not available online although weekly figures on the Fed’s gold certificate account are included in Release H.4.1, Factors Affecting Reserve Balances, available at www.federalreserve.gov/releases/H41.)

7. Submitted herewith as Exhibits 1A, 1B and 1C are true copies of tables 3.12 and 3.13 as published in the January 2001, February 2001 and March 2001 editions, respectively, of the Federal Reserve Bulletin. Exhibit 1B contains table 3.12 “as corrected” in the February 2001 Federal Reserve Bulletin. This revised table removed the four surviving discrepancies between it and table 1.18, including adjustments to the figures for June 2000 and year-end 1997, 1998 and 1999. The critical change, however, was not to the figures themselves but in the relevant line item describing them. “Gold stock, including Exchange Stabilization Fund” as reported in prior issues (e.g., Exhibit 1A) was replaced by “Gold stock” without any reference to the ESF. In other words, the figures could not be changed without a change in description, indicating that the earlier discrepancies must indeed have related to gold held by the ESF. Thus, the new or “corrected” year-end figure for 1999 no longer showed the approximately $41 million of gold (30 metric tonnes @ $42.22/oz.) held by the ESF on that date — a position that likely reflected gold market activities undertaken by the ESF in response to the Washington Agreement. What is more, apparently in response to the allegations of the Complaint and with an intent to conceal evidence of gold market activities by the ESF, table 3.12 in subsequent issues (e.g., Exhibit 1C) no longer reports the “Gold stock, including Exchange Stabilization Fund.”

8. Reporting Changes for Treasury Owned Gold. Submitted herewith as Exhibit 2A is a true copy of the Status Report of U.S. Treasury Owned Gold for May 31, 2001 (available online at www.fms.treas.gov/gold/01-05.html). This report is the first to show changes in format and terminology from the similar reports submitted with my prior affidavit (para. 29; Exhibits U1 and U2). Submitted herewith as Exhibit 2B is the similar report for July 31, 2001 (available online at www.fms.treas.gov/gold/01-07.html). It contains a slightly revised version of the explanatory notes at the end. Absent further discovery, it is impossible to know what significance, if any, to attach to the various changes made during the past year to this report.

9. Misreporting of the ESF’s Trading Results. Paragraphs 65 and 66 of the Complaint allege that the ESF’s poor trading results from 1997 through March 2000 likely reflected losses incurred as a result of its efforts to manipulate gold prices. During this period not only did the ESF deny making any interventions in the foreign exchange markets, but also its trading profits seemed to be associated with periods of weakness in gold prices and losses with gold price strength. Summary profit and loss statements for the ESF are reported quarterly in table ESF-2 of the U.S. Treasury Bulletin (available online at www.fms.treas.gov/bulletin/index.html). Table ESF-2 contains a separate line item for the ESF’s realized profits or losses on foreign exchange, which is the same line item that historically also included gold trading activities.

10. According to table ESF-2 in the June 2000 U.S Treasury Bulletin, the ESF incurred a loss on foreign exchange of $1,627,763,000 — its third largest quarterly trading loss ever — in the last calendar quarter of 1999 (first quarter of FY 2000). As the Complaint points out, given the sharp rally in gold prices following the Washington Agreement, these losses fit the observed pattern.

11. Contrary to its practice in other years, the ESF-2 for the first fiscal quarter of FY 2000, a true copy of which is submitted herewith as Exhibit 3A, also included a column entitled “Fiscal year to date, Oct. 1, 1998, through Dec. 31, 1999,” which indicated a cumulative profit over these five quarters (which do not constitute a fiscal year) of $10,634,000. In the prior ESF-2, the ESF had reported a total profit for FY 1999 of $1,637,397,000, so that at first glance these cumulative figures — however unusual their inclusion — appeared consistent with prior reports. However, subtracting the reported FY 2000 first quarter loss from the total FY 1999 profit yields $9,634,000 rather than $10,634,000. Still, this $1,000,000 error hardly suggested that the columns in the ESF-2 for the first quarter of FY 2000 were erroneously transposed, with the cumulative figures for five quarters actually representing the results for the current quarter. Indeed, if the $10,634,000 were in fact profit for the first quarter of FY 2000, then the cumulative figure for the five quarters beginning October 1998 should have been a profit of $1,648,031,000.

12. Nevertheless and without any explanation, the subsequent ESF-2 reports for FY 2000 treat the $10,634,000 figure as profit for the first quarter. The ESF-2 reports for the second through fourth quarters of FY 2000 show quarterly and cumulative FY 2000 trading losses as follows:

                  2nd quarter   3rd quarter    4th quarter

quarterly loss   $393,760,000  $313,376,000    $647,089,000
cumulative loss  $383,126,000  $696,502,000  $1,343,591,000

13. The June 2001 U.S. Treasury Bulletin contains the ESF-2 for the first quarter of FY 2001, a true copy of which is submitted herewith as Exhibit 3B. It shows a foreign exchange trading loss of $57,589,000 for both the current quarter and the fiscal year to date. Why this practice was not followed in FY 2000 remains unexplained, as does the originally reported $1,627,763,000 loss in the ESF-2 for the first quarter of FY 2000.

14. Unprecedented Decline in SDR Certificates. Summary balance sheets for the ESF are reported quarterly in table ESF-1 of the U.S. Treasury Bulletin. (A true copy of the ESF-1 as of December 31, 2000, contained in the June 2001 U.S. Treasury Bulletin is submitted herewith Exhibit 3C.) Examination of the quarterly ESF-1 reports for the period beginning January 1, 1999, and ending December 31, 2000, reveals an unprecedented two year decline in the ESF’s SDR certificate account from $9.2 to $2.2 billion, as shown in the following table, together with the quarter-end balances for the ESF’s SDR account and its profits or losses for the quarter.

Quarter Ending    SDRs    SDR Certificates    ESF Profits/(Losses)
                    (All figures in $ millions; (c) indicates as corrected)

September 1998   10,106         9,200                 576
December 1998    10,603         9,200               1,699
March 1999        9,682         8,200                (817)(c)
June 1999         9,719         8,200                (500)
September 1999   10,284         7,200               1,256
December 1999    10,336         6,200                  10(c)
March 2000       10,335         6,200                (394)
June 2000        10,444         4,200                (313) 
September 2000   10,316         3,200                (647)
December 2000    10,539         2,200                 (58)

15. Discussion of this table first requires a brief explanation of SDRs, SDR certificates, and the uses of both. The Special Drawing Right or SDR is an artificial currency created in 1969 under the First Amendment of the Articles of the International Monetary Fund to provide additional liquidity to the international monetary system. Originally, the value of the SDR was set at one U.S. dollar, giving the SDR a valuation against gold of 35 SDRs per ounce, but SDRs were not convertible into gold in official transactions. Since the collapse of the Bretton Woods system and under the Second Amendment of the IMF’s Articles adopted in 1978, the value of the SDR has been determined from a representative basket of currencies used in international transactions. This basket, which is periodically reviewed by the IMF, currently consists of the U.S. dollar (45%), euro (29%), yen (15%) and pound sterling (11%). SDRs are distributed or “allocated” to IMF members in proportion to their quotas in the Fund, and may be used in a variety of transactions among members or between members and the Fund. The SDR is also the Fund’s unit of account. More detailed information on SDRs may be found in two publications available online: “Special Drawing Rights – A Factsheet” (www.imf.org/external/np/exr/facts/sdr.htm) and “Users’ Guide to the SDR” (www.imf.org/external/pubs/FT/usrgsdr/usersc01.htm).

16. By law (22 U.S.C. s. 286o), all SDRs allocated to or otherwise acquired by the United States are credited to and administered by the ESF. Under 22 U.S.C. s. 286p, the Secretary of the Treasury may at his discretion cause the ESF to issue SDR certificates to the Federal Reserve, or to redeem certificates previously issued, but the amount of certificates outstanding cannot at any time exceed the value of the SDRs against which they are issued. The Fed is required to credit the ESF’s account with the dollar proceeds resulting from the issuance of SDR certificates, and to debit its account when certificates are redeemed. These credits or debits are reflected as additions or subtractions to the U.S. Government securities account on the assets side of table ESF-1. The SDR certificates themselves appear as a separate line item on the liabilities side of table ESF-1 and as an asset on the balance sheet of the Fed. SDR certificates are thus a means by which the ESF can expand its balance sheet by converting SDRs into usable dollars or “monetizing” them. This process and other unique features of the ESF’s balance sheet are further explained in “The Exchange Stabilization Fund: How It Works,” by W. P. Osterberg et al. (Federal Reserve Bank of Cleveland, Dec. 1999), available online at www.clev.frb.org/research/com99/1201.htm.

17. Historically, the ESF has tended to monetize most of its SDRs by issuing SDR certificates to the Federal Reserve. The following table shows the year-end balances for SDRs and SDR certificates from 1984 through 1998 as taken from the relevant ESF-1 tables. (The figures for 1999 and 2000 are contained in the table at the end of paragraph 14 above.)

Year   SDRs  SDR Cert.       Year   SDRs  SDR Cert.
       ($ millions)                ($ millions)

1984   5,641   4,618         1992   8,503   8,018
1985   7,293   4,718         1993   9,023   8,018
1986   8,404   5,018         1994  10,039   8,018
1987  10,283   5,018         1995  11,037  10,168
1988   9,637   5,018         1996  10,312   9,718
1989   9,951   8,518         1997  10,027   9,200
1990  10,989  10,018         1998  10,603   9,200
1991  11,240  10,018

18. A comparison of the foregoing table to that in paragraph 14 reveals the unprecedented nature of the $7 billion decline in SDR certificates effected during 1999 and 2000. The largest prior decline in SDR certificates took place in 1992, when there was a reduction of $2 billion from the preceding year. In that case the SDRs themselves dropped by an even larger amount, from $11.2 to $8.5 billion, indicating that SDR certificates were redeemed in order to free the corresponding SDRs for immediate use, presumably the purchase of foreign exchange to be used in dollar support operations. Notwithstanding the $7 billion decline in SDR certificates in 1999-2000, the amount of SDRs remained basically stable at around the $10 billion level. Accordingly, if these redemptions of SDR certificates had any immediate purpose, it must have been to free SDRs for transactions that could be accounted for off balance sheet or at least without affecting the total SDRs reported on the balance sheet, e.g., swaps or forward sales. Under recommended IMF accounting conventions, transactions in SDRs such as swaps and forward contracts generally receive the same accounting treatment as similar transactions in gold.

19. Appendix III of the IMF’s “Users’ Guide to the SDR” expressly covers the use of SDRs in swaps and forward contracts. Thus SDRs may be swapped “for an equivalent amount of currency or another monetary asset, other than gold.” Also expressly permitted are forward contracts requiring future delivery of SDRs “in exchange for an agreed amount of currency or another monetary asset, other than gold.” The exclusion of swaps or forward contracts involving a direct exchange of SDRs for gold derives from the Second Amendment of the Articles, which was intended generally to reduce the role of gold in the IMF and the international monetary system. But this exclusion does not appear to prevent swaps of SDRs for currency immediately followed by swaps of currency for gold, or similarly sequenced forward contracts exchanging SDRs for currency and then currency for gold.

20. Another point to note about the redemptions of SDR certificates in 1999-2000 is that they are probably responsible for at least a portion of the ESF’s trading losses during this period. As reported by the IMF in its monthly International Financial Statistics, at year-end 1988 the SDR was valued at US$1.3457; the dollar value of the SDR at year-end in subsequent years was: 1989 – $1.3142; 1990 – $1.4227; 1991 – $1.4304; 1992 – $1.375; 1993 – 1.3736; 1994 – $1.4599; 1995 – $1.4865; 1996 – $1.4380; 1997 – $1.3493; 1998 – $1.4080; 1999 – $1.3725; 2000 – $1.3029. The recent relative weakness of the SDR versus the dollar may well have forced the ESF to realize foreign exchange losses on its redemptions of SDR certificates, particularly since the risk of such losses seems more appropriately placed on the ESF than the Fed.

21. Gold Derivatives. On May 16, 2001, the Bank for International Settlements released its semi-annual report on the global over-the-counter derivatives market covering the last half of 2000 (available online at www.bis.org/publ/otc_hy0105.pdf and at www.bis.org/statistics/derstats.htm). The report shows that from end December 1999 to end December 2000, the total notional value of all OTC gold derivatives on the books of major banks and dealers in the G-10 countries declined by just over 10%, from US$243 billion to $218 billion.

22. According to the annual report of UBS for 2000 (available at www.ubs.com/e/index/about/invrel.html), the total notional value of its gold derivatives declined over the same period by 22%, from SwF118.6 billion to SwF92.5 billion, or US$56.5 billion converted at the year-end exchange rate (US$1=SwF1.6365). Although the gold derivatives of Credit Suisse increased by over 20% in 2000, they did so from a much lower base, rising from a notional SwF28.8 billion to SwF34.8 billion. Thus the two big Swiss banks show a total combined decrease of 13.6%, from SwF147.4 billion to SwF127.3 billion, or almost $78 billion at the year-end rate.

23. Turning to the German banks, the total notional value of Deutsche Bank’s gold derivatives also declined by 22% in 2000, from E50.9 billion to E39.6 billion, or US$36.8 billion at the year-end exchange rate (US$1=E1.07469). Dresdner Bank’s were also down, from E15.2 billion to E12.2 billion. In both its 1999 and 2000 annual reports (available at http://.group.deutsche-bank.com/ir/eng/ir/_annual_reports/ir_archive/), Deutsche Bank reported not only year-end notional values but also average values for the year, which were E35.3 billion in 1999 and E50 billion in 2000. In 1999, the higher year-end figure reflected strong growth in gold derivatives close to the end of the year, almost certainly in response to the Washington Agreement. In 2000, the lower year-end figure indicates that most of the decrease came at the end of the year. Indeed, the average notional value in 2000 almost equals the year-end figure for 1999, suggesting that for much of the year Deutsche Bank’s gold derivatives were above 1999 levels. This inference is supported by the fact that at the end of the first half of 2000, the BIS reported total gold derivatives of $261 billion, the highest level ever.

24. Although the merger became effective at the end of the year, the Office of the Comptroller of the Currency continues to report separate derivatives figures for Chase Manhattan Bank and Morgan Guaranty Trust. (The OCC’s derivatives reports are available at www.occ.treas.gov/deriv/deriv.htm.) Year-on-year, the total notional value of Chase’s gold derivatives, all maturities, grew from $22 to 29.8 billion, while Morgan’s declined from $38 to $30.5 billion, giving a combined figure for year-end 2000 ($60.3 billion) just a tad higher than at year-end 1999 ($60.1 billion). Accordingly, unlike the big Swiss and German banks, the new J. P. Morgan Chase did not reduce its gold derivatives during the last half of 2000.

25. As of June 30, 2001, the OCC reports that Chase had total gold derivatives of $29 billion and Morgan $26.9 billion, for a combined total of $55.9 billion, down just 7% from their year-end 1999 combined figure. However, during this same period Citibank’s gold derivatives rose by almost $2 billion, as did the all other category, leaving the total gold derivatives of all U.S. commercial banks at $86.8 billion versus $87.4 billion at the end of 2000 and $87.6 billion at the end of 1999.

B. Relevant Additional Evidence

1. Gold Price Manipulation

26. More on Gold Swaps by the ESF and/or Federal Reserve. Submitted herewith as Exhibit 4 are true copies of pages 17-19 from the transcript of the minutes of the Federal Open Market Committee on March 26, 1991 (www.federalreserve.gov/fomc/transcripts/1991/910326Meeting.pdf), which contains another reference to gold swaps. This reference came at the end of a lengthy discussion (pp. 8-21) concerning U.S. foreign exchange reserves, which are held in approximately equal portions by the Fed and the ESF. The discussion began with a presentation by Samuel Cross, Manager for Foreign Operations, System Open Market Account, of the pros and cons of holding significant foreign exchange balances. On the negative side, Mr. Cross cited exchange rate risk, including unrealized but reportable losses on marking these positions to market in the Fed’s financial statements.

27. Addressing this problem, Chairman Alan Greenspan asked (p. 17): “Is there not any mechanism by which we can create swaps or RPs or something of that nature in which essentially we have fixed the exchange rate of our holdings?” In response, former Fed governor Wayne Angell suggested (p. 18): “You could have an exchange of puts. In effect, you could swap puts and thereby assume that somebody would ultimately want to exercise that added advantage.” Mr. Cross then observed (id.): “It sounds like a forward exchange transaction.” But that is not precisely what Mr. Greenspan had in mind. He replied (id.):

Well, the point at issue is that it’s a [forward] exchange transaction that has a date on it. … And effectively that gets factored into the market and neutralizes your position. What I’m thinking of — and I just thought of it at this moment, so there might be plenty of reasons why not — is an open-ended fixed-price mutual put, to put it in the terms that Governor Angell stipulated, so that we can eliminate part of the problem that is on the negative side of the current — [sic, end of paragraph].

28. Then, just before the FOMC moved to the next topic on its agenda, Mr. Angell added (p. 19):

There’s one slight addendum to this discussion: We have a reserve holding that costs us more money than what is reasonably in prospect to happen on foreign exchange rates and that is that we really are not a small reserve holding currency country. I think we actually have official reserves of $85 billion, Sam, compared to Taiwan’s $75 billion. And if you mark our gold to the $358 price, we end up with something like $170 billion. There are opportunity costs because we don’t get interest on that gold as we do on our foreign exchange [holdings]. That cost is out there also. I would hesitate for us to have foreign currency holdings that have swap puts that just sit there, [which] is now becoming the case for our gold. [Emphasis supplied.]

29. Although I am not aware of any instance in which the words “swap put” have been used together as a noun, many exotic derivatives have been created in the over-the-counter market. Accordingly, the term may designate a special instrument designed for the Treasury, the Fed, or the ESF. While the term might in a colloquial sense be used to describe the unwound side of an existing swap, this usage would make a lot more sense if the swap possessed some sort of roll-over provision or option not to unwind. In the latter event, exercise of the option would “put” or “stick” the swap to the other party by converting it into a completed sale. For example, the United States might enter into a swap of gold against U.S. debt securities with a bullion bank which, rather than take the physical gold out of U.S. reserves, might use it to hedge gold borrowings from other sources or in a location swap with another large holder. But if the bank had an option under defined conditions to convert the swap into an outright sale of U.S. gold rather than a mere time-limited exchange, one might think of the arrangement a “swap put” or a swap with a put option attached.

30. However ambiguous their precise nature, certain attributes of Mr. Angell’s “swap puts” appear quite clear: (1) they attached to “our gold,” meaning the official U.S. gold reserves; (2) they were in 1991 part of an existing and growing program as encompassed in his expression “now becoming the case;” and (3) they must either have been of long maturity or possessed roll-over provisions because otherwise they would not “just sit there.” Since leaving its board of governors, Mr. Angell has stated more than once during appearances on financial TV programs that the Fed has “precise control” over the price of gold.

31. The “swap puts” on gold referred to by Mr. Angell may well be the gold swaps cited by the Fed’s general counsel, J. Virgil Mattingly, to the FOMC in 1995 (www.federalreserve.gov/fomc/transcripts/1995/950201Meeting.pdf; prior affidavit, paragraph 31 and Exhibit W):

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. [Emphasis supplied.]

32. Under cover of a letter to a constituent dated July 12, 2001, Senator Jim Bunning of Kentucky released a letter that he received from Alan Geeenspan dated June 25, 2001, enclosing a copy of a memorandum to Chairman Greenspan from Mr. Mattingly dated June 8, 2001. Submitted herewith as Exhibits 5A and 5B are true copies of the letter from Mr. Greenspan and the enclosed memorandum, respectively. (The letter dated January 19, 2000, from Mr. Greenspan to Senator Joseph I. Lieberman referred to in Exhibits 5A and 5B is Greenspan Exhibit E, a copy of which also appears in Tab Z to my prior affidavit.) In the memorandum (Exhibit 5B), the Fed’s general counsel disclaims his 1995 statement about gold swaps, stating in relevant part:

Given the passage of time, some six years, I have no clear recollection of exactly what I said that day but I can confirm that I have no knowledge of any “gold swaps” by either the Federal Reserve or the ESF. I believe that my remarks, which were intended as a general description of the authority possessed by the Secretary of the Treasury to utilize the ESF, were transcribed inaccurately or otherwise became garbled.

33. Submitted herewith as Exhibit 5C is a true copy of the FOMC’s explanation of the procedures used in preparing the transcripts of its meetings (www.federalreserve.gov/fomc/transcripts). Under the procedures in effect in 1995, the transcripts were prepared “shortly after each meeting from an audio recording” and “[m]eeting participants were then given an opportunity within the next several weeks to review the transcript for accuracy.”

34. On May 22, 2001, at a hearing of the House Financial Services Committee on “The State of the International Financial System” (see www.house.gov/financialservices/052201w2.htm), Treasury Secretary Paul O’Neill referred to Mr. Mattingly’s 1995 statement in an exchange with Congressman Ron Paul of Texas:

Dr. PAUL: … Recently there were some minutes released from a discussion with the Federal Reserve that occurred in 1995 dealing with the Mexico City [sic] bailout, and in this discussion they recognized that the Exchange Stabilization Fund could be involved in gold swaps, and this was recognized as being legal.

The question also came up whether or not there were any other agreements made, other than the one that was currently pending with Mexico, and the answer to that was yes, indeed, we had a swap arrangement with the Bundesbank.

My question to start with is: did that swap arrangement deal with a gold swap, and does it continue to exist? I would like that answered in light of the fact that, up until August of the year 2000, the status report on the U.S. Treasury gold always reported that gold at the West Point Reserves, the amount was 1,710 tons, was called gold reserves, gold bullion reserves. In September that label changed, and it changed to custodial gold. During that same period of time, the Bundesbank also had a reduction of gold that they held by 1,700 tons.

I would like to know what is the connection between these two events, and what does this all mean. Do we have gold swaps with Germany, and could we have a little bit of transparency so I can better understand this process?

Secretary O’NEILL: Well, I will tell you, I would not probably be in a position to answer any of these questions except for the fact that on Sunday night when I was working through my briefcase, I found a report that it is my duty to transmit to the Congress providing the information on the most recent examination of the Exchange Stabilization Fund. Indeed, this was a fund set up in the Roosevelt administration in 1934 for the express purpose of protecting the American financial system from the vagaries of the rest of the world’s finance systems. Just as you say, it is empowered to operate in gold and in currencies, and there is a substantial latitude as to how this arrangement can work.

My memory is that last year there was one transaction. It was a fairly small transaction involving an agreed intervention vis-a-vis the yen. It was the only transaction last year. I can assure you, and we will make sure you get a copy of this report, that I found the report really quite complete in its documentation of what was done in the past year.

The 1995 circumstance I don’t know. In fact, the funds in the Exchange Stabilization Fund are marks and yen, and, if I can say it this way, attributed dollars. But the U.S. Government does still have gold reserves, and just by coincidence, Chairman Greenspan and I were talking about those reserves this morning, and it turns out by his best recollection, I didn’t check because I assumed that his recollection is always right, but he was noting this morning that the U.S. holdings of gold are some $80 billion, which I observed is just about the same as Bill Gates’ net worth, for whatever that is worth. In any event, we will get you a copy of the Exchange Stabilization Fund report, and if there are additional details you would like to have, I would work with you to see if we can’t get them for you.

35. Although disclaiming any knowledge of “the 1995 circumstance,” Secretary O’Neill at no point in this testimony answered Dr. Paul’s question: “Do we have gold swaps with Germany?” Secretary O’Neill also seemed to confirm that the only intervention by the ESF in the currency markets during FY 2000 was the coordinated and publicly announced G-3 intervention to support the euro on September 22, 2000, in advance of the G-7 finance ministers meeting in Prague. His reference to the yen in this connection may be an inadvertent error, or may indicate that the ESF used its yen reserves rather than dollars to buy euros. In any event, he said nothing to explain how this “one…fairly small transaction” produced the significant trading losses at the ESF described in paragraphs 10-12 above, not to mention its incorrect profit and loss report for the first quarter of FY 2000. Nor did he mention — let alone give any reasons for — the redemption of $4 billion in SDR certificates in FY 2000, or of $7 billion since the end of 1998, as set forth in paragraph 14 above. Finally, as Secretary O’Neill himself noted, he did not validate Mr. Greenspan’s $80 billion figure for U.S. gold reserves, but neither did he state the amount of U.S. gold reserves in ounces or tonnes. In fact, at the London P.M. fix of $284 on the morning of May 22, 2001, the claimed U.S. gold stock of 262 million ounces had a market value of around $74 billion. A gold price over $305/oz. would have been required to bring this amount up to $80 billion.

36. Last October, the European Central Bank issued a paper entitled “Statistical Treatment of the Eurosystem’s International Reserves” (available online at www.ecb.int/pub/pdf/statintreserves.pdf). Part IV of this document contains an appendix with numerical examples illustrating how euro area central banks should account for these transactions, including in part IV.1, a true copy of which is submitted herewith as Exhibit 6, three different types of gold transactions: (1) the purchase of 20,000 ounces from the Bank of England; (2) a one-month gold deposit of 10,000 ounces with J. P. Morgan in New York against U.S. government securities as collateral; and (3) a “gold swap with the United States Federal Reserve” in which the euro area central bank swaps 1000 ounces of gold against US$300,000 in currency, with the transaction to be reversed one month later “at the spot price of gold prevailing in the market at that moment.”

37. The first two examples involve common transactions that are fully consistent with the known activities of the postulated counterparties. Various central banks both within and outside the euro area engage in gold swaps. If, as Chairman Greenspan and Mr. Mattingly insist, the Federal Reserve never engages in such transactions, either for itself or on behalf of the Treasury or the ESF, it seems unlikely that the ECB would have selected the Fed as the hypothetical counterparty in its third example. On the contrary, a fair inference from the first two examples is that the Fed is the counterparty on a significant portion of the euro area’s total gold swaps.

38. Relationship of Gold Prices to Interest Rates. Submitted herewith as Exhibit 7 is a true copy of an 1988 article by Harvard president and former treasury secretary Lawrence H. Summers, then Nathaniel Ropes professor of political economy at Harvard, and Robert B. Barsky entitled “Gibson’s Paradox and the Gold Standard” published in the Journal of Political Economy (vol. 96, June 1988, pp. 528-550). A principal conclusion of this article is that in a genuinely free gold market unaffected by “government pegging operations,” gold prices will move inversely to real long-term interest rates, rising when real rates fall, and falling when real rates rise.

39. On August 13, 2001, I published at my website a commentary entitled Gibson’s Paradox Revisited: Professor Summers Analyzes Gold Prices summarizing the article by Messrs. Summers and Barsky and including a chart depicting the relationship between real long-term interest rates and gold prices since 1977. Submitted herewith as Exhibit 8 is a true copy of that commentary. As the chart indicates, contrary to what would be expected in a gold market free from official manipulation, both real long-term rates and gold prices have been in generally declining trends since around 1995.

40. Following publication of the aforementioned commentary, the person who prepared the chart received a request from a person unknown to me to add a third line depicting real short-term interest rates. Submitted herewith as Exhibit 9 is the chart with an additional line representing the real yield on 13-week Treasury bills.

41. At end December 2000, the total notional value of all OTC interest rate derivatives reported by the BIS for major banks and dealers in the G-10 countries was $64.7 trillion, up from $60 trillion at the end of 1999. The OCC reports (table 8) on the off balance sheet derivatives of U.S. commercial banks show interest rate derivatives (all maturities) with a total notional value of $25.5 trillion at year-end 2000 (up from $21.3 trillion one year earlier), including $10.7 trillion at Chase Manhattan Bank (up from $9.3 trillion) and $5.5 trillion at Morgan Guaranty Trust (up from $4.7 trillion). As of June 30, 2001, the OCC shows a notional total of $30.1 trillion in interest rate derivatives, including $12.5 trillion at Chase and $6.8 trillion at Morgan. Submitted herewith as Exhibit 10 are two stacked charts based on the OCC reports for interest rate and gold derivatives, respectively, comparing the notional totals for Chase and Morgan, i.e., the new J. P. Morgan Chase, with those for Citibank and all other U.S. banks.

42. More Suspicious Trading on the COMEX. Submitted herewith as Exhibit 11 is a true copy of an article by John Hathaway entitled “Gold as Theatre” published first on August 23, 2001, at his firm’s website (www.tocqueville.com/brainstorms/brainstorm.php?id=101) and three days later at www.gold-eagle.com/editorials_01/hathaway082601pv.1682.html. Mr. Hathaway, a member of the investment and executive committees at Tocqueville Asset Management LP, is portfolio manager of The Tocqueville Gold Fund. The first paragraph of his article identifies a transaction that has aroused widespread comment and suspicion among analysts and observers of the gold market:

At precisely 1:57pm on June 27th, 2001, a seller dumped 100 contracts (10,000 ounces) of gold on the Comex market. The transaction was noteworthy as to the amount and timing. It was the largest transaction by far that day and for several weeks on the Comex where trading activity has dwindled to the lowest levels in two decades. More important, it took place 15 minutes in advance of the announcement by the Federal Reserve that the discount rate would be reduced by only 25 basis points instead of the 50 that had been widely speculated. (see chart) Gold, which had been rallying strongly since the stock market lows at the end of the first quarter on the view that the Federal Reserve’s concern over the economy’s slide was reaching panic proportions, slumped during the remainder of the day. In a few more days, it settled at $265/oz., down sharply from the intra day peak of nearly $300 reached on May 21st.

* * *

The seller, whoever it was, seemed to be acting on the conviction of advance knowledge. For anyone willing to spend the time, more about the identity of the seller could be learned by examining the public records of the Comex for that day’s trading. I’d love to know, but don’t have the time to go to the warehouse and pore through trade records. Whether it was the Exchange Stabilization Fund (ESF) of the Treasury or a bullion dealer with a hot line to the Fed Conference room is of secondary importance. If it were a bullion dealer for its own account, the profits on the trade would hardly pay the rent. If it were a bullion dealer for the account of a third party such as the ESF, we may never know. What is more interesting is the apparent use of gold to convey a message to the markets: Gold tanks!Â… The Fed has everything under controlÂ…concerns reflected in the previous gold rally have been allayed. Gold remains a highly visible barometer of the well being of financial markets, despite concerted efforts by central banks to demote its standing as a financial asset.

2. Bank for International Settlements

43. On July 24, 2001, at a hearing of the Senate Banking Committee, Senator Michael Enzi of Wyoming questioned Alan Greenspan about the BIS’s freeze-out of its private shareholders (as transcribed from C-SPAN broadcast):

Senator ENZI: Another international issue that has come to my attention and you and I have been corresponding about it and I appreciate all the information you have provided. It’s about the Bank for International Settlements. And of course the private shareholders in the United States – about 130,000 shares worth are owned by mutual funds and private investors. And I’m kind of concerned about what is going to be done with those shares that are going to be repurchased and of course I am concerned about a price that appears to be below the fair value. What is going to be done with those shares and when will the Federal Reserve make a decision whether or not to buy or receive these private shares?

Mr. GREENSPAN: Well of course we are not involved as a purchaser or in any way with those shares. Our sole relationship here is the fact that we have two seats on the board of the BIS, myself and the president of the Federal Reserve Bank of New York, Bill McDonough. We very recently joined the board on the grounds that it was our increasing conclusion that it was in the best interest of the United States for us to be on that board after having for many generations decided not to be there. We consulted with the State Department, the Treasury department and a number of people on the Hill to be sure that they saw it the way we did and indeed that was the case.

With respect to the individual share issue, this was handled in a way that the best I could judge was reasonably sensible. They had a number of investment banks, reputable investment banks, try to make evaluations of what the appropriate price should be for those minority shareholders and the same procedure that goes on in the private sector all the time. And while we seriously ah, ah we’ve raised questions in the beginning and certain things got changed as I recall as a consequence, but at the end we looked at the result as fair and voted in favor. [Emphasis supplied.]

Senator ENZI: It was my understanding that this was done so that the central banks would own all of the shares. Our central bank will not own any of the shares?

Mr. GREENSPAN: We do not own shares and will not own shares.

Senator ENZI: Ah, I’ll be addressing a few additional questions on that that don’t pertain to the economy but I do have a definite interest in it and think that it will have some effect on the economy so I thank you for your answer.

Mr. GREENSPAN: I’ll be delighted to answer in any detail you need.

44. Mr. Greenspan admits that he and Mr. McDonough participated directly in setting the terms of the freeze-out. If, as Mr. Greenspan stated, the BIS “had a number of investment banks … make evaluations” to determine an appropriate freeze-out price, these have not been disclosed to its former private shareholders. What the Bank has disclosed to them are only its summaries of a valuation opinion obtained from JP Morgan & Cie SA and a fairness opinion thereon from Arthur Andersen. If Mr. Greenspan intended to suggest that the freeze-out procedure followed by the BIS comported with what “goes on in the private sector all the time,” he seriously misled Senator Enzi. In the United States, corporate statutes permitting the freeze-out of minority shareholders uniformly provide for a judicial determination of the freeze-out price in the event that a shareholder is not satisfied with the company’s figure. Where they exist in Europe, corporate statutes authorizing freeze-outs tend to be even more restrictive. Submitted herewith as Exhibit 12 is a true copy of an article by A. Kueppers, “Minority of Mannesmann Holders Continue Resistance to Vodafone,” The Wall Street Journal (August 27, 2001, p. A10), reflecting European antipathy towards squeeze-outs of minority shareholders.

45. Although Mr. Greenspan stated that the Federal Reserve has no plan to purchase any shares of the repurchased American issue, he did not explain the basis for continued U.S. participation in the BIS when — unlike all other member central banks — the Fed neither owns shares nor has accepted the jurisdiction of the Arbitral Tribunal.

46. Submitted herewith as Exhibit 13 is a true copy of an article by Adrienne Robert, “BIS banker speaks on gold,” Financial Times (London) (August 31, 2001, p. 24), relating to an estimate of central bank gold lending made by Giacomo Panizzutti, head of foreign exchange and gold at the BIS, in an article published the previous day in The Alchemist, the quarterly magazine of the London Bullion Market Association (www.lbma.org.uk). (As alleged in paragraph 4 of the Complaint, Mr. Panizzutti received the “Man of the Year” award from the New York Commodities Exchange at its fall 2000 gold dinner.) All the bullion bank defendants are, either directly or through a subsidiary, market-making members of the LBMA except for Citicorp, which through Citibank N.A. is an ordinary member. Deutsche Bank is also one of the five members of the London Gold Fix. Although “speaking in his private capacity rather than on behalf of the bank,” Mr. Panizzutti appears to have disclosed material non-public knowledge gleaned from confidential official sources to favored private participants in the gold market. As the article states: “This [disclosure] is the first time a highly placed gold official has explicitly put a number on gold lending.” If authorized by the BIS and whether or not substantively true, the disclosure itself appears intended to encourage the continued suppression of gold prices.

47. Having heard that the “BIS Arbitral Tribunal” was planning to hold a preliminary conference on September 7, 2001, relating to the claim of Dr. Horst Reineccius and possibly to other claims of which I was not aware, I contacted the Tribunal by e-mail on July 25 to inquire whether other former private shareholders could attend the September 7 conference and to request information relating to the pending claims. The Tribunal invited comment on my e-mail message from counsel for the BIS, who responded by letter dated August 2 that the BIS would object to my presence on September 7 unless I first filed a formal claim. The Tribunal then invited me to comment on this response by August 20, which I did by letter dated August 17, with a copy to counsel for the BIS. My letter, a true copy of which is submitted herewith as Exhibit 14, requested advice, clarification or information from the Tribunal on a number of specific matters and also raised certain other issues. On August 21, the Tribunal invited further comment from the BIS’s counsel by August 27, but as I had previously been advised that he would be on vacation until after Labor Day, I assumed that any further comment from him would be understandably delayed. As of the date of this affidavit, I have not received any substantive response to Exhibit 14 from either the Tribunal or counsel for the BIS, but in expectation thereof, I have reserved tab 15 of this affidavit for future insertion of any such responses.

Signed under the penalties of perjury as of the date written below.

By the plaintiff,
Reginald H. Howe, Pro Se
e-mail: row@ix.netcom.com

September 17, 2001


List of Exhibits


District of Massachusetts

Civil Action
No. 00-CV-12485-RCL


Reginald H. Howe,


Bank for International Settlements, et al.,


[denied by the court, September 27, 2001]

The plaintiff, Reginald H. Howe, moves for leave to supplement Plaintiff’s Second Affidavit, dated September 17, 2001, filed September 18, by adding thereto the following paragraph 48 together with an Exhibit 15:

48. Submitted herewith as Exhibit 15 is a true copy of an ORDER by the Tribunal dated August 31, 2001, posted at the website of the Permanent Court of Arbitration (www.pca-cpa.org/RPC/index.htm). I discovered this order on September 25, 2001, in visiting the PCA’s website. Prior to this date, neither the Tribunal, counsel for the BIS, nor anyone else brought this order to my attention, by e-mail or otherwise. Paragraph 7 (page 6) of the order makes reference to a letter dated August 23, 2001, from counsel for the BIS to the Tribunal. Neither the Tribunal nor counsel for the BIS has ever provided me with
a copy of this letter, which commented on my letter to the Tribunal that is Exhibit 14, a copy of which I sent to counsel for the BIS when I sent it to the Tribunal. Nor did counsel for the BIS mention the order or his August 23 letter when he responded on September 10 under Local Rule 7.1 to the draft of my second affidavit, which recited that I had not received a response to Exhibit 14.

This motion is based on the following grounds:

1. Paragraph 47 of my second affidavit concluded: “As of the date of this affidavit, I have not received any substantive response to Exhibit 14 from either the Tribunal or counsel for the BIS, but in expectation thereof, I have reserved tab 15 of this affidavit for future insertion of any such responses.” As described in the proposed paragraph 48 above, I have now come across an official response to Exhibit 14 from the Tribunal.

Signed under the penalties of perjury as of the date written below.

By the plaintiff,
Reginald H. Howe, Pro Se
e-mail: row@ix.netcom.com

September 26, 2001

Certificate of Service

I, Reginald H. Howe, hereby certify that on September 26, 2001, a true copy of the foregoing document, including Exhibit 15, was served by first class mail, postage prepaid, on counsel of record for each party.


Reginald H. Howe