An ode to gold at $350, or why it may be too late for Morgan Chase

12:17a ET Thursday, December 19, 2002

Dear Friend of GATA and Gold:

The Bloomberg story below about the lawsuit filed against
Morgan Chase by its insurers may remind you of the
great courtroom movie quot;The Verdict,quot; in which only one
witness tells the truth and yet her testimony is stricken
from the record on a technicality. But, as in that movie,
sometimes the truth comes out anyway, and there is justice.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Will Morgan e-mails about 'disguised loans'
be admitted as evidence in insurance trial?

By David Voreacos

NEW YORK, Dec. 18 (Bloomberg) -- J.P. Morgan Chase amp; Co.
Vice Chairman Donald Layton's e-mails describing transactions
as quot;disguised loansquot; are so quot;explosive,quot; said a U.S. judge, that
he might exclude them at a fraud trial involving 11 insurers.

U.S. District Judge Jed Rakoff is weighing whether to let jurors
review the e-mails in a case where J.P. Morgan sued insurers
to force them to pay $1 billion on surety bonds backing gas
and oil transactions involving Enron Corp. The insurers
refused to pay after Enron's collapse, saying the trades were
masked loans to Enron through an offshore entity.

Rakoff said today he has made no decision about whether to
admit the e-mails. Layton told the judge at a hearing last night
that the e-mails have nothing to do with the Enron trades at
issue in the trial. Rather, Layton said the e-mails described
his 1999 review of internal accounting when the bank
advances cash in certain commodities or equities derivative
transactions.

quot;What makes this a close call is that the use of the term
'disguised loans' is an explosive one in the context of this
case,quot; Rakoff said during a two-hour hearing after jurors
left last night.

In a second hearing today, Rakoff said he would rule by
Friday or Monday. quot;This is an important and close decision,
and I haven't made up my mind,quot; the judge said.

The insurers, which include units of Allianz AG, Chubb
Corp., CNA Financial Corp. and Kemper Insurance Cos.,
view the Layton e- mails as crucial evidence in a trial that
began Dec. 2.

Layton testified at yesterday's hearing, where the contents
of several of the e-mails were revealed. He said that he
began reviewing how the bank recorded certain transactions
after learning about a complicated equities derivative
transaction in Hong Kong that he thought was handled improperly.

quot;We are making disguised loans, usually buried in commodities
or equities derivatives,quot; Layton wrote in one e-mail. quot;They are
understood to be disguised loans and approved as such. But I
am queasy about the process.quot;

In another e-mail, Layton said the phrase quot;disguised loansquot;
was quot;a pejorative phrase even if generally accurate.quot; He
suggested that a more accurate phrase would be
quot;derivatives-based fundings.'

At the hearing, Layton said none of the 1999 e-mails referred
to transactions involving Enron, which sold oil and gas to a
bank-sponsored entity, Mahonia Ltd. He said he used the
phrase quot;disguised loansquot; as a colloquial expression to refer
to cash disbursed upfront in certain derivatives transactions,
including those involving commodities.

He said he got e-mails from a bank employee in late 1998
describing the Enron transactions, although he didn't recall
them when he wrote his e-mails six months later. He said
he only learned of the Enron-Mahonia transactions around
the time of the energy trader's bankruptcy filing last December.

In the trial, the insurers claim that through a series of sales
agreements, as well as commodity and interest rate swaps,
Enron bought back the commodities it sold to Mahonia.

Under New York law, insurers can write surety bonds for
commodities sales, although they are barred from backing
loans. The insurers claimed that the bank defrauded them
into writing six surety bonds between 1998 and 2000 by
concealing crucial details about the circular nature of the
trades. J.P. Morgan claims the surety companies failed to
ask important questions.

At last night's hearing, Rakoff said that while the Layton
e-mails may help the jurors understand the case, he was
concerned that they also may confuse the panel and
prejudice them against the bank.

In his opening statement for insurers, attorney Alan Levine
alluded to the Layton e-mails when he said the bank used
the words quot;disguised loansquot; in internal documents.

quot;Chase has a real problem with that phrase,quot; Levine argued.
quot;These deals were disguised loans, and the words actually
have the bad, nasty connotation that they deserve. This isn't
our phrase, it's their phrase. A better one for what they did
here I couldn't dream up myself.quot;