A Not Very Expert Witness
By Anthony Lipmann & Josh Hember
As I began to reach my riper years, some roles crept up unexpectedly.
Back in the 1990s, anyone from the UK visiting CIS countries was treated like an ambassador. In Kiev, my host, a miner who had made it big in oil, had booked his place in heaven by paying for the onion-dome of the Orthodox church opposite his office to be gold-leafed. I didn't like public speaking in those days, but he asked me to address his guests at dinner. Amongst the members of the audience was the priest, a hand-gun plainly visible on his hip. Amazingly, he didn’t shoot me.
In another case of mistaken identity, I was invited by the Department of Material Science at Oxford to give a talk about metals. For someone with a third-rate English literature degree, obtained from the same University, this was something of a high water-mark.
But I digress. Into this rough category of unexpected co-option, I now add the invitation to be an expert witness in a case of metal fraud. What was required, the solicitors told me, was a knowledge of rare earths. Oddly, I felt when asked that I was not expected to take it on.
Although I had traded rare earths, it was not a particular speciality. Most serious minor metal people disdained the subject, unable to fathom how it would be possible to trade something in which China held such a dominant position.
But then along came 2008. Out of a clear blue sky the National Academy of Sciences in Washington issued a report entitled Minerals, Critical Minerals, and the U.S. Economy which included the message that the United States was dependent on China for most of its Rare Earth needs. From that moment things changed, and the rare earth bubble began taking in oxygen.
By chance, the following year, I attended a conference in Washington, where I had been invited to give a talk on the history of metal stockpiles. I tried to enliven the discussion by going back to the Bandoeng Pool in the 1920s which sought to control tin, while giving mention to the emergence of the GSA (General Services Administration) and its transformation into the DLA (Defense Logistics Agency); and making comparisons with metal stockpile policy in the USSR, Japan, France and China. What I had not expected – and it gave insight into the events to come – was that the conference would transform into a discussion about China and Rare Earths. How was the USA going to react to China’s intention to hold the USA to ransom over the delivery of neodymium? The atmosphere in the room was hostile and particularly unpleasant for the one Chinese delegate who had to witness lobbyists working themselves into a fever that appeared to stop little short of recommending bombing.
We may now scroll forward to see what happened. The lobbyists I'd witnessed, used the hymn sheet provided by the National Academy to launch a kind of trade jihad on Chinese rare earth suppliers. It was a self-induced hysteria and I was there to watch the rare earth barmy army band-wagon roll out of town. By 2010, while having my hair cut, I was asked by my barber ‘What do you think about an investment in rare earths’?
While MMTA rules forbid members from selling metals to investors, others in the investment community had fewer scruples. Professional metals people could do little as we saw companies founded as fast as mushrooms growing in a cellar, to offer groups of rare earth elements in themed units of ‘Tech’, ‘Green’, ‘Electronics’, ‘Batteries’ - all dressed up for retail, like posies of cut financial flowers.
Those behind the schemes were often located offshore in sunny places such as Malta, Gibraltar or the British Virgin Islands, storing rare earths in warehouses and issuing warrants to be marketed to widows and orphans, spinning the tale that the world was about to run out of these elements. And of course they had their bible to refer to - the National Academy report which gave heft to the magazine and newspaper headlines that implied the Chinese were plotting our destruction by holding back Rare Earths. No one appeared to question, if that was the case, how it was that investment funds were able to provide supply? The sales literature followed a similar pattern, claiming that rare earths were un-substitutable in various applications, and investors could anticipate handsome returns of 20-50%.
Those who believed the rare earth boom were not just the innocent – plenty of sound metal people were sucked in too, as well as governments of various colours rubbing their heads and wondering what to do. Indeed, both Congressional and Parliamentary Committees were set-up to look into the matter. By 2010-11, one hundred rare earth mining projects were seeking funding; of which only one, Lynas of Australia, has survived to limp into production.
So, the invitation to assist in the fraud trial piqued my interest and I was excited to be involved. However, soon after the call, my spirits were dampened when I realised I was to be witness for the defence. Taking time to reflect, I reasoned that if murderers are entitled to a fair trial, these people were too - so I accepted. It seemed like an enjoyable challenge.
To assist me prepare notes for the solicitor, I employed one of the bright young men who pass through our door on work experience. His name was Josh. Josh only had experience of the theatre but was entitled to feel this assignment was better than making the tea. So, we gathered together what I knew about rare earths from our office filing cabinets; prices and charts going back to the 1990s, production figures, market views, a host of reports issued by consultants who had been employed during the bubble to advise governments, investors, traders, consumers – all in my case with the aim of seeking defence arguments for the accused.
Putting it theatrically for Josh - although it wasn't, it felt a bit like being on the Washington Post at the time of Watergate. At one point, we were trying to track down a phrase that I was certain I remembered from the National Academy of Sciences paper, citing that the USA depended upon China for 96% of all its rare earths. We just couldn’t find the quote anywhere, and I was beginning to doubt my memory, until Josh, after many hours of googling, found the exact sentence. It turned out that the search engine wouldn’t bring me the answer because the actual figure was ‘97.6’%! It was a eureka moment with much punching of the air.
So, off went our 12-page report.
We had done our best; but, having read the transcript of Metropolitan Police interviews, and statements from the widows and the bewildered who had been duped, I did not give much credence to our success.
In 2017, the case was heard and went on for a number of weeks, no doubt to the great interest of the chemists amongst the jury. And then, a week or so after, I judged it would be the right moment to ring the solicitor, as I was curious to know how many years the defendant might have got.
‘He got off’, the solicitor said.
Clutching at straws, I asked, ‘But was the defendant a little bit chastened at least?’ ‘Do you think perhaps he will mend his ways?’
‘No’, the solicitor said, ‘he has retired back to his home in the suburbs and will most likely do it all over again.’
Friends and family had surprised me prior to the case by asking ‘Why are you acting for the defence?’, as if an accused should only some cases should receive a defence.
I now had a much harder question to answer. ‘What could I say to those who had lost money?’
The only answer that came to mind was ‘Get a better prosecuting lawyer’ - and a much worse expert witness.
Published June 21st 2017 on www.lord-copper.com