NOBULL: Aluminum Processor Sues Goldman, London Metal Exchange

Goldman, LME Sued Over Aluminum Storage-Rate Scheme

By Evan Weinberger

Law360, New York (August 05, 2013, 2:51 PM ET) — A Michigan aluminum processor on Thursday filed a purported class action alleging that Goldman Sachs Group Inc. and the London Metal Exchange Ltd. used anti-competitive warehousing agreements to artificially inflate the costs of storing the key metal.

In a complaint filed in federal district court in Detroit, Superior Extrusion Inc. alleged that Goldman and the LME, the top exchange for global trading of industrial metals, entered into agreements between 2010 and 2013 that delayed the delivery of aluminum to end-users that produced, among other things, cans for drinks and drove up the overall price of warehousing the metal.

“Defendants have generated hundreds of millions of dollars per year in storage revenues during their regime of artificially high storage rates and grossly inefficient and artificially long delays in loading out aluminum,” the complaint said.

Superior Extrusion’s purported class action comes as regulators, lawmakers and market participants have increased their scrutiny of bank’s actions in the physical commodities markets, in part sparked by reports about warehousing agreements between Goldman’s Metro International Trade Services LLC and LME. Metro controlled around 80 percent of the aluminum warehousing market in the greater Detroit area when Goldman purchased it in February 2010.

The complaint alleges that Goldman and LME, now a unit of Hong Kong Exchanges and Clearing Ltd., agreed to limit the amount of aluminum that would be distributed out of warehouses and conspired on rate increases for storing aluminum.

As a result, end-users were hit with delays on aluminum that it ordered and were forced to pay inflated prices, Superior Extrusion said.

In a statement, Goldman said the suit is “without merit and we intend to vigorously contest it.

“We also note that aluminum prices are down 40 percent from their peak in 2006,” Michael DuVally, a spokesman for Goldman, said in an email.

Hong Kong Exchanges and Clearing could not immediately be reached for comment Monday.

The suit came just a day after Goldman announced moves to ease delays at its Metro aluminum warehouses, including giving end-users physical aluminum in exchange for orders in the queue and altering their priority system.

Regulators, including the Federal Reserve, the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission and their counterparts in the United Kingdom, are all reviewing banks’ involvement in physical commodities markets, including warehousing.

That increased pressure has led banks to take a second look at their presence in those markets as well.

Last month, JPMorgan Chase & Co. announced that it was looking to sell off its physical commodities business.

Superior Extrusion is represented by Craig Essenmacher, Keith Essenmacher, Christopher Lovell, Benjamin M. Jaccarino and Amanda N. Miller of Lovell Stewart Halebian Jacobson LLP, by Linda P. Nussbaum and Peter A. Barile III of Grant & Eisenhofer PA and by Troy T. Gorman of the Gorman Law Group PC.

Counsel information for Goldman and LME was not immediately available Monday.

The case is Superior Extrusion Inc. v. Goldman Sachs Group Inc. et al. v. Goldman Sachs Group Inc. et al., case number 2:13-cv-13315, in the U.S. District Court for the Eastern District of Michigan.

–Editing by Rebecca Flanagan.


Brandy Bruyere, J.D. | Law & Policy Analyst
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