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Goldman hit with more antitrust lawsuits

Keywords: Tags  Goldman Sachs, Metro International Trade Service, London Metal Exchange, LME, Viva Railings, Regal Recyling, Team Ward, War Eagle Boats lawsuit


CHICAGO — Goldman Sachs Group Inc. has been hit with two more lawsuits for allegedly violating U.S. antitrust laws, manipulating aluminum prices and driving up premiums by hoarding metal in Detroit-area warehouses.

Both cases are class-action complaints demanding a jury trial.

One lawsuit was filed in U.S. District Court in New York by Viva Railings LLC and Regal Recycling Inc. against New York-based Goldman and its subsidiaries, Metro International Trade Services LLC and GS Power Holdings LLC, according to documents dated Aug. 8. Lewisville, Texas-based Viva makes modular railing systems, while Howell, Mich.-based Regal Recycling is a Michigan-based scrap metal dealers, according to the documents.

The other case was filed by Monticello, Ark.-based boat builder Team Ward Inc., which does business as War Eagle Boats, according to documents filed in U.S. District Court in Michigan and also dated Aug. 8. The War Eagle Boats case names the London Metal Exchange and LME Holding Ltd. as defendants in addition to Goldman Sachs, Metro and GS Power.

"We believe these suits are without merit and we intend to vigorously contest them. We also note that aluminum prices are down 40 percent from their peak in 2006," a Goldman spokesman said in an e-mail Aug. 12.

The LME and attorneys representing Viva Railings, Regal recycling and War Eagle Boats declined to comment on the suits.

Viva and Regal allege in their joint complaint that the Midwest aluminum premium was driven up after Goldman purchased Metro in 2010 and later began paying incentives to traders storing metal in warehouses.
 
"Cash incentives have essentially created a ‘floor’ ... as the premium needs to be high enough to entice metal away from the warehouse and back into the market," they said, noting that incentives jumped to $210 to $215 per tonne in January from as low as $60 per tonne in 2010.

In addition to hoarding aluminum, Viva and Regal allege, the defendants used LME-approved warehouses to take metal—most tied up in long-term deals with banks, hedge funds and traders and unavailable to fabricators, processors and other users—in and out of the "dark" to boost profits.

In a market in backwardation, warehouse owners could benefit from "taking inventory dark" by storing it in non LME-registered, private facilities and creating an apparent destocking effect even when none existed, they said.
 
Conversely, when the market was in contango, warehouse owners could take "dark inventory" public, presenting the "appearance of a sudden surplus" even though the supply glut had already existed, they said. Such activities may have allowed Goldman’s commodity derivatives business to further profit from manipulated aluminum supplies and prices, the two companies said.

War Eagle Boats made similar allegations. The company also protested what it considered abuses of "monopoly power" held by both Goldman and the LME. Purchasers of aluminum were injured as metal was diverted into warehouses and restricted from leaving them, the company said. "The scheme inflated the daily storage fees charge by the Goldman defendants and shared with the LME," War Eagle Boats said, also questioning whether Goldman’s position on the LME’s executive committee compromised the exchange’s warehousing policies.

Financial institutions and the LME are already facing several lawsuits related to the alleged manipulation of aluminum prices and supplies (amm.com, Aug. 3, Aug. 7, Aug. 9) as well as increased scrutiny from politicians and regulators (amm.com, July 30).


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