Lawsuits against Goldman, JPMorgan, Glencore Xstrata pile up

London Stock Exchange

While only few were paying attention to the price of aluminum, some important industry players such as Goldman Sachs, JPMorgan Chase & Co and Glencore Xstrata, were allegedly inflating prices and disrupting supplies for the commodity.

This is the central claim of a growing number of lawsuits, which state the named institutions conspired with the London Metal Exchange in hoarding aluminum and violating antitrust laws.

The legal actions, brought by small aluminum manufacturers in the United States, include one filed Wednesday in Florida against Goldman, JP Morgan, the LME and Glencore Xstrata, as well as one against Goldman and the LME in Michigan.

Those cases were followed late Thursday by a new claim against Goldman in New York, filed jointly by Texas-based steel-railings manufacturer Viva Railings and Michigan-based scrap-metal dealer Regal Recycling filed a joint lawsuit.

The US Commodity Futures Trading Commission (CFTC) and the Department of Justice are also looking into the allegations.

Over the last decade there have been many complaints, including lawsuits detailing allegations of market manipulation, about big US bank holding companies’ involvement in the commodities business.

Several US statutes, dating as far back as the National Bank Act of 1863 up to and including the Dodd-Frank Act of 2010, generally bar banks from conducting commercial, non-financial activities.

But since the US Federal Reserve determined in 2003 that certain commodity activities are “complementary” to financial activities and therefore permissible Wall Street bankers – Morgan Stanley, Goldman Sachs, and JPMorgan are the biggest players – have been moving aggressively into everything to do with physical commodities including mining, processing, transportation, warehousing and trading.

The supply of aluminum has been particularly distorted say manufacturers, with about $3 billion in additional costs to buyers as premiums have doubled since 2003 despite a glut of aluminum being produced.

According to Reuters, LME’s industrial clients have long blamed the exchange for letting long queues build up for material. The delays mean extra costs added on to aluminum prices.

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