Goldman Sachs, LME Sued Over Aluminum Warehousing

In this March 15, 2012 photo, a trader works in the Goldman Sachs booth on the floor of the New York Stock Exchange. Goldman Sachs more than doubled its first-quarter profits and announced plans to raise its dividend Tuesday, March 17, 2012.  The strong results masked other problems, including a 16 percent decline in revenue. To make up for that, and to propel earnings higher, Goldman turned to cost-cutting. (AP Photo/Richard Drew)
Richard Drew/AP

By David Ingram

WASHINGTON -- A U.S. class action alleging an illegal agreement to inflate aluminum prices may be just the start of aluminum buyers' legal assault against warehouse owners such as Goldman Sachs Group, lawyers with antitrust expertise said Sunday.

Goldman (GS), other warehouse owners and the London Metal Exchange were named as defendants in the lawsuit filed last week alleging anticompetitive behavior.

Goldman and LME owner HKEx said the suit was meritless.

The suit fits a pattern of 'follow-on' class actions typically filed after the U.S. Justice Department or other government authority opens an investigation, lawyers said.

"Antitrust exposure is not limited merely to government enforcement but also to private enforcement," said Daniel Sokol, who writes about competition and antitrust law at the University of Florida.

The exposure is significant, Sokol added, because damages for price-fixing are tripled under U.S. law if a defendant is found liable.

Customers and U.S. lawmakers have accused Goldman and other warehouse owners of artificially inflating waiting times to boost rents for warehouse owners and lift metal prices.

Criticism of banks that own commodity assets and trade raw materials has ratcheted up after the U.S. Department of Justice started what sources said was a preliminary probe into the metals warehousing industry.

A class action so soon after the revelation of a government inquiry has at least two purposes, lawyers said: to jockey for a lead position among the many class action lawyers who may eventually sue, and to be in a position to benefit if information leaks about the government's probe.

"The Justice Department has a way of shaking the tree and getting information that otherwise wouldn't be available," said Daniel Crane, a law professor at the University of Michigan.

Private plaintiffs such as the one who filed the class action - aluminum-buyer Superior Extrusion Inc - generally have limited means to find out new information until their suit progresses much further. Unlike the government, they do not have subpoena power.

Legal experts have said the Justice Department would launch an official investigation only if it found evidence of true collusion or monopolistic behavior.

'Extreme Monopoly' Alleged

Superior Extrusion filed its suit on Aug. 1 in U.S. District Court in Detroit. The suit also targets "John Does": any other warehouse owner that may have participated in the alleged price-fixing conspiracy.

The suit said that warehouse owners realized "extraordinary revenues from inefficiencies and deadweight restraints on the economy," reflecting their "extreme monopoly pricing power and abusive agreements in very unreasonable restraint of trade."

Goldman and HKEx are fighting the claims.

"We believe this suit is without merit and we intend to vigorously contest it," a Goldman Sachs spokesman said. "I would also note that aluminum prices are down 40 percent from their peak in 2006," he said.

HKEx said: "LME management's initial assessment is that the suit is without merit and LME will contest it vigorously."

Britain's financial watchdog is also investigating the LME's warehousing system.

Goldman on Wednesday tried to diffuse years of frustration over long waiting times and inflated prices at metals warehouses across the world, by offering immediate access to aluminum for end users holding metal at its Metro warehouses.

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Goldman President Gary Cohn told CNBC television Wednesday that no consumers had stepped forward to take up the offer.

In response, the class action said it was curious that Goldman waited until Wednesday to make its offer, after years of complaints. "Goldman's professed feeling and promises are contrary to defendants' conduct from 2010 until July 2013," the suit said.

London Metal Exchange aluminum for three months delivery closed Friday at $1,809 per tonne.

Warehouse owners and outgoing LME CEO Martin Abbott have said complaints over long lines are unjustified, arguing there is no shortage of metal.