Goldman Sachs Named In Lawsuit Over Aluminium Prices

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By David Ingram

WASHINGTON, Aug 5 (Reuters) - A U.S. class action alleging an illegal agreement to inflate aluminium prices may be just the start of aluminium buyers' legal assault against warehouse owners such as Goldman Sachs Group Inc, lawyers with antitrust expertise said on Sunday.

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

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 - aluminium-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 aluminium 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 aluminium for end users holding metal at its Metro warehouses.

Goldman President Gary Cohn told CNBC television on 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 aluminium for three months delivery closed on 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.

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'Systemically Important Financial Institutions' Named By U.S. Regulator In Crackdown

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WASHINGTON -- The U.S. government on Monday preliminarily designated at least three financial companies as having the potential to pose a grave threat to the financial system, the first time regulators have used post-financial crisis authority to crack down on companies that have previously escaped federal attention.

AIG, the bailed-out insurance giant; Prudential Financial, the life insurer and asset manager; and GE Capital, the $530 billion lender responsible for a bulk of GE’s profit in recent years, all confirmed that the panel of regulators known as the Financial Stability Oversight Council has proposed to tag them as being so-called systemically important financial institutions, or SIFIs.

The designation, if finalized, may not amount to much in the short term, analysts and officials have said, because the rules detailing heightened oversight and limits on activities that the selection entails are unfinished. But over time, the SIFI tag is likely to constrain the companies’ abilities to take excessive risk or otherwise engage in activities that may threaten the health of the nation’s financial system.

The Federal Reserve would be responsible for policing the companies. The Fed and the Federal Deposit Insurance Corp. would be charged with forcing the companies to develop detailed plans -- called living wills -- that spell out how the companies would be wound down under the bankruptcy code should they near insolvency.

Authorities “took another important step forward by exercising one of its principal authorities to protect taxpayers, reduce risk in the financial system, and promote financial stability,” said Jack Lew, treasury secretary. Regulators did not identify the companies or indicate the number that were selected.

The companies now have 30 days to decide whether to contest the designation, and an additional 30 days to challenge the label in a hearing. After that, regulators have 60 days to come to a final determination.

Officials said the designations represent an evolution in how authorities oversee the financial system. Instead of simply focusing on banks, for example, officials are now focusing on activities that businesses engage in. This should enable regulators to spot the buildup of risk in various pockets of the economic system that eluded them prior to the financial crisis.

Rep. Jeb Hensarling (R-Texas), House Financial Services Committee chairman, criticized regulators for designating some companies as “too big to fail,” signaling to market participants that these companies would never be allowed to fail due to their importance.

The SIFI designation is largely a response to the near-meltdowns of AIG and GE Capital during the financial crisis from 2007 to 2009. AIG required more than $180 billion in commitments from American taxpayers to protect it from insolvency after disastrous bets that homeowners wouldn’t default on their mortgages, while GE Capital heavily relied on government funding programs after losses raised questions over its viability.

Both financial crisis developments, during the late summer and early autumn of 2008, surprised regulators and policymakers, who vowed never to be caught off guard again.

The 2010 law overhauling financial regulation known as Dodd-Frank gave authorities the power to tag companies as systemic. But the panel charged with doing so, the Financial Stability Oversight Council, or FSOC, took roughly two years to get to this step. Treasury officials said they had hoped to name the companies last year.

Much of the council’s time involved whittling down the list of potential SIFI companies. Regulators also have been preparing for possible challenges to the designations.

All three preliminary designations were expected by analysts and market participants. The companies had said officials had been weighing slapping them with the systemic tag. Tim Geithner, former treasury secretary, had mentioned AIG and GE Capital as examples of the kinds of companies that one day would be known as SIFIs.

Prudential said it is considering contesting the designation. Russell Wilkerson, GE Capital spokesman, said the company received the notice from FSOC and was reviewing the details. AIG said simply that it had received the notice.

The restrictions that may be imposed on the companies include limits on their borrowings and dividends to shareholders. They also may have their pay schemes subject to government rules.

The Fed is weighing how to apply to insurers and other non-bank financial companies the standards it has proposed for banks.

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