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Aluminum Antitrust Cases Revival to Hit Goldman, JPMorgan, Glencore

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Per a Reuters report, amid heightened regulatory and political scrutiny on banks' ownership of the physical commodity business, the lawsuit by aluminum purchasers against Goldman Sachs (GS - Free Report) , JPMorgan (JPM - Free Report) and mining company — Glencore Plc (GLNCY - Free Report) — has been revived by the 2nd US Circuit Court of Appeals in Manhattan.

Notably, in 2016, the nationwide price-fixing suits were dismissed by the U.S. District Judge, Katherine B. Forrest. The suits alleged the defendants of conspiring to hoard aluminum in a bid to push up prices.

Followed by a 3-0 decision, the federal appeals court commented on the federal judge’s decision to be a fault, which tossed antitrust claims by "direct" purchasers of aluminum, including Novelis, along with other purchasers, such as Eastman Kodak, Fujifilm and Reynolds Consumer Products.

Background

According to Forrest, the core assertion of the case was that Platts Midwest Premium, a component of aluminum prices, soared thanks to alleged "shenanigans" in aluminum warehouse services.

In August 2014, a case based on the same “core assertion” was filed by commercial end-users and consumer end-users of aluminum. However, it was dismissed by Forrest as according to her findings, the complaints did not convincingly indicate that the defendants deliberately schemed on a collective basis to raise prices.

Further, Forrest restricted the plaintiffs from re-filing the cases by ruling that their antitrust claims lacked legal standing. Nonetheless, the other group of plaintiffs, including the ‘first-level’ purchasers of aluminum, was granted re-appeal for their cases, which was later allowed to go forward in March 2015.

The Issue

Aluminum purchasers have accused banks and commodity companies of colluding from 2009 to 2012, to manipulate prices of the metals by reducing supply, thereby forcing them to overpay.

The purchasers further claimed that this act caused delays of up to 16 months in filling their orders, leading to elevated storage costs. This, in turn, inflated the aluminum prices, and the cost of producing cabinets, flashlights, soft drink cans, strollers and other goods.

No comments have been recorded on the part of defendants.

Per Circuit Judge Pierre Leval, the purchasers were allowed to sue, as allegedly the restraining of market by the defendants affected them. In addition, they were differentiated from commercial and consumer end users, whose antitrust claims were dismissed in the appeals court in August 2016.

Leval claimed Forrest’s decision to be at fault, which was based on the conclusion that any manipulation of prices can happen in the warehousing market rather than the primary aluminum market. Unlike the end users, "whose injury was an incidental byproduct of the defendants' alleged violation, these plaintiffs' injuries were a direct result of the defendants' anticompetitive conduct," Leval wrote.

Therefore, the legal cases have come back to the federal court in Manhattan under U.S. District Judge Denise Cote. "We're pretty excited," Patrick Coughlin, a lawyer for the direct purchasers, said in an interview. "Even if manipulation took place in another market, if it were directed toward our clients' markets and inflated the price of aluminum there, we should be able to bring an antitrust case," he added. "We're ready to go to trial," noted Coughlin.

Conclusion

Lawmakers are concerned about the risks from banks' ownership of warehouses and plants. They believe that banks' holdings of these assets tend to concentrate market power and boost bank profits, consequently affecting consumers. Therefore, regulators across the globe are investigating banks’ role in the commodity trading business more closely.

Both Goldman and JPMorgan currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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