U.S. regulator subpoenas banks over long queues at warehouses

Documents date to 2010

The top U.S. derivatives regulator subpoenaed Goldman Sachs Group Inc. and JPMorgan Chase & Co. for documents relating to their warehouses for aluminum and other metals, according to two people with knowledge of the investigation.

The Commodity Futures Trading Commission has requested documents dating to the beginning of 2010 about the banks’ commodity warehouses, according to the people, who asked not to be named because the subpoenas are private. MillerCoors LLC, Encore Wire Corp. and other metal users have complained about long queues and artificially high prices at the warehouses, particularly for copper and aluminum.

“We’re a market regulator overseeing the commodity futures, swaps markets and have clear authority to police markets for fraud, manipulation and other abuses,” CFTC Chairman Gary Gensler said in response to questions about warehousing at a Senate Banking Committee hearing last month.

Glencore Xstrata Plc and its metals warehousing business Pacorini also received a subpoena, Reuters reported today. Dennis Holden, a CFTC spokesman, declined to comment on the subpoenas. Charles Watenphul, a spokesman for Glencore, also declined to comment.

Commodities Units

The subpoena to Goldman was also sent to its Metro International Trade Services LLC unit, which stores aluminum, copper and other metals as part of the London Metal Exchange system. JPMorgan owns Henry Bath & Son Ltd., a founding member of the LME and an operator of warehouses. Glencore, the biggest publicly traded raw-materials supplier, is one of the largest owners of warehouses monitored by the LME as lawmakers and regulators increase scrutiny.

Global aluminum costs were inflated by $3 billion in the past year through unfair rules that allow warehouse owners to slow deliveries, Tim Weiner, a global risk manager at Chicago- based brewer MillerCoors, said in written testimony before his appearance July 23 at a U.S. Senate hearing.

Senator Sherrod Brown, an Ohio Democrat, said he plans to hold additional congressional hearings on banks’ ownership of mines, pipelines, tankers and warehouses. “It does significant potential damage to the economy,” Brown said July 23.

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