Investigation Of Possible Price Fixing By Metals Warehouses Stepped Up By Commodity Futures Trading Commission

U.S. authorities are stepping up their investigation of metals warehouses, some of which are owned by giant investment banks such as Goldman Sachs Group Inc. (NYSE:GS), that allegedly inflate metal prices by hoarding the commodities for lengthy periods of time, Reuters said Monday.

The Commodity Futures Trading Commission (CFTC) delivered a wide-ranging subpoena to an unnamed metals warehousing company last week, a source familiar with the matter said.

The subpoena sought all documents and correspondence related to the London Metal Exchange dating from January 2010. An earlier CFTC letter to the firm, from July, also ordered the warehouse not to destroy documents under its care from the past three years.

The CFTC, which rarely discusses open investigations, declined to comment to Reuters.

It’s unclear if other subpoenas have been issued to other warehousing firms, or if there’s going to a formal industry-wide investigation into alleged metal hoarding.

In a separate action, U.S. Department of Justice officials visited another U.S. warehousing firm, seeking information about the business’ operations, another unnamed source said.

The department began an initial probe into the metals warehousing industry in July. The department declined to comment.

Executives from the beer industry, for which metal prices are a key cost, as well as other industry experts, have criticized Goldman Sachs Group Inc.’s (NYSE:GS) alleged deliberate delays in releasing aluminum from warehouses under their control.

They told lawmakers last month that such practices harm consumers, and that banks are often not suited to own such metal warehouses.

Companies like the Coca-Cola Company (NYSE:KO) and other companies that use a lot of aluminum helped spark scrutiny into these metal warehouses, by complaining about the high prices they’d been charged for metals.

At least four class-action lawsuits have been filed in recent weeks, accusing banks like Goldman Sachs and metal warehouse companies of inflating consumer prices by hoarding metals.

Goldman Sachs said earlier in July that their warehouse facility in Detroit complied with all the rules set by the London Metal Exchange.

The London Metal Exchange, now owned by Hong Kong Exchanges and Clearing Limited (HKG:0388), has proposed reforming its warehousing policies, though it could be April 2014 before such changes come into effect.