Federal Regulators Subpoena Goldman Sachs in Inquiry of Aluminum Warehouses

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goldman_sachs_aluminum_price_fixingThe Commodity Futures Trading Commission (CFTC) has issued subpoenas to Goldman Sachs in connection with its investigation of complaints that Goldman’s metals warehouses intentionally created delivery delays that inflated the price of aluminum.

Regulators believe irregularities in the aluminum market have cost consumers billions of dollars since 2010, The New York Times reports. The subpoenas seek records pertaining to warehouse operations dating back to January 2010. The subpoenas also demand documents and correspondence involving the London Metals Exchange, a trade association that regulates warehousing. The federal inquiry has 30 “areas of interest,” according to the Times.

Goldman purchased Metropolitan International Trade Services, a group of metals warehouses in the Detroit area in 2010.  Soon after, beverage makers and manufacturers began complaining that the company was restricting the flow of metal, causing lengthy delays in delivery, the Times reports. The wait grew from six weeks in 2010 to about 16 months now.  Because owners are charged storage by the day, delivery delays mean higher costs for metal owners.

Because of the way aluminum prices are set on the spot market, the delays also increase the prices nearly all manufacturers pay for aluminum even when the metal they buy was not stored in a warehouse. Beverage makers and industry analysts estimate that delays in access to aluminum have cost manufacturers and consumers more than $5 billion.

The federal inquiry began last month after The New York Times reported that Metropolitan had been paying incentives to metal owners to move their aluminum from one warehouse to another, contributing to delays. Goldman has declined to comment on the subpoenas, but company president Gary D. Cohn has said that the company’s warehouse subsidiary never violated any laws and never sought to inflate aluminum prices.

Aluminum owners have filed class-action suits against Goldman, according to the Times, and the Federal Reserve is reviewing whether Goldman and Morgan Stanley have complied with provisions of merchant banking law that allow them to own facilities used to store and transport commodities.