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Lawsuit alleges Glencore warehouse firm falsified zinc documents
[LONDON] Executives at a metals warehouse firm owned by commodities group Glencore allegedly ordered workers to falsify documents in New Orleans to manipulate the zinc market, according to a complaint filed by zinc purchasers in a US Federal Court.
On Monday, a US judge in Manhattan allowed a private antitrust lawsuit to go forward against two units of Anglo-Swiss Glencore Plc. The suit accuses Glencore Ltd and Pacorini Metals USA of trying to monopolise the market for special high grade (SHG) zinc, driving up its price.
Her 62-page decision cited allegations made in the complaint filed by zinc purchasers alleging that Pacorini Metals USA, owned by Glencore, created false bills of lading, which are receipts given by transporters confirming shipment of goods.
US District Judge Katherine Forrest in Manhattan said that the zinc purchasers had alleged sufficient facts for the case to go forward.
She said they had raised "a plausible story of market control" by the Glencore units in violation of US antitrust law. Ms Forrest did not rule on the merits of the antitrust claim.
The case will now proceed to the discovery phase, during which both sides will gather evidence to bolster their claims.
A Glencore spokesman said: "The company does not generally comment on ongoing class action cases and the allegations made therein." The group had moved to dismiss the complaint on various legal grounds.
According to the 87-page complaint by the zinc purchasers, a confidential witness who worked in management for Pacorini said he was instructed by Pacorini executives in late summer or early autumn of 2012 to create falsified documents to mask high-volume movements of zinc.
"The falsified bills of lading contained false signatures, stated that the metals were picked up by truckers that 'never existed', and sometimes contained incorrect tonnage amounts,"the complaint said.
A second confidential witness who worked as a shipping and receiving clerk for Pacorini confirmed the account, the complaint added.
The first witness also said representatives of Glencore met with several other large trading companies in late summer or early autumn of 2012 and agreed sto a "synchronised" and "highly coordinated" schedule of zinc warrant cancellations at warehouses in New Orleans, according to the complaint.
If true, the allegations would involve serious violations of regulations of the London Metal Exchange (LME), the world's oldest and biggest market for industrial metals, which registers a global network of metal warehouses. Forging documents would violate the LME warehouse agreement that all approved firms must sign.
The LME said it never confirms or comments on any of its investigations.
The judge had dismissed an earlier version of the proposed class-action lawsuit which also named Goldman Sachs Group Inc and JPMorgan Chase & Co as defendants.
The lawsuit is among several in Manhattan in which investors and businesses accused banks and other defendants of conspiring to rig prices in financial and commodities markets.
The zinc purchasers allege in the complaint that Glencore sought to manipulate daily reports sent to the LME about warehouse movements of zinc.
Warehouse movements of metals can influence LME prices as investors see less or more availability of metal, according to traders.
The complaint also alleges that the false documents played a part in manipulating backlogs of zinc waiting to be delivered, which pushed up the zinc premium, a surcharge buyers pay for immediate delivery of physical metal.
"Plaintiffs allege that defendants' efforts to manipulate these warehouse queues were successful and caused an increase in the MW (Midwest) SHG premium and ultimately caused them to pay higher prices for SHG zinc," the judge's ruling said.
The 139-year old LME is in the midst of wide-ranging reforms of its global network of over 600 approved warehouses in 37 locations after complaints by consumers paying rent to store metal while trapped in backlogs to get delivery of the material.
Under LME disciplinary procedures, a warehouse firm has 20 days to submit a defence to any charges and a hearing must take place no later than 20 working days after that.
Zinc is used to coat steel to protect against corrosion and is also used in batteries, castings and alloys such as brass.
It is according to the US Geological Survey the world's fourth most widely produced metal by weight, trailing iron, aluminium and copper.
The case is In re: Zinc Antitrust Litigation, US District Court, Southern District of New York, No 14-03728.