The Department of Justice has reportedly launched a preliminary investigation into complaints that Wall Street banks are using their ownership of metal warehouses to inflate commodities prices.
The DOJ has sent letters to at least two companies that own warehouses seeking more information about practices that industrial users allege have led to supply shortages and billions of dollars in extra costs, two sources familiar with the letter said on Wednesday.
A third source said the DOJ had informed at least one metal consumer of the probe.
If the report is true, the announcement of the investigation follows a New York Times article documenting Goldman Sachs's use of its warehouses to artificially inflate the price of aluminum, a set-up that costs consumers billions of dollars per year.
As the Times explained:
Using special exemptions granted by the Federal Reserve Bank and relaxed regulations approved by Congress, the banks have bought huge swaths of infrastructure used to store commodities and deliver them to consumers — from pipelines and refineries in Oklahoma, Louisiana and Texas; to fleets of more than 100 double-hulled oil tankers at sea around the globe; to companies that control operations at major ports like Oakland, Calif., and Seattle.
In the case of aluminum, Goldman bought Metro International Trade Services, one of the country’s biggest storers of the metal. More than a quarter of the supply of aluminum available on the market is kept in the company’s Detroit-area warehouses.
It's not yet clear if the DOJ launched its investigation before or after the article, and there is no indication that the firms have broken any laws. But the practice is also facing a potential investigation by the Commodity Futures Trading Commission, and the Senate has already held a hearing on the topic.