Share

Hedge fund sues Barclays for $850m in metal market abuse case

London - Red Kite Management, the world’s largest metals hedge fund, is suing Barclays for alleged market abuse in the copper market that it claims cost the firm at least $850m between 2010 and 2013.

The case pits a $2bn hedge fund against a bank that has been hit by a number of scandals in previous years, including large fines for manipulating Libor, the benchmark for interest rates. 

Red Kite, whose co-founder is the former treasurer of the UK Conservative Party, alleges that Barclays allowed staff to share confidential information about its positions with the bank’s proprietary traders on the floor of the London Metal Exchange, according to court documents filed by the hedge fund in the UK High Court.

Barclays traders used the knowledge about Red Kite’s positions to profit by placing opposing trades, the fund said in court documents filed in October 2016, but only recently made public. Red Kite alleges the bank "sought to manipulate the LME by ‘ramping’ prices” to manipulate the closing price, a benchmark widely used by traders.

In a separate document, Barclays denied all the claims, saying that it had not mishandled Red Kite’s confidential information.

Copper valuations

The legal battle could resonate well beyond the hedge funds and banking community as the allegations centre around the valuation of trades in the $150bn-a-year copper market.

Barclays and Red Kite declined to comment further when contacted by Bloomberg News. A spokesperson for the LME declined to comment on ongoing legal proceedings, but said the exchange “has strict rules regarding market manipulation and abuse” and “anyone found in breach of LME rules could be subject to disciplinary proceedings.”

Red Kite, founded in 2005 by Michael Farmer and David Lilley, is one of the last surviving hedge funds in commodities after prominent rivals closed over the last decade. The lawsuit covers the metal’s heyday, when China’s economic boom drove copper prices above $10 000 a metric ton in 2011.

In the court documents, Red Kite said Barclays traders in the commodities division, which handled proprietary trading, were able to view open positions from the prime brokerage division, which managed Red Kite’s account.

The proprietary traders knew prime brokerage “had only one client of substantial size” in the non-ferrous metals market and could figure out Red Kite’s positions, the fund alleged.

Details about Red Kite’s trades were circulated within the commodities division in a daily email, and at least one third-party broker working for rival funds was also allowed to attend meetings at the LME where Red Kite’s positions were discussed, the claimants said.

Repeat bids

According to Red Kite, Barclays took proprietary trading positions opposing those of the fund, and then attempted to manipulate the LME copper market by "repeatedly bidding large sums for copper positions in the moments before the close of ‘kerb’ trading on the LME".

As a result, Red Kite was "effectively forced by Barclays to close out positions at a time and in a manner profitable to Barclays”.

As a consequence of the alleged actions by Barclays, the Red Kite funds lost as much as $850m, an estimate based on a tally of losses in the court filing that includes losses to net asset value, fees, damages, and management income. The exact figure may require further examination, said Red Kite, which made the claim with an associated group of funds.

HFZ, a joint venture between Red Kite and Maike Metals International, one of China’s largest metals and mining groups, is also named as a claimant in the case.

Table of estimated losses detailed by Red Kite in filing:

NAV decline $210.9m.

 Abnormal investment returns $45.3m.

NAV damage in future years $367.6m

Red Kite managers’ loss in fee income $102.2m

HFZ managers’ loss in fee income $644 000

Redemptions and lost NAV growth  $132m 

Total $858.6m.

SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.

Read Fin24's top stories trending on Twitter:


We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.92
+0.1%
Rand - Pound
23.88
+0.1%
Rand - Euro
20.38
+0.2%
Rand - Aus dollar
12.32
+0.2%
Rand - Yen
0.13
+0.1%
Platinum
908.05
+1.2%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders