Red Kite Warns Copper ETF Would 'Wreak Havoc'

May 25 2012 | 3:26am ET

Metals trading hedge fund RK Capital Management has thrown down the gauntlet to JPMorgan Chase over the latter's plan to launch a physical copper exchange-traded fund.

Lawyers for the firm, which runs the Red Kite hedge funds, warned the Securities and Exchange Commission that the ETF would inflate prices, harm supply and "wreak havoc on the U.S. and global economy." The May 9 letter said that the ETF, which JPMorgan has been planning for two years, could remove up to one-third of the copper stocks traded on the London Metal Exchange.

RK followed up the letter with a visit with the SEC last week.

The letter also raised the specter of one of the biggest copper scandals in history, the 1995 Sumitomo fraud. While RK's lawyers did not suggest anything untoward about JPMorgan's plans, they did warn that, as with the Sumitomo scandal, the ETF would facilitate "the fixing of prices," having investors underwrite the costs of holding physical copper.

RK is joined in its battle—the first public opposition to the ETF—by Southwire, one of the largest copper users in the U.S.


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