* Co-founder of Red Kite known as Mr. Copper
* Barclays accused of "ramping" up closing LME prices
* The bank denies all claims against it
By Eric Onstad
LONDON, Oct 23 (Reuters) - Hedge fund Red Kite has filed a
lawsuit against Barclays Plc, alleging the bank
manipulated the copper market to its advantage, causing the
hedge fund to lose $850 million.
The case pits one of the world's biggest metals hedge funds,
whose co-founder Michael Farmer was a former treasurer of
Britain's Conservative Party, against one of Europe's biggest
In court papers, Red Kite alleges that Barclays committed
market abuse by manipulating market prices and using information
from Red Kite about the hedge fund's copper positions from 2010
to 2013 to take lucrative opposing trades on metals markets.
The initial legal documents were filed in Britain's High
Court in October last year but only recently made public.
Barclays has denied the claims in a court filing.
"Barclays had detailed policies and procedures in place for
protecting confidential information, in particular that of its
clients," it said in the document.
Barclays said its executives only used Red Kite's
confidential information on its market positions for legitimate
business purposes, such as assessing the fund's credit exposure
to the bank.
Red Kite agreed when signing the bank's terms of business
that "Barclays would remain free to have interests and duties
adverse to the interests of the proprietary (Red Kite) funds,"
the bank's defence document said.
The bank declined to elaborate further. Red Kite did not
respond to Reuters' requests for comment.
During the period covered by the case, copper prices surged
to a peak of just over $10,000 a tonne in 2011, one of the boom
years for commodities, driven by China's appetite for raw
materials to build infrastructure.
Excess supply later pushed prices to a low of about $4,300
by early last year.
The Red Kite Group, which has hedge funds, physical trading
and mining finance, has about $2 billion of assets under
management, according to its website.
Red Kite said in the court filing that Barclays' proprietary
traders were able to see the hedge fund's confidential trading
positions on the London Metal Exchange (LME) that were being
executed by another division of Barclays.
As a result, Barclays traders executed trades based on that
inside knowledge which resulted in profits for Barclays but
damaged Red Kite's stance, the hedge fund said.
"Being able to see the Red Kite funds' orders and open
positions, traders with the Commodities Division (of Barclays)
... were able to and did anticipate the Red Kite Funds' future
market behaviour," the court filing said.
Barclays denied that its traders were able to access Red
Kite's confidential information. "Futures Clearing was on a
different floor to the Commodities Division, in a segregated
area of the floor with specific entry restrictions," Barclays
said in its defence document.
The bank sought to "manipulate the LME by 'ramping' prices
in a manner favourable to Barclays" during closing trading, the
hedge fund said in the court filing.
The LME, owned by Hong Kong Exchanges and Clearing Ltd
, declined to comment specifically on the legal case,
but referred to its regulations.
"The LME has strict rules regarding market manipulation and
abuse. Anyone found in breach of LME rules could be subject to
Red Kite said in the court filing that staff from the two
Barclays' divisions also shared information when they socialised
together. The filing also said a daily email was circulated in
the bank giving details of Red Kite's short-term positions.
Barclays also requested more collateral from Red Kite for
what it regarded as risky positions in copper while Barclays
held opposite positions, Red Kite's court filing said.
"Accordingly the Red Kite funds were effectively forced by
Barclays to close out positions at a time and in a manner
profitable to Barclays," the court filing said.
Barclays said in its defence document that positions
sometimes needed to be closed to maintain position limits, which
was made clear in its terms of business.
The case is not due to go to trial before June 2019,
according to a separate court filing earlier this month.
(Additional reporting by Lawrence White and Pratima Desai,
editing by Jane Merriman and David Evans)
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