UPDATE 2-Copper makers challenge U.S. in court over JPMorgan ETF

Tue Feb 12, 2013 5:49pm EST

* SEC ruling 'arbitrary and capricious' - petition

* Challenge comes ahead of SEC ruling on BlackRock fund on Feb. 22

* Red Kite, Amrod and Luvata not parties to lawsuit

By Josephine Mason

NEW YORK, Feb 12 (Reuters) - U.S. copper makers Southwire Co and Encore Wire Corp are launching a legal challenge against the U.S. Securities and Exchange Commission approval of JPMorgan Chase & Co's physically backed copper exchange traded fund (ETF).

The companies, which say the copper ETF will inflate prices for the metal and distort supplies, filed a notice of appeal on Tuesday asking the U.S. Court of Appeals in Washington D.C. to review the SEC's Dec. 14 ruling that gave the go ahead for the copper ETF.

The companies contend the SEC's ruling was "arbitrary and capricious, an abuse of direction, or otherwise not in accordance with law or unsupported by substantial evidence," said the petition signed by their attorney Robert Bernstein with law firm Eaton & Van Winkle LLP.

Legal action could further frustrate JPMorgan's efforts to launch the JPM XF Physical Copper Trust, more than two years after it first filed for approval.

It also comes less than two weeks before the U.S regulator decides on another, similar fund, the iShares Copper Trust planned by BlackRock Inc. The ruling is due on Feb. 22.

Spokeswomen for JPMorgan and the SEC declined to comment.

DOWN TO TWO

Southwire, North America's largest wire and cable maker, and Encore Wire based in McKinney, Texas, will go it alone without three other members of a consortium that tried unsuccessfully to get the regulator to block the fund.

Major metals hedge fund and merchant, Red Kite, and two other fabricators Luvata and AmRod are not parties to the appeal, Bernstein told Reuters.

After an almost year-long struggle to get the SEC to reject the fund, they may not have the appetite for a protracted and potentially costly legal battle, market participants said.

Industrial users fear the funds would cut off supplies of copper, used in electrical wiring and plumbing, and boost prices since they will use physical copper cathode as collateral against shares of the fund, effectively removing a chunk of metal from the market.

In their defense, JPMorgan and BlackRock say such fears are unfounded because the funds, which would effectively allow U.S. retail investors to trade physical copper easily for the first time, would be miniscule compared with the 20-million-tonne global market.

In giving the green light, the SEC said it did not believe the fund would affect supplies of metal for immediate delivery.

The U.S. bank has much riding on the launch as the big banks that swept into trading commodities over the past decade look for new ways to make money in the wake of the world financial crisis and amid tighter regulations.