Damages claims hang over Glencore as IPO looms

By Clara Ferreira-Marques and Moira Herbst

LONDON/NEW YORK (Reuters) - Commodities trader Glencore is being pursued for as much as $900 million in damages through lawsuits including a long-running U.S. case linking it to pollution in the U.S. Virgin Islands.

Glencore, due to make what could be a record $11 billion market debut this month, outlined more than 30 risks to its performance in a 1,637-page prospectus -- including legal risks such as "expensive litigation" related to accidents.

It does not, however, list pending civil lawsuits individually.

Glencore believes the likelihood of liability arising from unresolved claims to be "remote" and "that the liability, if any, resulting from any litigation will not have a material adverse effect on its consolidated income, financial position or cash flows." Glencore declined to comment further.

It is not unusual for large, multinational companies to face litigation in the commercial courts. But Glencore, the world's largest diversified commodity trader, is under scrutiny as it plans to go public after operating privately for 37 years.

Plaintiffs in the U.S. Virgin Islands case, originally filed as a putative class action in 1999, are suing Glencore and aluminum giant Alcoa <AA.N>, alleging they were exposed to toxic substances as a result of "negligent storage and containment" at an alumina refinery, according to court filings.

They allege the substances were released on the island of St Croix in the aftermath of Hurricane Georges in 1998.

This case is currently in a territorial court in the U.S. Virgin Islands. Defendants have asked a U.S. appeals court to remove it and send it to a U.S. federal court, which is subject to a different set of laws. A decision is pending.

Glencore owned the refinery through a unit until 1995 and continued to supply bauxite, a red-colored ore from which alumina is extracted, after that, according to the filings. Alcoa was the subsequent owner, eventually shuttering the operation in 2001.

SEEKING DAMAGES

Plaintiffs are pursuing "compensatory and punitive damages" from Glencore and Alcoa for exposure to dust containing bauxite or red mud after strong winds blew the steel roof off a shed housing bauxite awaiting processing.

According to the complaint, the hurricane scattered some of the stored bauxite and possibly red mud, covering local houses, porches and driveways. Some plaintiffs experienced rashes, throat irritation and complained of property damage including contaminated cisterns.

According to a lawyer for the plaintiffs, Lee Rohn, Glencore's liability alone could amount to $800 million to $900 million. She called her own estimate "conservative."

A trial date could be set for 2012 at the earliest. It is hard to predict the length of proceedings, and there is always the possibility of a settlement.

Alcoa has said it is "unable to reasonably predict an outcome or to estimate a range of reasonably possible loss."

The St. Croix case is one of several outstanding lawsuits.

Others include a case against Glencore unit Century Aluminum <CENX.O>, members of its board and Credit Suisse <CSGN.VX> and Morgan Stanley <MS.N> who underwrote a January 2009 stock placing for the company.

That case was dismissed by a federal judge in California in March, but plaintiffs filed an appeal.

"(The core of plaintiffs' claims is that) these false and misleading statements incorrectly portrayed Century as 'liquid and cash-rich, when in reality it was not," according to court documents seen by Reuters.

The filings do not specify the amount of damages being sought. Plaintiff's lawyers did not return calls for comment.

Glencore's prospectus does detail one criminal case, a probe in Belgium in which a Glencore subsidiary, a former employee and a current employee have been charged with committing "corruption in exchange for information covered by professional secrecy.

Glencore has already lined up buyers for all of the shares in its planned mega-float.

One UK-based equities manager at a house with more than $740 billion in assets under management said litigation was part of the risks inevitably linked to Glencore's business, particularly cases linked to its operations in more difficult markets.

"It depends on how likely these are to crystallize. That (almost) $1 billion would clearly be a big hit but you'd have to take a view on how likely it was to come to pass," he said.

(Additional reporting by Sinead Cruise; Editing by Alexander Smith