Law360, New York (March 28, 2016, 5:38 PM ET) — A federal judge in New York on Monday allowed a putative class action alleging a host of banks manipulated an interest rate derivative benchmark to move forward.
Judge Jesse M. Furman of the federal district court in Manhattan said that institutional investors, including a pension fund from Alaska and several Pennsylvania counties, could continue to bring their antitrust claims against 14 big banks over the financial institutions’ objections. The investors allege that the banks engaged in manipulating the ISDAfix rate, which determines valuations for interest rate derivative products.
The amended complaint “plausibly alleges” that the banks engaged in several actions that were designed to make sure that they got the best outcome on the ISDAfix rate even in instances where an individual bank might not necessarily benefit economically on a given day, the judge wrote.
Judge Furman added that many of the claims from investors looked similar to those made against banks in other market manipulation cases, including those in litigation over the London Interbank Offered Rate.
“It appears that that sort of rate manipulation can be economically sensible and feasible given that many banks (including some defendants) have admitted that, in approximately the same period of time, they conspired to rig similar benchmark rates – namely, LIBOR and the leading benchmark interest rate for the foreign exchange market – in order to maximize profits,” Judge Furman wrote.
The banks named in the suit include Bank of America Corp., Barclays PLC, BNP Paribas SA, Citigroup Inc., Credit Suisse, Deutsche Bank, Goldman Sachs Group Inc., HSBC Holdings PLC, JPMorgan Chase & Co., Morgan Stanley, Nomura Holdings Inc., the Royal Bank of Scotland Group PLC, UBS AG and Wells Fargo & CO.
The banks either declined to comment or could not immediately be reached for comment.
According to the plaintiffs, the banks worked closely with interdealer broker ICAP PLC, which until January 2014 was tasked by the International Swaps and Derivatives Association with managing the daily setting of the U.S. dollar-rate version of ISDAfix.
The banks were responsible for submitting rate quotes, which ICAP essentially compiled. But the suit says the parties worked together to set the rate at the point where it was most profitable for them, including engaging in a process known in the industry as “banging the close” where they bought and sold derivative products just before the fix was closed in order to get the price they wanted.
The banks argued that their actions did not constitute an artificial restraint of trade because they did not restrict supply by engaging in those late-day trades. Judge Furman rejected that argument.
“That sort of coordinated action in a supposedly competitive market is precisely the sort of anticompetitive behavior the antitrust laws ‘were intended to prevent,'” the judge wrote.
The decision comes amid investigations by the U.S. Commodity Futures Trading Commission and other regulators into ISDAfix rigging, and the CFTC has reportedly referred the case to the U.S. Department of Justice for an investigation into potential criminal activities.
The plaintiffs alleged that the conduct stopped once the subpoenas arrived, an assertion that Judge Furman said strengthened their claims.
David Scott, the managing partner of Scott + Scott LLP and one of the plaintiffs’ attorneys, said that alleged victims of the banks’ schemes “should feel vindicated” by Judge Furman’s decision.
The plaintiffs are represented by attorneys from Scott + Scott, Quinn Emmanuel Urqhart & Sullivan LLP, Robbins Geller Rudman & Dowd LLP, Grant & Eisenhofer PA, Bernstein Liebhard LLP, Carella Byrne Cecchi Olstein Brody & Agnello PC, Labaton Sucharow LLP, Trief & Olk, Berger & Montague PC, McCulley McCluer PLLC and Fine Kaplan and Black RPC.
Bank of America and Nomura are represented by attorneys from Shearman & Sterling LLP. Barclays is represented by Sullivan & Cromwell LLP and Boies Schiller & Flexner LLP. BNP Paribas is represented by Patterson Belknap Webb & Tyler LLP. Citigroup is represented by Covington & Burling LLP. Credit Suisse is represented by Cahill Gordon & Reindel LLP. Deutsche Bank is represented by Paul Weiss Rifkind Wharton & Garrison LLP. Goldman Sachs is represented by Cleary Gottlieb Steen & Hamilton LLP. HSBC is represented by Locke Lord LLP. ICAP is represented by Richards Kibbe & Orbe LLP. JPMorgan is represented by Davis Polk & Wardwell LLP. RBS is represented by Skadden Arps Slate Meagher & Flom LLP. UBS is represented by Gibson Dunn & Crutcher LLP. Wells Fargo is represented by Friedman Kaplan Seiler & Adelman LLP. Morgan Stanley is represented by Morgan Lewis & Bockius LLP.
The case is Alaska Electrical Pension Fund v. Bank Of America Corporation et al, case number 1:14-cv-07126, in the U.S. District Court for the Southern District of New York.
– Additional reporting by Dani Kass. Editing by Ben Guilfoy.