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From Antitrust Law Daily, August 18, 2017

Antitrust claims against non-foreign banks for manipulating SIBOR and SOR proceed

By Peter Reap, J.D., LL.M.

A claim brought by FrontPoint Asian Event Driven Fund, that several large banks, including Citibank and Bank of America, conspired in violation of Section 1 of the Sherman Act to manipulate the price of two related benchmark interest rates-the Singapore Interbank Offered Rate (SIBOR) and the Singapore Swap Offer Rate (SOR)-was adequately alleged as to the defending banking institutions that served on the SIBOR panel that participated in the setting of the daily SIBOR and SOR rates during the relevant period, the federal district court in New York City has decided. FrontPoint’s antitrust claim was dismissed against all other defendants, with leave to amend, for failure to sufficiently allege involvement in the conspiracy. The antitrust claim, as brought by co-plaintiff Sonterra Capital Master Fund, was dismissed against all defendants, with leave to amend, for failure to establish any connection between the alleged conduct and Sonterra’s injury (FrontPoint Asian Event Driven Fund, L.P. v. Citibank, N.A., August 18, 2017, Hellerstein, A.).

Furthermore, the motion to dismiss for lack of personal jurisdiction brought by the Foreign Defendants (approximately one-half out of all of the 46 total defendant entities representing 20 banking institutions), including Barclays and Credit Suisse, was granted with leave to replead. Finally, claims for violations of the federal RICO statute and for breach of the implied covenant of good faith/fair dealing were dismissed without prejudice, but the remaining claim for unjust enrichment was dismissed with prejudice.

SIBOR and SOR. SIBOR and SOR are related benchmark interest rates that are meant to reflect the cost of borrowing funds in the Singapore market. Both SIBOR and SOR are administered by the Association of Banks in Singapore ("ABS"), a trade group made up of many of the defendants. Each day, Thomson Reuters, as agent of ABS, calculates the daily SIBOR rate, based on interest rate quotes submitted by a panel of banks, including many of the defendants. SOR is in part based on the SIBOR rate, the court noted.

The alleged conspiracy. FrontPoint and Sonterra alleged in their complaint that, during the class period, trillions of dollars of "SIBOR- and SOR-based derivatives"-that is, financial derivatives that incorporate SIBOR and/or SOR as a component of price-were traded within the United States, including interest rate swaps, forward rate agreements, foreign exchange swaps, and foreign exchange forwards. They alleged that in June 2013, the Monetary Authority of Singapore ("MAS"), Singapore's central bank and financial regulator, "announced that it had uncovered a massive conspiracy by the defendants to rig the prices of financial derivatives that incorporate SIBOR and/or SOR as a component of price." They also alleged that MAS "uncovered rare 'smoking gun' evidence of anticompetitive conduct."

However, the June 13, 2013, a MAS press release, upon which the plaintiffs based these allegations, contained none of those findings, according to the court. Rather, MAS had stated that "twenty banks were found to have deficiencies in the governance, risk management, internal controls, and surveillance systems for their involvement in benchmark submissions." MAS also stated that "there is no conclusive finding that SIBOR, SOR and FX Benchmarks were successfully manipulated." Before the court were various motions to dismiss.

Personal jurisdiction over the Foreign Defendants. The Foreign Defendants moved to dismiss for lack of personal jurisdiction. The complaint contained no plausible allegations that any conduct related to the conspiracy to manipulate SIBOR and SOR had occurred within the United States, the court noted. The plaintiffs did not allege that the conspiracy had originated in the United States, or that Foreign Defendants who served as panel members had submitted manipulative rates from within the United States.

The complaint contained no non-conclusory allegations that the Foreign Defendants purposefully directed their activities at residents of the United States. Although the consequences of the Foreign Defendants' alleged conduct were global, the complaint contained no allegations that the Foreign Defendants had singled out the United States as their target, the court explained. Furthermore, the plaintiffs failed to allege facts sufficient to support their conspiracy jurisdiction theory. Even assuming that plaintiffs had plausibly alleged the existence of a conspiracy, they did not allege that any defendant had committed any act in furtherance of the conspiracy from within the United States, or had purposefully directed its misconduct at the United States. Additionally, FrontPoint’s allegation that defendant Deutsche Bank had consented to jurisdiction in New York was rejected.

In sum, The Foreign Defendants' motion to dismiss for lack of personal jurisdiction was granted in its entirety.

Article III standing. To meet the Article III standing requirement, a plaintiff must have suffered an injury in fact. The plaintiffs satisfied this standard, the court held. The plaintiffs sufficiently alleged that they had suffered an economic injury as a result of the defendants' alleged manipulation. The plaintiffs alleged that they were "overcharged and/or underpaid" in transactions involving SIBOR-based derivatives.

Antitrust claim-conspiracy. The plaintiffs plausibly alleged the existence of a conspiracy to manipulate SIBOR and SOR, the court ruled. Although the plaintiffs failed to identify any specific interbank communications between or among the defendants regarding the alleged manipulation, the plaintiffs did not need to allege this type of "smoking gun" evidence to survive a motion to dismiss, the court said. The cited investigations and findings, while not direct or conclusive proof that a conspiracy existed, provided circumstantial evidence from which an inference of coordinated conduct may be drawn.

The plaintiffs also alleged a "plus factor," the court opined. Specifically, the plaintiffs alleged a "common motive" to coordinate the manipulation of SIBOR and SOR because those rates are calculated based on submissions from each panel member. As a result, manipulation was not possible absent coordination among the submitting banks.

Although the plaintiffs sufficiently alleged the existence of an antitrust conspiracy, the plaintiffs failed to allege with specificity how each individual defendant had participated in the conspiracy. The plaintiffs failed to show how the defendants' involvement in SIBOR-based derivatives trading, as opposed to involvement in the SIBOR rate submission process, was part of the conspiracy. Accordingly, the antitrust claim was dismissed as alleged against all defendants other than those who had served on the SIBOR panel during the relevant period.

Antitrust claim-standing. The plaintiffs alleged an antitrust injury- "violation (and injury in the form of higher prices) flowing from the corruption of the rate-setting process, which (allegedly) turned a process in which the Banks jointly participated into conspiracy," the court determined. Gelboim v. Bank of Am. Corp., 823 F.3d 759 at 775 (2d Cir. 2016).

Further, FrontPoint was an efficient enforcer of the antitrust laws, the court reasoned. FrontPoint alleged that it traded in derivatives whose price was directly impacted by the SIBOR rate. This satisfied a proximate cause inquiry, even if other variables were involved. Sonterra, however, was not an efficient enforcer, and thus lacked antitrust standing, the court held. Sonterra did not allege that it traded directly with any of the defendants. Sonterra failed to establish any connection between the defendants' conduct and its alleged injury.

Antitrust claim-FTAIA. The plaintiffs' antitrust claim was not barred by the Foreign Trade Antitrust Improvements Act (FTAIA). The plaintiffs sufficiently alleged that the defendants' conduct had a direct, substantial, and reasonably foreseeable effect on domestic commerce. In adopting the FTAIA, Congress had expressly endorsed an extraterritorial application of the Sherman Act, the court noted.

Antitrust claim-statute of limitations. The plaintiffs' antitrust claim was not barred by the Sherman Act's four-year statute of limitations. Although that the class period ended on December 21, 2011, and the plaintiffs did not file this action until July 5, 2016, the plaintiffs appropriately invoked the doctrine of fraudulent concealment, the availability of which is subject to a specific standard in the antitrust context. An antitrust plaintiff may prove fraudulent concealment sufficient to toll the running of the statute of limitations. The plaintiffs did so, the court explained.

RICO. Absent clearly expressed congressional intent to the contrary, federal laws are construed to have only domestic application. RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2100 (2016). The plaintiffs' RICO claim failed because it violated this presumption against extraterritoriality. RICO applies extraterritorially "only to the extent that the predicates alleged in a particular case themselves apply extra extraterritorially." Id. at 2102. Here, the only predicate offense that the plaintiffs alleged was wire fraud, which does not apply extraterritorially.

Implied covenant of good faith/fair dealing. FrontPoint alleged that it had entered into International Swap Dealers Association Master Agreements with both Deutsche Bank and Citibank, and that it had entered into twenty-four transactions with those defendants, some of which involved SIBOR-based derivatives. However, FrontPoint failed to state a plausible claim for breach of the implied covenant and good faith and fair dealing against defendants Deutsche Bank and Citibank, the court held. FrontPoint failed to allege any specific facts regarding the individual contracts it had entered into with defendants Deutsche Bank and Citibank to establish a plausible basis for a claim of the implied covenant of good faith and fair dealing. Nor did FrontPoint allege with any degree of specificity the rights it enjoyed under the contracts, or how the defendants' conduct destroyed its right to receive the fruits of the contract.

Unjust enrichment. The plaintiffs' unjust enrichment claim failed because, with the exception of FrontPoint's transactions with Deutsche Bank and Citibank, neither plaintiff alleged that it had entered into a transaction with any of the defendants, or that it had otherwise had a relationship with any of the defendants, the court determined. An unjust enrichment claim requires some relationship between plaintiff and defendant, and the connection here was too attenuated. The claim also failed because a claim for unjust enrichment is only actionable in the absence of an actual agreement between the parties. The alleged transactions with Deutsche Bank and Citibank were governed by a contract.

The case is No. 1:16-cv-05263-AKH.

Attorneys: Geoffrey Milbank Horn (Lowey Dannenberg Cohen & Hart, PC) for Frontpoint Asian Event Driven Fund, Ltd. Christian Levis (Lowey Dannenberg Cohen & Hart, PC) for Sonterra Capital Master Fund, Ltd. and Frontpoint Asian Event Driven Fund, L.P. Alan M. Wiseman (Covington & Burling, LLP) for Citibank, N.A. and Citigroup Inc. Arthur J. Burke (Davis Polk & Wardwell LLP) for Bank of America Corp.

Companies: Frontpoint Asian Event Driven Fund, Ltd.; Sonterra Capital Master Fund, Ltd.; Citigroup Inc.; Bank of America Corp.; Frontpoint Asian Event Driven Fund, L.P.; Citibank, N.A.

MainStory: TopStory Antitrust RICO NewYorkNews

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