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From Antitrust Law Daily, January 28, 2015

Conspiracy to “fix the Fix” adequately alleged

By Jeffrey May, J.D.

A federal district court in New York City has refused to dismiss claims that 12 banks conspired to manipulate prices on the foreign exchange (“FX”) market in violation of the Sherman Act. Investment funds, pension plans, hedge funds, and other entities based in the United States that bought FX instruments from the defending banks priced at or by the WM/Reuters Closing Spot Rates (the “Fix”) for foreign currencies can proceed with their antitrust claims. Actions brought by foreign plaintiffs were, however, barred by the Foreign Trade Antitrust Improvements Act (In re Foreign Exchange Benchmark Rate Antitrust Litigation, January 28, 2015, Schofield, L.).

The court rejected the defendants’ four principal grounds for dismissal of the complaint filed on behalf of the domestic entities: (1) the complaint did not adequately allege an agreement in restraint of trade as required by Twombly; (2) the complaint did not adequately allege harm to competition; (3) the complaint did not adequately allege an injury in fact; and (4) the complaint failed to establish antitrust injury.

Sufficiency of conspiracy allegations. The plaintiffs sufficiently alleged that there was a horizontal price fixing conspiracy in per se violation of the antitrust laws and that all of the defendants were part of that conspiracy, the court ruled. They offered direct evidence of a conspiracy in the largest and most actively traded financial market in the world. The domestic plaintiffs alleged that FX traders from the defending banks used electronic communications platforms, including multi-bank chat rooms and instant messaging, to share with rivals price-information, customer information, and their net trading positions before the setting of the Fix.

The 12 defending banks are Bank of America Corp., Barclays Bank PLC, BNP Paribas Group, Citigroup, Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group, Inc., HSBC Holdings PLC, JPMorgan Chase & Co., Morgan Stanley, Royal Bank of Scotland Group PLC, and UBS AG, as well as related entities.

The court also took judicial notice of penalties and fines levied by regulators in three countries—the United States, the United Kingdom, and Switzerland—against six defendants. The penalties provided non-speculative support for the inference of a conspiracy, in the court's view.

The court rejected the defendants' contentions that the complaint made merely generalized and conclusory allegations about the defendants and that it failed to allege which defendants conspired when and about which exact currency pairs. Even the defendants whose traders were not named in the complaint as part of any chat room were nevertheless implicated, based on the defendants’ actions following disclosure of the government investigation, the court explained. After public announcements of the investigations, the defendants banned their traders from participating in multi-bank chat rooms and either fired or oversaw the departure of one or more of their key FX traders, it was noted.

Harm to competition, injury in fact. The defendants could not convince the court that the plaintiffs would not be able to demonstrate harm to competition or establish an injury in fact. The complaint offered plausible allegations about an overarching conspiracy among horizontal competitors to fix prices. This conspiracy allegedly resulted in the plaintiffs paying overcharges, which satisfied the injury-in-fact requirement at the pleading stage.

Antitrust injury. In their attempt to show that the plaintiffs failed to plead antitrust injury, the defendants unsuccessfully relied on a March 2013 decision in In re LIBOR-Based Financial Instruments Antitrust Litigation, 935 F. Supp. 2d 666, 2013-1 Trade Cases ¶78,323. In LIBOR, the district court dismissed the plaintiffs’ antitrust claims on the ground that no plaintiff could assert a cognizable antitrust injury based on banks' alleged collusion with respect to the global interest rate benchmark –the London Interbank Offered Rate, or LIBOR.

The court here distinguished the basis for the decision in the LIBOR case. The “conclusion that the plaintiffs in that case had not demonstrated antitrust injury was explicitly based on that court’s understanding that the LIBOR-setting process was a ‘cooperative endeavor wherein otherwise-competing banks agreed to submit estimates of their borrowing costs . . . to facilitate the . . . calculation of an interest rate index.’ The Fix, by contrast, is set by actual transactions in a market where Defendants are supposed to be perpetually competing by offering independently determined bid-ask spreads.”

Also rejected was the defendants’ argument that there can be no antitrust injury where they could have accomplished unilaterally the same result that they allegedly achieved through collusion. The court refused to “impose an additional pleading requirement: that private antitrust plaintiffs must plead that the alleged antitrust violation could not have occurred through Defendants’ unilateral action.”

Foreign plaintiffs' claims. Two actions filed on behalf of those who traded foreign currency in South Korea and in Norway with some of the defendants were dismissed. Because the foreign defendants' Sherman Act claims implicated exclusively foreign activity that did not sufficiently affect American commerce, they were barred by the Foreign Trade Antitrust Improvements Act. The court also ruled that their New York Donnelly Act claims had to be dismissed. Citing Global Reins. Corp. U.S. Branch v. Equitas Ltd., 18 N.Y.3d 722, 2012-1 Trade Cases ¶77,838, the court explained that the Donnelly Act “cannot reach foreign conduct deliberately placed by Congress beyond the Sherman Act’s jurisdiction.”

This is Case 1:13-cv-07789-LGS.

Attorneys: Andrew J. Entwistle (Entwistle & Cappucci LLP) for Value Recovery Fund LLC, and Augustus International Master Fund, LP. Patrick C. Cooper (Ward & Wilson, LLC) for Oddvar Larsen. Bong June Kim (Kim & Bae, PC) for Simmtech Co., Ltd. David Harold Braff (Sullivan and Cromwell, LLP) for Barclays Bank PLC. Alan M. Wiseman (Covington & Burling, LLP) for Citigroup, Inc. David George Januszewski (Cahill Gordon & Reindel LLP) for Credit Suisse Group AG. Joseph Serino, Jr. (Kirkland & Ellis LLP) for Deutsche Bank AG. Peter Edward Greene (Skadden, Arps, Slate, Meagher & Flom LLP) for JPMorgan Chase & Co.

Companies: Value Recovery Fund LLC; Augustus International Master Fund, LP; Simmtech Co., Ltd.; Barclays Bank PLC; Citigroup, Inc.; Citibank, NA; Credit Suisse Group AG; Credit Suisse Securities (USA) LLC; Deutsche Bank AG; JPMorgan Chase & Co.

MainStory: TopStory Antitrust NewYorkNews

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