Man in violation of privacy law

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Antitrust Law Daily, September 25, 2017

Swiss franc LIBOR rate manipulation antitrust, other claims fail

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

A putative class action alleging that a group of seven large financial institutions (including Credit Suisse, The Royal Bank of Scotland, UBS, Bluecrest Capital Management, and Deutche Bank) unlawfully manipulated the Swiss franc London Interbank Offered Rate ("CHF LIBOR"), a daily interest rate benchmark designed to reflect the cost at which large banks are able to borrow Swiss francs, has been dismissed by the federal district court in New York City. With respect to the plaintiffs’ antitrust claim for manipulation of CHF LIBOR, the complaint failed to plausibly allege an antitrust conspiracy against any defendant except The Royal Bank of Scotland (RBS). Moreover, the plaintiffs’ antitrust claim against RBS failed for lack of antitrust standing because the plaintiffs did not transact in CHF LIBOR-based derivatives with RBS and therefore are not "efficient enforcers" of the antitrust laws. The plaintiffs’ Commodities Exchange Act (CEA) claims failed because they did not provide sufficient details about their transactions to plausibly allege that they were injured by the defendants’ alleged manipulation of CHF LIBOR (Sonterra Capital Master Fund Ltd. V. Credit Suisse Group AG, September 25, 2017, Stein, S.).

In addition, the plaintiffs’ RICO claims were dismissed as impermissibly extraterritorial. An eighth defendant, JPMorgan Chase, settled all claims against it on a class-wide basis while the defendants’ motions to dismiss were pending, thus all motions to dismiss were deemed withdrawn as to JPMorgan, without prejudice to refiling, in the event the court does not approve the settlement with JPMorgan. Finally, the court declined to exercise its supplemental jurisdiction over the state law claims.

The alleged conspiracy. CHF LIBOR is a daily interest rate benchmark designed to reflect the cost at which large banks are able to borrow Swiss francs. According to the plaintiffs’ complaint, changes in CHF LIBOR affect the prices of numerous Swiss franc currency derivatives, such as Swiss franc foreign exchange forwards ("CHF FX forwards") and Swiss franc futures contracts ("CHF futures contracts").The plaintiffs alleged that from at least January 1, 2001 through at least December 31, 2011 (the "Class Period") the defendants conspired to manipulate CHF LIBOR, and thereby the prices of those derivatives, to benefit their own trading positions in Swiss franc currency derivatives. The essence of the plaintiffs’ claims was that they and others similarly situated were on the losing end of that manipulation, transacting in Swiss franc derivatives with defendants and third parties during the Class Period on terms made less favorable by (1) the defendants’ fixing of CHF LIBOR and (2) certain defendants’ collusion to increase the "bid-ask spread" on transactions in those derivatives.

The plaintiffs are investment funds, financial services companies, and one individual who alleged that during the Class Period they suffered injury by entering into U.S.-based transactions for two types of Swiss franc LIBOR-based derivatives. The plaintiffs alleged that the defendants abused their control over CHF LIBOR to move the price of these Swiss franc LIBOR-based derivatives in whatever direction benefited their own trading positions or those of their co-conspirators. The complaint alleged that defendants, in addition to manipulating CHF LIBOR, colluded during the Class Period to increase the "bid-ask spread" that they charged as market makers in the over-the-counter LIBOR-based derivatives market.

The defendants’ alleged manipulation of CHF LIBOR and the bid-ask spreads for certain types of CHF LIBOR-based derivatives led to a number of enforcement actions and settlements between defendants and regulators in the United States and Europe, and the findings of those actions provided the core allegations to the complaint, according to the court. For example, on October 21, 2014, The EC found that two international banks—the Royal Bank of Scotland (RBS) and JP Morgan—participated in an illegal bilateral cartel aimed at influencing the Swiss franc Libor benchmark interest rate between March 2008 and July 2009 in violation of European Union antitrust rules.

The plaintiffs alleged that this misconduct violated the Sherman Antitrust Act, the CEA, and RICO, as well as state law claims for unjust enrichment and breach of the implied covenant of good faith and fair dealing. The defendants moved to dismiss for lack of subject matter jurisdiction, lack of personal jurisdiction, and failure to state a claim.

Article III Standing. With respect to the claims based on the alleged manipulation of bid-ask spreads (the "Bid-Ask Spread Claims"), the defendants contended that the plaintiffs failed to allege that the plaintiffs transacted in the types of derivatives they alleged were affected. With respect to claims based on the alleged manipulation of CHF LIBOR (the "CHF LIBOR Manipulation Claims"), the defendants argued that the plaintiffs did not plausibly allege that any manipulation of CHF LIBOR affects the price of the Swiss franc currency derivatives, and that the plaintiffs lacked standing to sue for manipulation of types of Swiss franc currency derivatives in which they did not themselves transact. The court concluded that the plaintiffs had standing to pursue their CHF LIBOR Manipulation Claims, with certain exceptions, but not their Bid-Ask Spread Claims.

Antitrust claim. To survive a motion to dismiss this claim, the plaintiffs were required to allege anticompetitive conduct by the defendants that violates Section One of the Sherman Act, and also demonstrate antitrust standing, which depends on a showing of antitrust injury and that the plaintiffs are "efficient enforcers" of the antitrust laws, the court noted. The claim was dismissed against all defendants because the complaint alleged a plausible antitrust conspiracy only as to RBS, yet the plaintiffs had antitrust standing to sue only UBS and the Credit Suisse, those defendants with whom they directly transacted, the court ruled.

In Gelboim v. Bank of America, 823 F.3d 759 (2d Cir. 2016), the Second Circuit held that benchmark manipulation constitutes anticompetitive conduct and a per se "illegal anticompetitive practice" of horizontal price fixing by distorting a "joint process . . . into collusion." 823 F.3d at 775. That holding applied here, and accordingly the court concluded that collusion to manipulate CHF LIBOR constitutes anticompetitive conduct that could give rise to a claim under Section One of the Sherman Act. However, because an overarching CHF LIBOR manipulation conspiracy involving all defendants was not plausibly alleged and specific instances of inter-bank collusion have been offered only as to RBS, a plausible antitrust conspiracy was alleged only against RBS, the court held.

Turning to the issue of antitrust standing, the court concluded that the Direct Transaction Plaintiffs (a group of three of the plaintiffs who alleged that they transacted in FX forwards "directly with Defendants UBS and Credit Suisse) are efficient enforcers but that the remaining plaintiffs are not. Conferring antitrust standing on those plaintiffs who did not transact directly with defendants would open the door to highly speculative and difficult to calculate damages that would far exceed the wrongful profit made or harm caused by the defendants, whereas the Direct Transaction Plaintiffs’ damages would be more easily calculated and proportional to the misconduct. However, the Direct Transaction Plaintiffs claimed to have transacted only with the Credit Suisse Defendants and UBS, and the complaint alleged a plausible conspiracy only against RBS. Accordingly, the plaintiffs’ antitrust claim failed to state a claim because the plaintiffs did not allege an antitrust violation by any defendant for which they had antitrust standing to sue.

Although the court had determined that the antitrust claim failed because the plaintiffs are not efficient enforcers to sue for the only antitrust violation that they adequately alleged because they did not transact directly with RBS, it was not strictly necessary to evaluate the defendants’ arguments that the claim was also barred by the statute of limitations and the Foreign Trade Antitrust Improvements Act of 1982 ("FTAIA"). Nevertheless, the court concluded that: (1) the statute of limitations was tolled, and the antitrust claim was timely because it was brought within four years of the date on which that tolling ceased; and (2) the FTAIA did not bar the antitrust claim because the class was limited to U.S. based transactions.

CEA Claims. Count Three asserted that each defendant violated sections 6(c), 9, and 22 of the CEA, 7 U.S.C. §§ 9, 13, and 25, based on their "manipulation of Swiss franc LIBOR and the prices of Swiss franc LIBOR-based derivatives that were priced, benchmarked, and/or settled based on Swiss franc LIBOR." The plaintiffs also brought claims against each defendant in Count Four for principal-agent liability for these violations under section 2(a)(1)(B) of the CEA, 7 U.S.C. § 2(a)(1)(B), and in Count Five for aiding and abetting other defendants’ violations under section 22(a)(1) of the CEA, 7 U.S.C. § 25(a)(1).

Plaintiff Frank Divitto lacked CEA standing because the complaint failed to plead facts that would support a reasonable inference that he suffered actual damages by transacting at times when the defendants manipulated CHF LIBOR, the court decided. Divitto’s lack of standing was fatal to each of the plaintiffs’ CEA claims as to all defendants because he was the only plaintiff who claimed to have transacted in a derivative covered by the CEA. Counts Three, Four, and Five were therefore dismissed on this ground alone, the court determined.

Nevertheless, given the parties’ full briefing of the issues and the fact that the plaintiffs may well plead additional facts regarding Divitto’s transactions in a second amended complaint, the court went on to further analyze the CEA claims and reasoned that while the plaintiffs lacked CEA standing, they plausibly alleged manipulation by the Deutsche Bank defendants, RBS, and UBS. In addition: the plaintiffs plausibly alleged principal-agent liability against the Deutsche Bank defendants, RBS, and UBS; they plausibly alleged aiding and abetting liability against RBS; and the CEA claims were timely against all of the defendants except UBS.

RICO claims. Here, the RICO claims were based solely on alleged violations of the wire fraud statute, the court noted. Specifically, the complaint alleged that the defendants formed an association-in-fact enterprise that engaged in a pattern of racketeering through predicate acts of wire fraud by making false CHF LIBOR submissions and sending confirmations into the United States for derivatives transactions incorporating manipulated CHF LIBOR.

The RICO claims were dismissed in full as impermissibly extraterritorial because the complaint did not allege a sufficient connection between the alleged acts of wire fraud and the United States, the court determined. Moreover, the RICO claims failed against each defendant except RBS because only RBS was plausibly alleged to have joined a RICO enterprise.

The case is No. 1:15-cv-00871 (SHS).

Attorneys: Vincent Briganti (Lowey Dannenberg Cohen & Hart, P.C.) for Sonterra Capital Master Fund Ltd., HG Holdings, Ltd. and FrontPoint Healthcare Flagship Enhanced Fund, L.P. Adam Shawn Mintz (Cahill Gordon & Reindel LLP) for Credit Suisse Group AG. Paul Christopher Gluckow (Simpson Thacher & Bartlett LLP) for JPMorgan Chase & Co. Alan Schoenfeld (Wilmer Cutler Pickering Hale & Dorr LLP) for The Royal Bank of Scotland PLC.

Companies: Sonterra Capital Master Fund Ltd.; The Royal Bank of Scotland PLC; HG Holdings, Ltd.; FrontPoint Healthcare Flagship Enhanced Fund, L.P.; Credit Suisse Group AG; JPMorgan Chase & Co.

MainStory: TopStory Antitrust RICO NewYorkNews

Back to Top

Antitrust Law Daily

Introducing Wolters Kluwer Antitrust Law Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.