Antitrust Law Daily $1.9B settlement in credit default swaps conspiracy suit given final approval
Tuesday, April 19, 2016

$1.9B settlement in credit default swaps conspiracy suit given final approval

By Linda O’Brien, J.D., LL.M.

The federal district court in New York City has granted final approval to a nearly $1.9 billion settlement of claims that a group of major banks conspired to restrain trade in the market for credit default swaps in violation of Section 1 of the Sherman Act (In re Credit Default Swaps Antitrust Litigation, April 18, 2016, Cote, D.).

A credit default swap (CDS) is a financial derivative contract used for hedging credit risk in which the buyer pays the seller in exchange for the seller’s promise to make the buyer whole on an agreed amount in the event of a “credit event,” such as a default on the debt instrument by a third party.

Investors who purchased CDS from, or sold CDS to, several U.S. banks alleged that the banks conspired to prevent new entrants from successfully introducing exchange trading venues and electronic platforms in the CDS market that would have led to greater transparency and competition. The defending banks included Bank of America Corp.; JPMorgan Chase & Co.; The Goldman Sachs Group, Inc.; HSBC Holdings plc; Barclays Bank PLC; Citigroup Inc.; Deutsche Bank AG; Morgan Stanley & Co., LLC; Royal Bank of Scotland, N.V.; and UBS AG.

In October 2015, the court granted preliminary approval of a nearly $1.9 billion settlement to resolve the investors’ claims.

For purposes of the settlement, the court certified for settlement a class defined as all persons who, during the period of January 1, 2008 through September 25, 2015, purchased CDS from or sold CDS to the dealer defendants in any covered transaction.

The prerequisites under Federal Rule of Civil Procedure 23 were met, according to the court. The members of the settlement class were so numerous that joinder of all members was impracticable; there were questions of law and fact common to the class that predominated over individual questions; the plaintiffs and class counsel have fairly and adequately protected the interests of the class; and a class action was superior to other available methods for the fair and efficient adjudication of the controversy.

Moreover, the court concluded that the settlement was fairly and honestly negotiated by counsel with significant experience litigating antitrust class actions and was the result of vigorous arm’s-length negotiations undertaken in good faith. The case involved contested questions of law and fact, and the value of the monetary recovery outweighed the possibility of future relief after protracted litigation.

The court also approved the class counsels’ requested attorneys’ fees award of $254 million, which was 13.61 percent of the settlement fund. The award was determined to be appropriate for the specific circumstances of the case and based on the fairness, reasonableness, and adequacy of the settlement. Litigation expenses of $10.1 million were also awarded.

The case is No. 1:13-cv-07634-DLC.

Attorneys: Anne Hayes Hartman (Constantine Cannon, LLP) and Thomas Kay Boardman (Pearson Simon Warshaw & Penny LLP) for Los Angeles County Employees Retirement Association. David C. Giardina (Sidley Austin LLP) for Citigroup, Inc.

Companies: Los Angeles County Employees Retirement Association; JP Morgan Chase & Co.; Citigroup, Inc.

MainStory: TopStory Antitrust NewYorkNews

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