Antitrust Law Daily All claims over platinum and palladium market manipulation scheme fail
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Tuesday, March 31, 2020

All claims over platinum and palladium market manipulation scheme fail

By Nicole D. Prysby, J.D.

The plaintiff platinum and palladium sellers failed to allege dominant market share or direct transactions and domestic conduct by the defendants.

All claims brought by sellers of platinum and palladium or futures of the precious metals failed, because the plaintiffs were not efficient enforcers of antitrust laws and failed to allege domestic conduct by the defendants, the federal district court in New York City has decided. A group of entities and individuals who sold the metals or futures alleged that participants in that market engaged in a massive price manipulation scheme by conspiring to manipulate prices and to misrepresent actual market supply and demand in order to move the price to the level at which it was ultimately fixed. The restraint to trade claims failed because the seller plaintiffs did not allege that they transacted directly with any defendant and the futures plaintiffs failed to adequately allege that the defendants dominated the market for platinum and palladium derivatives. Their Commodities Exchange Act (CEA) claims failed because they were predominantly foreign: the plaintiffs allege that the defendants manipulated the "fix," which occurred in London and set the price of physical platinum located in London or Zurich. The court also held that it did have personal jurisdiction over foreign defendants. The complaint plausibly alleged that U.S.-based co-conspirators acted in furtherance of the conspiracy to manipulate the fix, giving the court personal jurisdiction over the foreign defendants (In re Platinum and Palladium Antitrust Litigation, March 29, 2020, Woods, G.).

The plaintiffs are entities and individuals who sold physical platinum and palladium or futures of the precious metals. They alleged that the defendants, London Platinum and Palladium Fixing Company Ltd (LPPFC) and other participants in that market (including BASF Metals Limited and ICBC Standard Bank, among others) engaged in a massive price manipulation scheme.

According to the plaintiffs, between January 2008 and November 2014, the defendants took advantage of twice-daily "fixing calls" to set the fix price at lower levels than competitive market forces would otherwise have dictated. The defendants purportedly conspired both to manipulate the opening price at the beginning of the calls and to misrepresent actual market supply and demand in order to move the fix price to the level at which it was ultimately fixed. The scheme allegedly forced the members of the proposed class to sell their platinum and palladium investments at artificially low prices as a result. The plaintiffs brought claims for restraint of trade in violation of section 1 of the Sherman Act and multiple claims under the CEA, including manipulation and aiding and abetting liability.

Efficient enforcers of antitrust laws. The plaintiffs that sold physical platinum and palladium were not efficient enforcers because there was no allegation that they transacted directly with any defendant, according to the court. Therefore, they would have difficulty proving causation. They would also have difficulty proving and apportioning damages, because decisions by non-defendant buyers to incorporate the fix could create difficult questions of causation that bore on the damages analysis. And, assuming that the defendants successfully downwardly manipulated the prices of platinum and palladium, non-defendant buyers received a windfall as a result of defendants’ manipulation. But there was no mechanism for non-defendant buyers to compensate the plaintiffs for this windfall.

The plaintiffs that sold futures also were not efficient enforcers because they did not adequately allege that the defendants dominated the market for platinum and palladium derivatives. The plaintiffs’ theory was that the defendants were holders of massive short positions in the New York Mercantile Exchange (NYMEX) platinum and palladium futures and options and therefore, the four defendants would have been among the largest NYMEX short traders. But even granting that assumption, the combined market share would have been only 30-45 percent of the market. This level of market share was not sufficient to demonstrate that the defendants dominated the NYMEX market.

Personal jurisdiction issues. The court found that foreign defendants BASF Metals and ICBC Standard are subject to personal jurisdiction in the U.S. under a conspiracy theory. The plaintiffs failed to show that BASF Metals purposefully availed itself of the privilege of doing business in the U.S. Another BASF entity (BASF Corp.) employed traders in the U.S. to execute trades, but there were no allegations connecting BASF Metals to the U.S. or showing that employees of BASF Metals were agents of BASF Corp. They also failed to show any conduct by BASF Metals expressly aimed at the U.S. BASF Metals’ conduct allegedly targeted the fix, which occurred in London. Although it could have been foreseeable that this conduct would cause harm in the United States, mere foreseeability was insufficient under the effects test, the court observed. For similar reasons, plaintiffs failed to show ICBC Standard was subject to personal jurisdiction in the U.S.

However, the plaintiffs did plausibly allege that BASF Metals and ICBC Standard were subject to conspiracy jurisdiction. The court concluded in a previous opinion that the plaintiffs plausibly alleged a conspiracy among the defendants, and plaintiffs demonstrated that there were U.S.-based co-conspirators that acted in furtherance of the conspiracy. The complaint alleged U.S.-based traders for affiliates of BASF Metals and ICBC Standard provided non-public client order information directly to fixing participants. It was plausible to infer that they used the information provided to decide on the price at which they ultimately wanted the fixing to settle. Thus, the complaint plausibly alleged that U.S.-based co-conspirators acted in furtherance of the conspiracy to manipulate the fix, giving the court personal jurisdiction over both BASF Metals and ICBC Standard. Asserting personal jurisdiction over the defendants was not unreasonable; the foreign defendants are large financial institution with affiliates in the U.S., the court opined.

CEA claims. Plaintiffs’ CEA claims were predominately foreign and were thus impermissibly extraterritorial, the court determined. To state a proper claim under Section 22 of the CEA, the plaintiffs must allege not only a domestic transaction, but also domestic—not extraterritorial—conduct by the defendants that was violative of a substantive provision of the CEA. But the plaintiffs’ claims were predominantly foreign, because they alleged that the defendants manipulated the fix, which occurred in London and set the price of physical platinum located in London or Zurich. Although they alleged that they suffered losses in the U.S., a foreign course of conduct causing losses in the U.S. was not sufficient to salvage an extraterritorial claim, especially where the alleged harm in the U.S. had no direct causal link to the defendants’ conduct.

This case is No. 1:14-cv-09391-GHW.

Attorneys: Gregory Scott Asciolla (Labaton & Sucharow LLP) and Erica Lauren Stone (Rosen Law Firm, P.A.) for Modern Settings LLC. Barry M. Okun (Labaton Sucharow, LLP) and Martin I. Twersky (Berger Montague PC) for KPFF Investment, Inc. Merrill G. Davidoff (Berger & Montague PC) for White Oak Fund LP. Michael Francis Williams (Kirkland & Ellis LLP) for BASF Metals Ltd. Stephen Ehrenberg (Sullivan and Cromwell, LLP) for Goldman Sachs International. Damien Jerome Marshall (Boies Schiller Flexner LLP) and Robert John McCallum (Freshfields Bruckhaus Deringer LLP) for HSBC Bank USA, N.A. Robert G. Houck (Clifford Chance US, LLP) for Standard Bank PLC. David Jarrett Arp (Gibson, Dunn & Crutcher, LLP) for UBS AG. Ethan Edward Litwin (Constantine Cannon LLP) for The London Platinum and Palladium Fixing Co. Ltd.

Companies: Modern Settings LLC; KPFF Investment, Inc.; White Oak Fund LP; BASF Metals Ltd.; Goldman Sachs International; HSBC Bank USA, N.A.; Standard Bank PLC; UBS AG; The London Platinum and Palladium Fixing Co. Ltd.

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