Antitrust Law Daily Antitrust claim over platinum, palladium market manipulation scheme fails for lack of standing
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Wednesday, March 29, 2017

Antitrust claim over platinum, palladium market manipulation scheme fails for lack of standing

By E. Darius Sturmer, J.D.

A group of entities and individuals who sold physical platinum and palladium or futures of the precious metals lacked standing to assert a putative class action Sherman Act claim against the London Platinum and Palladium Fixing Company Ltd (LPPFC) and five other participants in that market—BASF, Goldman Sachs, HSBC, ICBC, and UBS—for allegedly engaging in a massive price manipulation scheme, the federal district court in New York City has ruled. The plaintiffs were not efficient enforcers of the antitrust laws, the court said. Further, they failed to make a prima facie showing of personal jurisdiction with respect to ICBC, BASF Metals, and LPPFC, or to assert sufficient involvement by UBS or BASF Corporation in the alleged conspiracy. Therefore, the defendants’ motion to dismiss the Sherman Act claim was granted in its entirety. The court also dismissed an unjust enrichment claim. Commodities Exchange Act claims asserted by the plaintiffs were granted in part and denied in part (In re Platinum and Palladium Antitrust Litigation, March 28, 2017, Woods, G.).

Platinum and palladium markets. The plaintiffs’ complaint described the "opaque" over-the-counter trading environment of the two sister metals—which are used not only in jewelry but also in a variety of industrial and commercial applications ranging from automotive catalytic converters to dentistry equipment–as centered on the London Platinum and Palladium Market (LPPM). The LPPM is a trade association that coordinates activities and sets physical standards for the bar forms of the metals used in transactions. LPPM is largely controlled by its 13 market-making members, which included ICBC, BASF Metals, Goldman Sachs, HBSC, and UBS. The latter four of these also wholly owned and operated LPPFC, the body responsible for setting global benchmark prices for platinum and palladium.

According to the plaintiffs, between January 2008 and November 2014, the defendants took advantage of the 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.

Sufficiency of allegations. The plaintiffs alleged sufficient circumstantial evidence and plus factors from which a conspiracy in restraint of trade could plausibly be inferred, the court first determined. The calls furnished an ideal, recurrent setting for the discreet exchange of pricing information; that the fixing coincided with the defendants’ alleged price manipulation constituted sufficient circumstantial evidence of a conspiracy in restraint of trade, in the court’s view. The complaint’s implication that the fixing members acted against their own economic self-interest—for example, by quoting below-market prices leading up to the fixing—amounted to further circumstantial evidence of a price-fixing conspiracy. The plaintiffs also showed that the defendants had a common motive, for antitrust purposes.

Antitrust standing. Despite the sufficiency of their factual allegations as to antitrust conspiracy and injury, the plaintiffs lacked standing to pursue the claim because they were not "efficient enforcers of the antitrust laws," the court decided. The proposed class of buyers and sellers of physical and future platinum and palladium allows virtually every transaction involving the metals to fall within the scope of the case. In addition, because the proposed class was not limited to persons who transacted directly with the defendants, such a "broad sweep expose[d] them to potentially astronomical damages from transactions in which they played no direct role.

The highly speculative damages in the case, and the complexity of the damages apportionment among aggrieved market participants, demonstrated that the plaintiffs were not the proper party to bring the suit, the court said. The plaintiffs’ argument that computing damages would be relatively straightforward because there existed only one benchmark was rejected as simplistic. The plaintiffs’ approach ignored price fluctuations throughout the day that were caused by outside market forces, noted the court. The presence of intervening factors further supported the finding that the chain of causation between the alleged price manipulation scheme and any injury the plaintiffs may prove was too attenuated, the court remarked.

The case is No. 1:14-cv-9391-GHW.

Attorneys: Gregory Scott Asciolla (Labaton Sucharow LLP) for Modern Settings LLC and Modern Settings LLC. Martin I. Twersky (Berger & Montague, PC) for KPFF Investment, Inc. Joseph Serino, Jr. (Kirkland & Ellis LLP) for BASF Metals Ltd. Stephen Ehrenberg (Sullivan & Cromwell LLP) for Goldman Sachs International. Damien Jerome Marshall (Boies, Schiller & Flexner LLP) for HSBC Bank USA, N.A.

Companies: Modern Settings LLC; Modern Settings LLC; KPFF Investment, Inc.; Goldman Sachs International; BASF Metals Ltd.; HSBC Bank USA, N.A.

MainStory: TopStory Antitrust NewYorkNews

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