By Nicole D. Prysby, J.D.
Because silver investors failed to plausibly allege a conspiracy between "Fixing Banks" and "Non-Fixing Banks" or actual damages against any of the "Non-Fixing Banks" in litigation involving manipulation of silver markets, all claims against the Non-Fixing Banks were dismissed by the federal district court in New York City. The silver investors sued a group of banks for allegedly manipulating the Silver Fixing (the daily auction setting the price for silver bullion). They then added allegations that another group of banks had conspired with the "Fixing Banks" and had also conspired amongst themselves to manipulate the silver markets in general. The court found that the investors failed to allege an overarching conspiracy involving the Fixing Banks and Non-Fixing Banks and many of the allegations were actually inconsistent with the theory that the Non-Fixing Banks had advance knowledge of the price. And although the investors did allege a conspiracy among the Non-Fixing banks to collude in the silver markets through market manipulation and information-sharing, they lacked standing for those claims. Therefore, the Sherman Act claims against the Non-Fixing Banks were dismissed. The investors’ claims against the Non-Fixing Banks under the Commodities Exchange Act (CEA) were also dismissed (In re: London Silver Fixing, Ltd., Antitrust Litigation, July 25, 2018, Caproni, V.).
Background. Silver investors sued HSBC, Deutsche Bank, and The Bank of Nova Scotia ("Fixing Banks") for conspiring to suppress the silver benchmark price in an effort to gain an unfair trading advantage over other market participants. In September 2016, a court found that the investors had stated claims against HSBC and Bank of Nova Scotia. The investors settled with Deutsche Bank for $38 million dollars and what they hoped would be a treasure trove of preserved electronic chat messages among precious metals traders employed by Deutsche Bank and traders at Bank of America, Barclays, Standard Chartered, BNP Paribas, and UBS ("Non-Fixing Banks"). The chat messages appeared to document the sharing of proprietary information and attempts to coordinate trading. The investors then modified the complaint to allege that the Non-Fixing Banks conspired with the Fixing Banks and among themselves to manipulate the Silver Fixing (the private auction used to determine the price of silver bullion) and the silver markets in general.
The Non-Fixing Banks moved to dismiss on the grounds that the chat messages did not connect them to a conspiracy with the Fixing Banks and did not document any actionable manipulation of the silver markets.
Sherman Act claims. The court found that the investors’ claims of a "comprehensive" conspiracy were not plausible. The evidence presented was evidence of unrelated episodic attempts to manipulate the market. There was no direct evidence presented of an agreement between the Non-Fixing Banks and the Fixing Banks. The chat messages did not suggest an overarching scheme and many were actually inconsistent with the theory that the Non-Fixing Banks had advance knowledge of the price. At most, the messages showed that on some occasions, Non-Fixing Banks had knowledge of the position a Fixing Bank was planning to take, but were not part of an agreement to manipulate the price. Finally, the chats described tactics that could move prices up or down, so they were not consistent with the allegations that the Fixing Banks used the daily fixing call to agree on an artificially low price. Therefore, the complaint failed to allege an overarching conspiracy among the Fixing Banks and the Non-Fixing Banks.
However, based on the chat messages, the court found that the complaint did plausibly allege a conspiracy among the Non-Fixing Banks (and Deutsche Bank) to manipulate the markets for silver and silver-denominated financial assets opportunistically and to fix bid-ask spreads in the market for physical silver. The chat messages were direct evidence of an anticompetitive agreement to manipulate the silver markets. In addition, federal agency settlements with some of the alleged conspirators (and prosecution of traders at others) was evidence of a conspiracy. The court rejected an argument from the banks that the chat messages showed sharing of price and order information but not market manipulation. It held that an anticompetitive agreement can be inferred from regular sharing of price and order information between horizontal competitors. The plausible conspiracies alleged were (1) a conspiracy involving the Fixing Banks to suppress the Fix Price through the daily fixing call; and (2) a conspiracy among the Non-Fixing banks to collude in the silver markets through market manipulation and information-sharing.
Standing for Sherman Act claims. The court concluded, however, that the investors lacked antitrust standing to bring claims against the Non-Fixing Banks. The investors were not efficient enforcers entitled to seek damages under antitrust laws. They were not direct purchasers, the effect of the coordinated trading and information sharing was undefined, and they did not identify which markets were allegedly manipulated. The episodic nature of the alleged manipulations also meant that it would be difficult to show causation for some class members, because the impact on prices from any particular act would be short-lived. The proposed class definition (every participant in a silver or silver-denominated transaction on a U.S.-based exchange for approximately six years) also raised problems, because the chat messages did not explain which futures and options markets were being manipulated. The amount of damages would be difficult to calculate, as it would involve constructing a hypothetical market in which the Non-Fixing Banks did not engage in episodic manipulation of the silver market. And it would be nearly impossible to isolate the effect of the alleged manipulation on a non-direct plaintiff’s trades. There were more direct victims: class members who traded directly with the Non-Fixing Banks and the presence of direct and non-direct victims could lead to duplicative recovery. Therefore, the antitrust claims against the Non-Fixing Banks were dismissed.
Commodities Exchange Act claims. The investors also brought claims under the CEA, based on the same alleged acts as for the Sherman Act claims. The Non-Fixing Banks moved to dismiss the claims, arguing that the claims were barred by the two-year statute of limitations. The Non-Fixing Banks cited statements from the CFTC in 2008 and 2013 which, they asserted, should have put the investors on notice of manipulation in the silver markets. But the court found that the statements were too vague, or dealt specifically with the manipulation of the Silver Fixing and did not support a finding that the investors were put on inquiry notice of episodic manipulative trading strategies. Similarly, press releases of foreign actions or settlements were too vague.
The Non-Fixing Bank also asserted that the claims should fail because they sought recovery for foreign conduct that is not actionable under the CEA and did not sufficiently allege the elements of a claim for manipulation under the CEA. The parties disputed whether the alleged activities involved domestic transactions, and what transactions were relevant. The court found that the relevant "transaction" was the one in which the investors were allegedly injured: the trades of COMEX and CBOT futures and options. In other words, the focus should be on the transactions made by the plaintiffs, rather than the transactions made as part of the alleged manipulation. However, the actions of the banks were not irrelevant; merely alleging an effect on a domestic transaction is not sufficient under the CEA, where the entire course of conduct is foreign. The court found that because the chats for some of the banks took place between brokers in London and Singapore and did not mention COMEX and CBOT future or options, the foreign conduct was not sufficiently related to the domestic transaction. There were, however, some bank defendants with a greater link to domestic transactions. Claims against two of the banks (UBS and BAML) did not reference chat messages discussing COMEX or CBOT, but enforcement actions against those two banks indicated that they did manipulate those markets.
However, the court found that the investors did not plausibly allege claims against any of the Non-Fixing Banks, because they failed to allege actual damages. The complaint alleged two theories of market manipulation: that the Non-Fixing Banks conspired with the Fixing Banks to suppress the Silver Fixing and that the Non-Fixing Banks manipulated the silver markets through a campaign of episodic market manipulation. The court had already found the first theory to be implausible. Because the investors failed to link the Non-Fixing Banks to a conspiracy to suppress the Silver Fixing, they also failed to allege a CEA claim based on that theory. They also failed to plausibly allege that they suffered actual damages from episodic manipulation of the silver markets, because they made no connection between the alleged manipulative conduct and trades made by the investors. Even if episodic market manipulation in unspecified silver products caused artificiality in prices in COMEX and CBOT, there were no allegations of the direction of the artificiality or that it could be connected to trades the investors made. Therefore, the CEA claims against the Non-Fixing Banks were dismissed.
The case is No. 1:14-mc-02573-VEC.
Attorneys: Michael C. Dell'Angelo (Berger & Montague, PC) and Thomas Michael Skelton (Lowey Dannenberg, PC) for Plaintiffs. Michael Lacovara (Freshfields Bruckhaus Deringer LLP) for Defendants.
Companies: Deutsche Bank AG; HSBC Bank PLC; HSBC Bank USA NA; The Bank of Nova Scotia; The London Silver Market Fixing, Ltd.; Barclays Bank PLC; BNP Paribas Fortis S.A./N.V.; Standard Chartered Bank; Bank of America Corp.; UBS AG
MainStory: TopStory Antitrust NewYorkNews
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