Antitrust Law Daily Investment funds’ suit against banks over Yen LIBOR manipulation revived
Wednesday, April 1, 2020

Investment funds’ suit against banks over Yen LIBOR manipulation revived

By Jeffrey May, J.D.

Plaintiffs plausibly alleged that the banks’ conduct caused them to suffer economic injury, and these allegations were sufficient for Article III standing at the motion to dismiss stage.

Investment funds that engaged in transactions for financial instruments priced or benchmarked based on Yen LIBOR or Euroyen TIBOR adequately alleged Article III standing to pursue claims that financial institutions manipulated these benchmark rates in their own favor. The investment funds alleged that they entered into financial agreements on unfavorable terms due to the manipulation of what is commonly referred to as "Yen LIBOR." This alleged conduct caused the investment funds to suffer economic injury, and these allegations were sufficient for Article III standing at the motion to dismiss stage. Therefore, the U.S. Court of Appeals in New York City reversed dismissal of claims under the Sherman Act, the Racketeer Influenced and Corrupt Organizations (RICO) Act, and common law for failure to satisfy the injury-in-fact requirement for Article III standing (Sonterra Capital Master Fund Ltd. v. UBS AG, April 1, 2020, Park, M.).

Citing the Supreme Court's 2016 decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540, the Second Circuit panel explained that in order to satisfy Article III standing, a plaintiff "must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision."

The funds allegedly traded in three types of Yen-based financial derivatives that were "priced [or] benchmarked" based on these interest rates: Yen foreign exchange or FX forwards, interest rate swaps, and interest rate "swaptions." They made detailed factual allegations about each type of derivative that they traded.

According to the appellate court, the funds identified numerous instances when they entered into derivatives transactions at prices that were "artificial" due to the defendants’ price fixing. For Yen FX forwards, two plaintiffs, Sonterra Capital Master Fund Ltd. and California State Teachers’ Retirement System, identified trades in which they had to pay higher prices as a result of the alleged market manipulation. While the swap and swaption allegations were not quite as direct, in the appellate court’s view, these allegations also were sufficient at the motion to dismiss stage to show that the artificial swap and swaption prices harmed the plaintiffs.

Further, it was enough that the plaintiffs alleged and provided detailed supporting allegations that Yen LIBOR was routinely used to price Yen FX forwards, including an explanation of the role Yen LIBOR plays in the generic pricing formula, the appellate court explained. It was not necessary at the motion to dismiss stage for the plaintiffs to "say that the Yen LIBOR rate is definitively used to price" Yen FX forwards, as the district court held.

The case is No. 17-944-cv.

Attorneys: Vincent Briganti (Lowey Dannenberg, P.C.) for Sonterra Capital Master Fund Ltd, California State Teachers' Retirement System, Hayman Capital Master Fund, L.P., Japan Macro Opportunities Master Fund, L.P. David S. Lesser, Jamie Dycus, and Ari Savitzky, (Wilmer Cutler Pickering Hale Dorr LLP) for The Royal Bank of Scotland plc. Jefferson E. Bell (Gibson, Dunn & Crutcher LLP) for UBS AG, UBS Securities Japan Co., Ltd. Jeffrey J. Resetarits (Shearman & Sterling LLP) for Mizuho Bank, Ltd., Mizuho Corporate Bank, Ltd, Mizuho Trust & Banking Co., Ltd.

Companies: Sonterra Capital Master Fund Ltd.; California State Teachers' Retirement System; Hayman Capital Master Fund, L.P.; Japan Macro Opportunities Master Fund, L.P.; UBS AG; UBS Securities Japan Co., Ltd; Mizuho Bank, Ltd.; Mizuho Corporate Bank, Ltd.; Mizuho Trust & Banking Co., Ltd.

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