By Lee P. Dunham, J.D.
In two opinions, the federal district court in New York City dismissed multiple parties and claims from a purported class action suit in which the plaintiffs—one individual and four entities—brought claims under the Clayton Act, the Commodity Exchange Act ("CEA"), and the Racketeer Influenced and Corrupt Organizations Act against a collection of entities from fifteen major banks and two brokerage firms, in which they accused the defendants of conspiring to manipulate the Bank Bill Swap Reference Rate ("BBSW"). The plaintiffs each alleged that they had entered into financial derivatives that allegedly were priced, benchmarked, and/or settled based on BBSW (Dennis v. JpMorgan Chase & Co., November 26, 2018, Kaplan, L.).
In their amended complaint, the plaintiffs alleged that the defendants, in violation of the federal antitrust laws, entered into a series of agreements designed to create profit or limit liabilities amongst themselves by coordinating the manipulation of BBSW and the prices of BBSW-Based Derivatives, by conspiring to, inter alia: (1) engage in manipulative money market transactions; (2) make false BBSW rate submissions that did not reflect actual transaction prices; (3) uneconomically buy or sell money market instruments at a loss to cause artificial derivatives prices; and (4) share proprietary BBSW-Based Derivatives ("BBSW-BD") information. Specifically, the amended complaint alleged that bank defendants, with the assistance of the broker defendants, rigged BBSW rates by engaging in uneconomic transactions during certain periods to manipulate the supply of Prime Bank Bills in the market. In other words, defendants engaged in Prime Bank Bill transactions during the Fixing Window without regard to whether the transaction would be profitable for the bank but, rather, with the intention of driving BBSW in a direction that would generate profits from their positions in BBSW-BDs as a whole. As a result, plaintiffs alleged that they were overcharged and underpaid in their BBSW-BD transactions and deprived of the ability to accurately price and determine the settlement value of BBSW-BDs by reference to an accurate BBSW."
CEA claims. The plaintiffs also alleged that, based on the above-described activities, the defendants violated the CEA (1) as primary violators, (2) in their capacities as principals in respect of the manipulation committed by their agents, representatives, and/or other persons acting for them in the scope of their employment, and (3) as aiders and abettors, by using their influence to manipulate BBSW as well as the prices of BBSW-BDs.
RICO claims. The Amended Complaint asserted RICO Act claims based in wire fraud, alleging that the defendants’ collective association, including through their participation together (i) as members of the AFMA and its subcommittees; (ii) as BBSW Panel Banks; and (iii) acting as a trading bloc and engaging in secret collusive trades in the Prime Bank Bill market to manipulate BBSW, constituted a RICO enterprise, and that its members participated in or conspired to participate in domestic wire fraud by: (a) transmitting or causing to be transmitted artificial BBSW rates in the U.S. or while crossing U.S. borders through electronic servers located in the United States; (b) transmitting or causing to be transmitted false and artificial BBSW submissions that were relied on by Thomson Reuters and the AFMA in collecting, calculating, publishing, and/or disseminating the daily BBSW rates that were transmitted, published, and disseminated in the United States or while crossing U.S. borders through electronic servers located in the United States; and (c) transmitting or causing to be transmitted confirmations for fraudulent transactions intended to impact BBSW in the U.S. or while crossing U.S. borders through electronic servers located in the United States. Through this scheme, defendants allegedly defrauded participants in the BBSW-BD market, depriving plaintiffs and purported class members of their money relative to their BBSW-BD contracts.
Entity plaintiffs. All defendants moved to dismiss the claims asserted by the four entity plaintiffs on the grounds that the plaintiffs were dissolved before the complaint was filed and therefore lacked standing to sue. The plaintiffs did not dispute that the dissolution had occurred, but argued that a fifth entity, a Delaware LLC, had authority to enforce the entity plaintiffs’ claims pursuant to asset purchase agreements entered into with, and powers of attorney executed by, the entity plaintiffs prior to their dissolution. Thus, the plaintiffs opposed the motion on the grounds that the Delaware LLC (1) had standing as assignee of the entity plaintiffs’ claims, and (2) properly brought the suit in the entity plaintiffs’ names. In the alternative, plaintiffs argued that the appropriate remedy would be to permit the Delaware LLC to be substituted as plaintiff pursuant to Rule 17(a)(3) of the Federal Rules of Civil Procedure. The court rejected plaintiffs’ arguments, holding, first, that if the Delaware LLC had acquired the right to bring the suit as a result of the powers of attorney, then the Delaware LLC, not the named entity plaintiffs, was the real party in interest to the suit and should have sued in its own name.
Second, the court held that Rule 17 substitution was not available to the plaintiffs, because the amendments to the complaint that would be necessary to establish the Delaware LLC’s standing would be more than the "merely formal" amendment of the complaint permitted by Rule 17. The court dismissed the claims of all of the entity plaintiffs as to all defendants except JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A, which had requested that the motion to dismiss be stayed as to them.
Subject-matter jurisdiction. All defendants moved to dismiss for lack of subject-matter jurisdiction and failure to state a claim.
The court dismissed all claims brought by two entity plaintiffs, FrontPoint Financial Services Fund, L.P. and FrontPoint Financial Horizons Fund, L.P., as the amended complaint did not allege that either entity engaged in any BBSW Based Derivatives transactions on days when BBSW allegedly was manipulated. Because the plaintiffs’ alleged injuries were predicated upon their having lost money in transactions based on inaccurate or manipulated BBSW rates, those plaintiffs therefore lacked standing because they could not show an injury in fact.
The court also dismissed the CEA claims brought by FrontPoint Asian Event Driven Fund, L.P. and Sonterra Capital Master Fund, Ltd. The court held that in their memorandum in opposition to the motion to dismiss, those plaintiffs had waived their CEA claims in respect of BBSW-Based Derivatives other than CME Australian dollar futures contracts. Because the complaint alleged only that the individual plaintiff had had engaged in CME Australian dollar futures contracts, the two entities’ CEA claims were dismissed.
The court dismissed the remaining CEA and RICO Act claims as to defendants Deutsche Bank AG, Royal Bank of Canada, RBC Capital Markets LLC, Lloyds Banking Group plc, Lloyds Bank plc, Macquarie Group Ltd., Macquarie Bank Ltd., Morgan Stanley, Morgan Stanley Australia Limited, ICAP plc, ICAP Australia Pty Ltd., Tullett Prebon plc, and Tullett Prebon (Australia) Pty Ltd. As to the RICO Act claims, the court held that the complaint had failed to sufficiently inform those defendants as to the nature of their alleged participation in the fraud, instead containing only generalized allegations that each defendant engaged in acts of wire fraud in furtherance of the conspiracy. Similarly, as to the CEA claims, the court held that the complaint failed to meet the pleading requirements of Rule 9(b) by alleging the role played by each bank.
Jurisdiction and venue. Certain defendants (the "Foreign Defendants") moved to dismiss as to them for lack of personal jurisdiction, and as to a subgroup of these defendants (the "Venue Defendants") with respect to certain of the claims, on the additional ground of improper venue. With the exception of the claims asserted by FrontPoint Event Driven against Macquarie Bank Ltd., the court concluded that the plaintiffs had not made a prima facie showing that the Foreign Defendants were subject to personal jurisdiction in this Court. The Foreign Defendants had not purposefully directed suit-related conduct at the forum, because the alleged manipulation of BBSW – an Australian benchmark interest rate – was not caused by any transactions that any Defendant entered into in the United States." Rather, they expressly aimed their conduct at counterparties to BBSW-Based Derivative transactions around the world, some of whom happened to be in the United States. The court found that these contacts were too "random, fortuitous, and attenuated" to be a basis for the Court’s exercise of personal jurisdiction over Foreign Defendants. Additionally, none of the Foreign Defendants had consented to general personal jurisdiction by virtue of their registration under New York Banking Law § 200, which confers only limited jurisdiction specific to certain types of claims.
The court denied the motion to dismiss as to the remaining claims and defendants under the Clayton Act, CEA, and RICO.
This case is No. 1:16-cv-06496-LAK.
Attorneys: Christian Levis (Lowey Dannenberg PC) for Richard Dennis, Frontpoint Financial Services Fund, L.P., Frontpoint Asian Event Driven Fund, L.P., Frontpoint Financial Horizons Fund, L.P. and Sonterra Capital Master Fund, Ltd. Paul Christopher Gluckow (Simpson Thacher & Bartlett LLP) for JpMorgan Chase & Co. Jayant W. Tambe (Jones Day) for BNP Paribas, S.A.
Companies: Frontpoint Financial Services Fund, L.P.; Frontpoint Asian Event Driven Fund, L.P.; Frontpoint Financial Horizons Fund, L.P.; Sonterra Capital Master Fund, Ltd.; Jpmorgan Chase & Co.; BNP Paribas, S.A.
MainStory: TopStory Antitrust RICO NewYorkNews
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