By Robert B. Barnett Jr., J.D.
The claim that the banks conspired to take actions that benefited themselves at the trading firms’ expense was all that was required to be pleaded to survive dismissal.
A suit by some of the world’s largest foreign exchange (FX) trading firms alleging that 16 banks and their affiliates engaged in price fixing by manipulating the FX benchmark rates and by widening the bid/ask spreads has largely survived a motion to dismiss because the complaint sufficiently pleaded an antitrust injury and the trading firms were deemed to be efficient enforcers of antitrust law. The federal district court in New York City did agree to trim the complaint, however, by dismissing (1) claims premised on transactions with non-defendants that were not based on the benchmark rate and (2) claims premised on algorithmic-based trades on the banks’ single-dealer platform where the algorithm used trading data that was corrupted by the alleged manipulation of other trades. The court also agreed to dismiss four of the 1,300 plaintiffs and one of the defendants (Allianz Global Investors GmbH v. Bank of America Corp., May 28, 2020, Schofield, L.).
Approximately 1,300 investment firms and government entities sued the 16 banks and their affiliates, alleging that they engaged in a multiyear conspiracy to distort the FX market to their benefit, thus harming the trading firms, in violation of the price-fixing prohibitions in §1 of the Sherman Act. The plaintiffs in this case are those entities that opted out of the class action known as In re Foreign Exchange Benchmark Rates Antitrust Litigation, No. 13 Civ. 7789 (LGS) (S.D.N.Y. 2013). They contend that the conspiracy took two forms: manipulating the FX benchmark rate and manipulating the bid/ask spreads offered to customers, which caused sellers to get less and buyers to pay more. The banks moved to dismiss the claim for lack of antitrust standing on two grounds: (1) the trading firms failed to plead an adequate antitrust injury and (2) the trading firms were not sufficient enforcers of the antitrust law. They also argued that the claims were beyond the reach of the Sherman Act and were filed beyond the statute of limitations period.
Antitrust injury. The thrust of the banks’ position was that, while anticompetitive practices may have existed, the trading firms were not harmed by that conduct. As the court noted, the injury set forth here was alleged with greater specificity than was alleged in the litigation they opted out from, which the court twice ruled was an injury sufficient for antitrust standing. The court rejected the banks’ assertion that an antitrust injury requires pleading the "actual transaction" that harmed the trading companies. It was enough for the trading companies to allege that a trade was made based on a contract price that the banks plausibly manipulated. The injury alleged here was that they traded to their detriment in currencies where the prices were tied to artificially manipulated benchmark rates and bid/ask spreads. This injury, the court said, was the type of injury that the antitrust laws were intended to prevent. This injury, therefore, was sufficient to establish antitrust injury. The fact that a particular transaction may have benefitted one of the plaintiffs did not negate the injury. The claim was that the banks conspired to take actions that benefited themselves at the trading companies’ expense. They did not need to plead anything more to survive the motion to dismiss.
Transactions with non-defendants. The court agreed with the banks, however, that the complaint failed to allege an antitrust injury to the extent that it was premised on transactions with non-defendants that were not based on the benchmark rate. The allegation that the banks manipulation of the bad/ask spreads harmed all FX transactions regardless of counterparty was deemed insufficient because the alleged conspiracy to manipulate the spreads would not have affected the spreads offered by non-defendants that were not involved in the conspiracy. As a result, all claims based on those transactions with non-defendants were dismissed.
Efficient enforcers. The banks argued that the trading firms were not efficient enforcers for particular transactions: (1) transactions with non-defendant dealers, (2) transactions on the banks’ algorithmic trading platforms, and (3) transactions in exchange-traded FX instruments. The transactions with non-defendant dealers were not addressed because the court already dismissed those claims on lack-of-antitrust-injury grounds.
As for transactions on the trading platform, the complaint alleged that the transactions were manipulated or corrupted in one of three ways: (1) trades that were directly manipulated or linked to a manipulated benchmark rate, (2) algorithmic-based trades where the algorithm itself was manipulated, and (3) algorithmic-based trades where the algorithm used trading data that was corrupted by the manipulation of other trades. While the first two categories, the court said, were "close in the chain of causation," the third category was just too removed from the alleged injury to be recoverable. This was deemed "too indirect to meet the standard necessary for efficient enforcers." In addition, the damages would be highly speculative. Thus, the trading companies were deemed efficient enforcers of the transactions on the banks’ single-dealer platforms, except for those claims where the algorithm was allegedly corrupted by the manipulation of other trades.
As for the transactions on the exchange-traded FX instruments, the court concluded that the complaint pleaded a direct relationship between the price at which the trading companies purchased exchange-traded FX instruments and the spot price that the banks allegedly manipulated. The complaint also referenced an economic analysis showing a 99.98% or higher correlation between futures and spot prices on the one hand and spot prices on the other hand for two different currency pairs over a 10-year period. This was enough to plead sufficient enforcer status, the court said. The fact that the trading companies’ injuries in exchange-traded FX instruments were not direct was not determinative. The trading companies were not required to show that they were directly and intentionally targeted. As long as they were in the chain of causation, they were an efficient enforcer.
FTAIA exception. The banks argued that these antitrust claims fell beyond the reach of the Sherman Act where foreign trading companies transacted with domestic banks. The court rejected the argument because the transactions fell with the Foreign Trade Antitrust Improvements Act (FTAIA) imports exception. The banks argued that applying the exception would run counter to the FTAIA’s express purpose of immunizing U.S. exporters from U.S. antitrust liability when their conduct causes only foreign harm. The court, however, noted that the argument did not apply here because the banks were acting as importers doing business domestically.
Timeliness. The banks contended that the claims were barred by the four-year statute of limitations. The court rejected the claim, except for two categories: (1) claims against a small subset of banks for benchmark manipulation and (2) claims based on transactions with non-defendants that were based on benchmark manipulation. The gist of the banks’ statute of limitations was that the time began running on the date that Bloomberg published an article reporting the FX manipulations. The article, however, would not apply to the bid/ask spread allegations because the article never mentioned them. The allegations involving the bid-ask spread, therefore, were all timely filed. Furthermore, the other FX manipulation litigation had concluded that the statute of limitations had been tolled. However, three of the banks—Barclays PLC, J.P. Morgan Securities LLC, and SG Americas Securities, LLC—were not part of that litigation. The motion, therefore, to dismiss the benchmark manipulation claims against those three banks was granted because the tolling did not apply to them. Furthermore, the claims in this suit based on transactions with non-defendants and foreign-domiciled trading companies were similarly not part of the other litigation. Those claims, therefore, were also dismissed.
Miscellaneous. The court also agreed to dismiss claims against SG Americas Securities LLC because the only allegation against it was that it participated in a single conversation in 2009 in which a Credit Suisse representative referred to a "fix." Manipulation of the benchmark or the spreads were never mentioned. This was simply insufficient to hold the bank responsible for participating in the conspiracy. In addition, four plaintiffs—Allianz Funds, Allianz Funds Multi-Stategy Trust, AllianzGI Institutional Multi-Series Trust, and Carne Global Fund Managers (Ireland) Limited—were dismissed from the suit because they did not opt out of the previous FX litigation and thus were not proper class members here.
The court, therefore, granted the motion to dismiss to the extent that it eliminated (1) claims based on algorithmic-based transactions on the banks’ single-dealer platforms where the algorithm used trading data corrupted by the manipulation of other trades, (2) claims against Barclays, J.P. Morgan, and Royal Bank of Canada premised on benchmark manipulation, (3) claims based on transactions with non-defendants. (4) claims asserted by Allianz Funds, Allianz Funds Multi-Stategy Trust, AllianzGI Institutional Multi-Series Trust, and Carne Global Fund Managers (Ireland) Limited, and (5) claims asserted against SG Americas Securities. On all other matters, the motion was denied.
The case is No. 18 Civ. 10364 (LGS).
Attorneys: Anthony P. Alden (Quinn Emanuel Urguhart & Sullivan) for Allianz Global Investors GmbH and Anchorage Capital Group, L.L.C. Adam Selim Hakki (Shearman & Sterling LLP) for Bank of America Corp. and Bank of America, N.A.
Companies: Allianz Global Investors GmbH; Anchorage Capital Group, L.L.C.; Bank of America Corp.; Bank of America, N.A.
MainStory: TopStory Antitrust NewYorkNews
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