The lawsuits claim that the banks violated federal antitrust law
when their senior traders allegedly shared sensitive market
information in chat rooms to execute a variety of strategies to move
key benchmark rates.
The collusion, the lawsuits allege, allowed the banks to profit at
the expense of their customers.
If the plaintiffs, including some public pension funds, can prove
their claims, they would be entitled to recover three times the
amount of their actual damages under antitrust law.
But as a recent court decision dismissing antitrust claims over the
alleged manipulation of a global interest rate suggests, success is
far from guaranteed.
Even if it is proven that manipulation of a benchmark has occurred,
antitrust law may not apply.
"We still have to ask whether it is something 'antitrust-bad,'" C.
Scott Hemphill, a professor at Columbia Law School, told a recent
New York conference for antitrust lawyers.
So far, at least eight lawsuits have been filed, naming, among
others, the seven banks that allegedly control nearly 70 percent of
the roughly $5.3 trillion-a-day foreign exchange market: Deutsche
Bank <DBKGn.DE>, Citigroup <C.UL>, Barclays <BARC.L>, UBS <UBSN.VX>,
HSBC <HSBCUK.UL>, JPMorgan Chase & Co <JPM.N>, and Royal Bank of
Scotland <RBSRB.UL>. Those banks declined to comment or did not
return messages seeking comment.
Among the plaintiffs are pension funds like the State-Boston
Retirement System and the Oklahoma Firefighters Pension and
The lawsuits seek class action status on behalf of investors,
institutions and currency traders affected by the alleged
manipulation. One of the lawsuits claims that the class could
include thousands of traders who lost value on tens of thousands of
transactions, "resulting in potentially billions of dollars in
The lawsuits, which are expected to be consolidated into one
proceeding, seek to take advantage of government investigations
being carried out in at least seven jurisdictions around the globe.
Those probes, the lawsuits note, have identified senior foreign
exchange traders at banks who were known in Bloomberg chat rooms as
"The Cartel" and "The Bandits Club."
Amid the probes, HSBC and Citigroup have confirmed that they have
suspended or put on leave some foreign exchange traders.
Additionally, Reuters has reported that Deutsche Bank has suspended
the head of its emerging markets foreign exchange trading desk in
The key benchmark foreign exchange rate at issue in the lawsuits is
known as the WM/Reuters "fix," which is set at 4 p.m. London time.
It is based on actual trades and order rates recorded primarily by
Reuters during a one-minute "fix" period. WM, a unit of State Street
Corp <STT.N>, then calculates the benchmark using the median of the
reported trades and orders.
The WM/Reuters FX rates are used by investors and corporations
looking for a rate to price their portfolios and currency holdings.
Most of the main equity and bond index compilers also use the rates
in their calculations.
The main claim asserted in the lawsuits is Section 1 of the Sherman
Antitrust Act, which makes all conspiracies in restraint of trade
But the plaintiffs will face a number of obstacles to survive in
court. As an initial matter, to make successful antitrust claims,
the plaintiffs will have to show that setting the fix is a
competitive process, say some legal experts.
[to top of second column]
Last March, a federal judge in Manhattan dismissed antitrust claims
against the world's major banks over an alleged scheme to manipulate
the London Interbank Offered Rate, the average interest rate leading
banks in London estimate they would be charged if borrowing from
U.S. District Judge Naomi Reice Buchwald's key finding was that
setting Libor was not a competitive process, and therefore the
plaintiffs could not establish that they were injured by
anticompetitive behavior under the Sherman Act.
Setting Libor, she found, was a "cooperative endeavor" where
otherwise competing banks submitted information to a trade
association that set the rate.
Without anticompetitive conduct, there can be no anticompetitive
injury, said the judge, who is based in the Southern District of New
York with jurisdiction over New York City's major financial centers.
The same issue could stymie investors suing over manipulation of the
foreign exchange market, say some legal experts.
"Judging from the complaint and the press reports, I think it's
frankly hard to tell to what extent if any competition has been
reduced," Hemphill of Columbia Law School said.
Daniel Brockett of Quinn Emanuel Urquhart & Sullivan, which filed
the lawsuit on behalf of the Boston State-Boston Retirement System,
said that setting the fix differed from the setting of Libor.
While Libor is calculated using estimates made by banks over their
borrowing costs, the currency fix is set by aggregating actual
transactions made by the banks.
"It's going to be a much more difficult argument for the banks to
make that there is no antitrust standing here, because you had
actual buying and selling in the market that went on to arrive at
this fixed number," he said.
Still, a judge could take a narrow view of the fix and conclude that
it is a mathematical equation and does not involve competition, said
Richard Wolfram, an independent antitrust lawyer who said he had
read just one of the complaints.
"It appears on its face that the setting of the London fix is not a
competitive process," he said. "I think the plaintiffs are going to
be put to the test because of the decision that Judge Buchwald has
rendered in the Libor case."
Even if a court determines that the antitrust law applies, the
plaintiffs will face another steep challenge in persuading a court
to allow the case to move forward as a class action, said Arthur
Burke of Davis Polk & Wardwell, who has defended companies in
antitrust class actions.
Some plaintiffs in a proposed class, he said while speaking at a
recent conference, may have benefited from a manipulation depending
on the direction of their trades.
"It will be very challenging to see how you can certify a class when
the manipulations are changing day-to-day and changing
directionally," he said. "That's going to be an area that's going to
get a lot of attention and it's probably a few years away."
(Editing by Howard Goller)
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