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 The State-Boston Retirement System, the pension fund for Boston
public employees, accused Bank of America Corp's Merrill Lynch unit,
Citigroup Inc, Credit Suisse Group AG, Deutsche Bank, Goldman Sachs
Group Inc, HSBC Holdings Plc, JPMorgan Chase & Co, UBS Group
AG and 14 other defendants of illegally trying to profit on the sale
of Treasury bills, notes and bonds at investors' expense.
According to the pension fund's complaint, filed in U.S. District
Court in New York, the banks used chat rooms, instant messages and
other means to swap confidential customer information and coordinate
trading strategies in the roughly $12.5 trillion Treasury market.
This enabled the banks to inflate prices on Treasuries they sold to
investors in the pre-auction "when issued" market, and deflate
prices when they bought Treasuries to cover their pre-auction sales,
violating antitrust laws, according to the complaint.
Primary dealers are the banks authorized to transact directly with
the Federal Reserve. They are big players in Treasury bond auctions
and act as market makers in the secondary market.
The pension fund said its "expert economists" observed wide gaps
between when-issued and auction prices around December 2012, but
that these gaps narrowed significantly as the U.S. Department of
Justice and other regulators began probing alleged manipulation of
the London interbank offered rate, a benchmark used to set interest
rates for trillions of dollars worth of loans around the world.
"The only plausible explanation for the sharp break," the fund said,
"is that defendants felt the heat of the DOJ's ongoing investigation
into Libor, and ceased their efforts to manipulate the Treasury
securities market because defendants' Treasury traders feared that
they too would be prosecuted."
Media reports last month said the Justice Department was also
investigating possible collusion in Treasury auctions.
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"The scheme harmed private investors who paid too much for
Treasuries, and it harmed municipalities and corporations because
the rates they paid on their own debt were also inflated by the
manipulation," Michael Stocker, a partner at Labaton Sucharow, which
represents State-Boston, said in an interview. "Even a small
manipulation in Treasury rates can result in enormous consequences."
The lawsuit seeks class-action status on behalf of investors in
Treasury securities, including futures and options, from 2007 to
2012, and unspecified triple damages.
Spokespeople for Bank of America, Citigroup, Credit Suisse, Deutsche
Bank, Goldman, HSBC and UBS declined to comment. Other banks had no
immediate comment or were not reached.
The case is State-Boston Retirement System v Bank of Nova Scotia et
al, U.S. District Court, Southern District of New York, No.
15-05794.
(Reporting by Jonathan Stempel in New York; Editing by Leslie Adler)
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