Antitrust Law Daily Wrap Up, ANTITRUST—J.P.M.L.: Actions against banks for conspiring in market for credit default swaps centralized for pretrial proceedings, (Oct 18, 2013)

By Jeffrey May, J.D.

The federal district court in New York City will handle pretrial proceedings in litigation against major banks, including Bank of America Corporation and JPMorgan Chase & Co., for allegedly engaging in anticompetitive conduct in the market for credit default swaps (CDS). The Judicial Panel on Multidistrict Litigation (JPML) centralized the litigation in the Southern District of New York pursuant to 28 U.S.C. § 1407, after plaintiffs in two actions pending in the federal district court in Chicago moved for centralization in that forum (In re: Credit Default Swaps Antitrust Litigation, October 16, 2013, Heyburn, J.).

The parties to the disputes agreed that centralization was appropriate; however, they disagreed on the proper choice for a transferee district. In addition to the two actions pending in the federal district court in Chicago, there was an action filed in the federal district court in New York City. That putative class action was filed by Value Recovery Fund LLC against JP Morgan Chase and others. There also were potential tag-along actions pending in both districts.

Either of the suggested districts would be an appropriate transferee forum for the litigation, the JPML noted. However, the Southern District of New York was chosen based on its strong connection to the litigation. Most of the defendants were based there, and a significant number of members of the putative classes (e.g., hedge funds, money managers, commercial banks, etc.) likely resided there. Moreover, several events giving rise to the litigation likely occurred there, according to the JPML.

The matter was assigned to Judge Denise L. Cote. The JPML noted that Judge Cote was “a seasoned jurist who is well-versed in handling complex, multidistrict litigation to steer this matter on a prudent course.”

The actions allege a conspiracy among the banks to fix charges and revenues from purchasing, selling, and making a market in CDS. A credit default swap is a financial derivative contract in which the buyer pays the seller in exchange for the seller’s promise to make the buyer whole on an agreed amount in the event of some “credit event,” such as bankruptcy, by a third party.

The defendants allegedly prevented competition in the CDS market by restricting access to clearing and price information, preventing the introduction of exchange trading in CDS, and barring competitors from using broker services. The challenged conduct purportedly forced CDS purchasers to pay supracompetitive prices. The defendants are currently being investigated by the U.S. Department of Justice and the European Commission.

The case is MDL No. 2476.

Attorneys: Vincent R. Cappucci (Entwistle & Cappucci LLP) for Value Recovery Fund LLC.

Companies: Bank of America Corp.; Value Recovery Fund LLC; JP Morgan Chase & Co.

Cases: Antitrust