Antitrust Law Daily Wrap Up, ANTITRUST—J.P.M.L.: Actions over Treasury securities auction manipulation centralized in New York, (Dec 9, 2015)

By Jeffrey May, J.D.

Dozens of suits filed against more than 20 banks for allegedly manipulating Treasury securities auctions and the market for derivative financial products in violation of the Sherman Act and Commodity Exchange Act have been have been consolidated in the federal district court in New York City for coordinated pretrial proceedings. While all of the defending banks supported centralization in the Southern District of New York, some of the plaintiffs unsuccessfully argued for centralization in the Northern District of Illinois. The actions were brought on behalf of overlapping putative nationwide classes of persons and entities who transacted in Treasury securities, derivatives, and financial products linked to the interest rates of Treasury securities (In re Treasury Securities Auction Antitrust Litigation, December 8, 2015, Vance, S.).

Common questions. The Judicial Panel on Multidistrict Litigation (JPML) concluded that the actions involved common questions of fact about the alleged manipulation. The plaintiffs asserted that the defending financial institutions, which serve as primary dealers in the market for Treasury securities and debt instruments issued by the U.S. Treasury in market auctions, used their position as primary dealers to subvert the proper operation of the Treasury securities market. The defendants allegedly colluded to manipulate Treasury Department auctions and pricing of Treasury securities in the “when-issued market”—the period between an auction announcement date and the issuance of the auctioned securities. In the when-issued market, the defendants acted as sellers of Treasury securities to their customers. However, the defendants became buyers of Treasury securities in order to cover the sales they made during the when-issued market. The difference in the price at which the financial institutions sell in the when-issued market and purchase at auction was their profit.

The plaintiffs contended that the defendants conspired to increase the bid-ask spread in the when-issued market to inflate prices of Treasury securities they sold to investors and used the same means to rig the Treasury auction bidding process to deflate prices at which they bought Treasury securities to cover their pre-auction sales.

Convenience of parties, witnesses. The JPML also concluded that centralization would serve the convenience of the parties and witnesses and promote the just and efficient conduct of the litigation. New York City was determined to be the appropriate forum for the pretrial proceedings because discovery would likely involve the Federal Reserve Bank of New York, the New York Department of Financial Services, and former primary dealers of Treasury securities and their employees. Moreover, all of the defendants had their U.S. headquarters in or near New York or conducted their operations concerning Treasury securities there, it was noted.

The case is MDL No. 2673.

Attorneys: George Carlos Aguilar (Robbins Arroyo LLP) for Police Retirement System of St. Louis. Garrett J. Bradley (Thornton & Naumes, LLP) and Jay L. Himes (Labaton & Sucharow LLP) for State-Boston Retirement System. John D. Radice (Radice Law Firm, PC) for United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund. Eugene A. Spector (Spector, Roseman & Kodroff Willis, PC) for Inter-Local Pension Fund Graphic Communications Conference of the International Brotherhood of Teamsters. Jayne Arnold Goldstein (Mager & Goldstein, LLP) and Jeremy Alan Lieberman (Pomerantz LLP) for United International Insurance Co. Jonathan Lucas Shapiro (Sullivan & Cromwell LLP) and Robert Y. Sperling (Winston & Strawn LLP) for Goldman, Sachs & Co. Richard C. Pepperman, II (Sullivan and Cromwell, LLP) for Bank of Nova Scotia. John D. Friel (Clifford Chance US, LLP) for BMO Capital Markets Corp. Adam Selim Hakki (Shearman & Sterling LLP) for BNP Paribas Securities Corp. David Harold Braff (Sullivan and Cromwell, LLP) for Barclays Capital Inc.

Companies: Police Retirement System of St. Louis; State-Boston Retirement System; United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund; Inter-Local Pension Fund Graphic Communications Conference of the International Brotherhood of Teamsters; United International Insurance Co.; Goldman, Sachs & Co.; Bank of Nova Scotia; BMO Capital Markets Corp.; BNP Paribas Securities Corp.; Barclays Capital Inc.

Cases: Antitrust