Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Another investor sues banks over conspiracy to manipulate agency bonds market, (Aug 5, 2016)

By Linda O’Brien, J.D., LL.M.

Another investor has filed suit in the federal district court in New York City against a group of foreign and domestic dealer banks and four individual bond traders for allegedly conspiring to fix and manipulate the prices of supranational, sub-sovereign, and agency bonds that were sold to investors in the United States (Oklahoma Police Pension and Retirement System v. Bank of America Corporation, August 2, 2016).

Oklahoma Police Pension and Retirement System is a government pension system that provides pension and disability benefits for municipal police officers in the State of Oklahoma.

The complaint alleges that supranational, sub-sovereign, and agency (SSA) bonds are issued by governmental agencies to raise capital for a variety of public purposes. SSA bonds have extremely high credit ratings and can be issued in local or other currencies, although the U.S. dollar is often selected for issuance to make the bonds more attractive to U.S. investors.

Within the SSA bond market, there are two separate markets—the primary and secondary markets. The prices of new bonds are stated in terms of the bond’s par value. An investment bank, such as defendants Bank of America, Merrill Lynch, Crédit Agricole, Credit Suisse AG, Deutsche Bank AG, and Nomura International plc, serves as an intermediary between the issuing organization and the investors who purchase them. After the primary market, there is a robust secondary market, where bond dealers and investors trade. Trading in the secondary market is done over the counter where the dealer banks interact directly with investors, the complaint states.

The plaintiff alleges that, if an investor wants to buy or sell an SSA bond, the investor obtains quotes on bond prices from a number of dealers. The dealers respond with quotes on "bid" and "ask" prices. In a competitive market, the defendant dealer banks would compete with each other for customers seeking to buy and sell SSA bonds as well as providing underwriting services for SSA bond issuers. Rather than compete with each other, the defendant banks and their traders conspired to manipulate the bid-ask spreads for SSA bonds sold to investors.

The banks and traders maintained their conspiracy through daily communications about customer bond purchases and sales information, including the use of chat rooms. Through these communications, the traders discussed their respective customers’ identities and confidential information about the size and nature of their orders before deciding the prices that they would quote to their potential customers for SSA bonds, the complaint charges.

In 2015, the U.S. Department of Justice launched an investigation into the defendants’ practices in the SSA bond market. Similarly, the U.K. Financial Conduct Authority and the European Commission opened preliminary investigations into potential anticompetitive conduct in the SSA bond market, the complaint alleges.

The complaint also alleges that the defendants’ conspiracy caused injury to investors of SSA bonds in the secondary market. By secretly colluding to manipulate the spreads of U.S. dollar-issued bond prices, the defendants extracted supra-competitive profits from investors and caused investors to pay more or receive less than they otherwise would have in a competitive market.

The plaintiff asserts claims for conspiracy in unreasonable restraint of trade in violation of Section 1 of the Sherman Act. The action seeks declaratory relief, treble damages, restitution, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:16-cv-06133-ER.

Attorneys: Christopher M. Burke, David R. Scott, Amanda F. Lawrence, Donald A. Broggi, Peter A. Barile III, and J. Alex Vargas (Scott+Scott, Attorneys at Law, LLP), Michael J. Guzman (Kellogg Huber Hansen Todd Evans & Figel, PLLC), J. Gerard Stranch, IV (Branstetter Stranch & Jennings PLLC), and Thomas J. Undlin (Robins Kaplan LLP) for Oklahoma Police Pension and Retirement System.

Companies: Oklahoma Police Pension and Retirement System; Bank of America Corporation; Bank of America, N.A.; Merrill Lynch, Pierce, Fenner & Smith, Inc.; Crédit Agricole S.A.; Credit Suisse Group AG; Deutsche Bank AG; Nomura International plc

News: Antitrust NewYorkNews