Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Dealer banks allegedly colluded to manipulate U.S. Treasury securities market, (May 10, 2016)

By Linda O’Brien, J.D., LL.M.

A group of dealer banks colluded to fix prices and manipulate the U.S. Treasury securities market and derivative financial products, including Treasury futures and options traded on U.S. exchanges, according to a complaint filed in the federal district court in New York City (Breakwater Trading LLC v. Bank of America, May 9, 2016).

Breakwater Trading LLC was a top 15 liquidity provider for Treasury instruments from 2007 to 2009. BWT Professional Trading, LLC is a top Treasury instruments trader.

The complaint states that the Treasuries market, which consists of $12.7 trillion of interest-bearing marketable coupon public debt, is the world’s most liquid government securities market and is the primary means by which the U.S. government finances itself and manages its debt. To operate in the market, the U.S. Treasury sells bills, notes, and bonds to institutional and individual investors through public auctions. A group of banks—including Bank of America, Barclays, CitiGroup, Deutsche Bank, Goldman Sachs, J.P. Morgan, and Merrill Lynch — are primary dealers in the market for Treasury securities and are responsible for purchasing the majority of Treasuries issued by the U.S. Treasury.

In the absence of collusion, a primary dealer uses its own discovery information to submit the most competitive Treasuries bids. However, the defendant banks allegedly abused their position as primary dealers by conspiring to fix and manipulate the prices for Treasury securities sold and bought in the auction market, the complaint alleges. To facilitate the means and incentives for collusion, the defendants routinely hired each other’s Treasuries traders, shared their clients’ proprietary information, and coordinated their trading positions, according to the lawsuit.

Economic analysis has confirmed that the defendant banks were manipulating events at Treasuries auctions, the plaintiffs claimed. Comparative pricing analysis allegedly showed dramatic and unexpected upward and downward price movements at certain auctions which clearly evidences manipulation. Additionally, in June 2015, the U.S. Department of Justice announced its investigation into possible manipulation of the U.S. Treasury securities market and contacted at least of the defendant banks for information, the action alleges.

According to the complaint, the defendants’ price fixing and price manipulation conspiracy was self-concealing by its very nature. The defendants allegedly used non-public methods of communication—such as in-person conversations, private chatrooms, and text messages—to conceal their agreements to manipulate Treasuries prices. Although the plaintiffs regularly monitored their investments, they allegedly could not have discovered the defendants’ conspiracy and relied on the federal government to detect any misconduct in the Treasuries market.

The plaintiffs assert claims for unjust enrichment, breach of implied covenant of good faith and fair dealing, and unlawful restraint of trade in violation of Section 1 of the Sherman Act and Commodity Exchange Act. The action seeks declaratory relief, treble damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:16-cv-03449.

Attorneys: Linda P. Nussbaum (Nussbaum Law Group, P.C.), Michael E. Criden (Criden & Love, P.A.), and Scott P. Schlesinger (Schlesinger Law Offices, P.A.) for Breakwater Trading LLC and BWT Professional Trading, LLC.

Companies: Breakwater Trading LLC; BWT Professional Trading, LLC; Bank of America Corporation; Bank of Nova Scotia; Barclays Capital Inc.; Bear, Stearns & Co., Inc.; BMO Capital Markets Corp.; BNP Paribas Securities Corp.; Cantor Fitzgerald & Co.; CIBC World Markets Corp.; Citigroup Global Markets Inc.; Commerz Markets LLC; Countrywide Securities Corp.; Credit Suisse Securities LLC; Daiwa Capital Markets America Inc.; Deutsche Bank Securities Inc.; Goldman, Sachs & Co.; HSBC Securities Inc.; Jefferies LLC; J.P. Morgan Securities LLC; Merrill Lynch, Pierce, Fenner & Smith Inc.; Mizuho Securities USA Inc.; Morgan Stanley & Co. LLC; Nomura Securities International, Inc.; RBC Capital Markets, LLC; RBS Securities Inc.; SG Americas Securities, LLC; TD Securities LLC; UBS Securities LLC

News: Antitrust NewYorkNews