Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Hospital charges major banks with conspiracy to manipulate ISDAfix, (Oct 22, 2014)

By Linda O’Brien, J.D., LL.M.

A community hospital has filed a complaint in the federal district court in New York City, alleging that major domestic and foreign financial institutions engaged in a conspiracy to restraint trade through their manipulation of ISDAfix (Magnolia Regional Health Center v. Bank of America Corporation, October 17, 2014).

ISDAfix is the reference rate used for a range of interest rate derivatives and other financial instruments. Using a process established by the International Swaps and Derivatives Association (ISDA), ICAP Capital Markets serves as administrator to calculate and publish on a daily basis ISDAfix reference rates—the average trading rate of interest rate swaps—for swap transactions. Subsequently, financial institutions either validate the published reference rate or submit its own rate. Magnolia Regional Health Center is an acute care community hospital in Corinth, Mississippi and invested in floating-to-fixed interest rate swaps tied to ISDAfix.

According to the complaint, the defendant banks conspired with ICAP to manipulate ISDAfix from 2009 to 2012. The defendants allegedly manipulated ISDAfix in at least three ways. First, the banks executed a series of high volume trades in a short period through ICAP to push rates to a particular level. Second, ICAP agreed to delay the reporting of actual swap rates until after the conclusion of the ISDAfix setting process. Third, although the defendant banks were required to submit data after ICAP first published the reference rate, the banks consistently submitted identical quotes that did not reflect their own bid/offer spreads or the actual transactions they were executing, the hospital claimed.

The conspiracy allegedly was accomplished by colluding in private electronic chat rooms and other secret forms of communication to determine when it was time to manipulate ISDAfix and how it should be done. The published ISDAfix rates should have reflected competitive forces in the interest rate derivatives market and the defendant banks, absent collusion, would have submitted competitively priced data to ICAP and allowed ISDAfix to serve its purpose as a reliable industry benchmark, the complaint charged.

In 2013, regulatory agencies in the United States, United Kingdom, and Germany initiated investigations into price manipulation by ICAP. These investigations followed earlier investigations in connection with the manipulation of the London Interbank Offered Rate (LIBOR), which resulted in criminal and regulatory charges. ICAP was also involved in the LIBOR manipulation and settled these charges for $87 million.

The plaintiff asserted claims for unjust enrichment and violations of Section 1 of the Sherman Act. The action seeks declaratory and injunctive relief, damages, interest, costs of suit, attorneys’ fees, and any other just and proper relief.

In a related action, a county in Pennsylvania has filed a complaint in the federal district court in Newark, alleging that several major financial institutions conspired to fix prices and unreasonably restrain trade by manipulating the benchmark ISDAfix rate (County of Montgomery, Pennsylvania v. ICAP PLC, October 17, 2014). The plaintiff, Montgomery County, invested in interest rate derivatives that were tied to ISDAfix and alleged that the conspiracy materially caused injury to its business or property.

The cases are No. 1:14-cv-08342-UA and 2:14-cv-06427-JLL-JAD.

Attorneys: Shelly L. Friedland (Trief & Olk), Michael C. Dell’Angelo (Berger & Montague, P.C.), R. Bryant McCulley and Stuart H. McCluer (McCulley McCluer PLLC), and Matthew Duncan (Fine, Kaplan and Black, R.P.C.) for Magnolia Regional Health Center. James E. Cecchi (Carella, Byrne, Cecchi, Olstein, Brody & Agnello, P.C.) and Jay W. Eisenhofer (Grant & Eisenhofer P.A.) for County of Montegomery, Pennsylvania.

Companies: Bank of America Corporation; Barclays Bank PLC; BNP Paribas SA; Citigroup, Inc.; Credit Suisse Group AG; Deutsche Bank, AG; Goldman, Sachs & Co.; HSBC Bank PLC; ICAP Capital Markets LLC; JPMorgan Chase & Co.; Nomura Securities International, Inc.; The Royal Bank of Scotland Group PLC; UBS AG; and Welss Fargo Bank, N.A.

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