Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Trust fund claims banks manipulated U.S. Treasuries market, (Jul 31, 2015)

By Greg Hammond, J.D.

IBEW Local 640 Arizona Chapter NECA Pension Trust Fund is the latest trust fund to file suit against some of the largest dealer banks in the world for allegedly colluding to manipulate and restrain competition in the U.S. Treasury Instruments market. The complaint, which claims violations of the Sherman and Commodity Exchange Acts, was filed in the federal district court in New York City (IBEW Local 640 Arizona Chapter NECA Pension Trust Fund v. Bank of Nova Scotia, New York Agency, July 30, 2015).

IBEW alleges that defendant banks—including BMO Capital, Barclays, CitiGroup, Deutsche, Goldman Sachs, HSBC, and J.P. Morgan—are primary dealers in the market for U.S. Treasuries, debt instruments issued by the U.S. Treasury Department to help finance the operations of the U.S. government. The banks act as sellers of U.S. Treasuries to their customers during the when-issued market—the period between an auction announcement date and the issuance of the auctioned securities—but later become buyers of U.S. Treasuries in order to cover the sales they made during the when-issued market. The difference in the price at which the banks sell in the when-issued market and purchase at auction is the banks’ profit. The goal of the alleged conspiracy was to produce supracompetitive profits.

According to the complaint, a two-pronged scheme was used to manipulate the U.S. Treasuries market, in which (1) the defendant banks used electronic chatrooms, instant messaging, and other electronic and telephonic methods to exchange confidential customer information, coordinate trading strategies, and increase the bid-ask spread in the when-issued market to inflate prices of U.S. Treasuries they sold; and (2) the defendant banks used the same means to rig the U.S. Treasury auction bidding process to deflate prices, at which they bought U.S. Treasuries to cover their pre-auction sales.

IBEW additionally claims that the defendant banks fraudulently concealed their conduct and that it did not become aware of the anticompetitive conduct until after the U.S. Department of Justice opened an investigation into the market for U.S. Treasury instruments. Consequently, the banks violated Section 1 of the Sherman Act by entering into an agreement to reduce competition by fixing and/or manipulating U.S. Treasuries before and during Treasury auctions. The complaint also asserts multiple violations of the Commodity Exchange Act, as well as unjust enrichment.

The plaintiff seeks to represent a class of all persons or entities who during the period from January 1, 2007, through December 31, 2012, transacted in any Treasury Instrument. Further, IBEW requests judgment that the banks violated Section 1 of the Sherman Act, as well as the Commodity Exchange Act; injunctive relief restraining the banks from continuing and maintaining the alleged conspiracy; treble damages; and costs of suit, including expenses and attorney fees.

The case number is 1:15-cv-06003.

Attorneys: Jason A. Zweig (Hagens Berman Sobol Shapiro LLP) for IBW Local 640 Arizona Chapter NECA Pension Trust Fund.

Companies: IBW Local 640 Arizona Chapter NECA Pension Trust Fund; Bank of Nova Scotia, New York Agency; BMO Capital Markets Corp.; BNP Paribas Securities Corp.; Barclays Capital Inc.; Cantor Fitzgerald & Co.; CitiGroup Global Markets Inc.; Credit Suisse Securities USA LLC; Daiwa Capital Markets America Inc.; Deutsche Bank Securities Inc.; Goldman, Sachs & Co.; HSBC Securities USA 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; UBS Securities LLC

News: Antitrust NewYorkNews