Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: $1.9B settlement preliminarily approved in credit default swaps conspiracy suit, (Oct 30, 2015)

By Greg Hammond, J.D.

The federal district court in New York City has granted preliminary approval of a nearly $1.9 billion settlement of claims that a group of major banks conspired to restrain trade in the market for credit default swaps (CDS) in violation of Section 1 of the Sherman Act (In re Credit Default Swaps Antitrust Litigation, October 28, 2015, Cote, D.).

A CDS is used as a tool for hedging credit risk. It is a financial derivative contract in which the buyer pays the seller in exchange for the seller’s promise to make the buyer whole on an agreed amount in the event of some “credit event,” such as a default on the debt instrument by a third party.

Investors who purchased CDS from, or sold CDS to, defending U.S. banks alleged that the banks conspired to prevent new entrants from successfully introducing exchange trading venues and electronic platforms in the CDS market that would have led to greater transparency and competition. The defending banks include Bank of America Corp.; JPMorgan Chase & Co.; The Goldman Sachs Group, Inc.; HSBC Holdings plc; Barclays Bank PLC; Citigroup Inc.; Deutsche Bank AG; Morgan Stanley & Co., LLC; Royal Bank of Scotland, N.V.; and UBS AG.

Under the terms of the proposed settlement, the defendant banks will create a common fund of $1,864,650,000, which will be made available to class members. Attorney fees will not exceed 14 percent of the settlement fund. In addition, defendant International Swaps and Derivatives Association (ISDA)—a trade association with significant influence in the market—has agreed to injunctive relief in which it would: (1) adopt a new licensing framework; (2) create a new independent licensing sub-committee; (3) implement a dispute resolution mechanism; (4) publicize decisions of the sub-committee on ISDA’s website; and (5) have the ISDA Board of Directors formally consider and vote on a proposal for ISDA to make an official statement in favor of abolishing the practice of post-trade name disclosure in the CDS market.

Preliminarily finding that the requirements of Federal Rules of Civil Procedure 23(a) and (23(b)(3) have been met, the court granted certification of a settlement class that includes all persons who, during the period of January 1, 2008, through September 25, 2015, purchased CDS from or sold CDS to the dealer defendants, a released party, or any purported co-conspirator, in any covered transaction.

A fairness hearing for final approval of settlement has been scheduled for April 15, 2016.

The case number is 1:13-md-02476-DLC.

Attorneys: Andrew J. Entwistle (Entwistle & Cappucci LLP) for Delta Institutional, LP, Delta Offshore, Ltd. and Value Recovery Fund LLC. Christopher M. Burke (Scott Scott, LLP) for MF Global Capital LLC. Aaron Michael Sheanin (Girard Gibbs LLP) for Los Angeles County Retirement Association. Arthur J. Burke (Davis Polk & Wardwell) for Bank of America Corp. David George Januszewski (Cahill Gordon & Reindel LLP) for Barclays Bank, PLC. Benjamin Robert Nagin (Sidley Austin LLP) for CitiGroup, Inc. David Sapir Lesser (Wilmer Cutler Pickering Hale & Dorr LLP) for Credit Suisse Group AG. David P. Wales (Jones Day) for Deutsche Bank AG.

Companies: Delta Institutional, LP; Delta Offshore, Ltd.; Value Recovery Fund LLC; MF Global Capital LLC; Los Angeles County Retirement Association; Bank of America Corp.; Barclays Bank, PLC; CitiGroup, Inc.; Credit Suisse Group AG; Deutsche Bank AG

Cases: Antitrust NewYorkNews