Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: No viable conspiracy, manipulation claims for wholly foreign FX transactions, (Aug 12, 2016)

By Lene Powell, J.D.

Claims by Malaysian residents that international banks conspired to manipulate benchmark rates in the foreign exchange (FX) market were not cognizable under the Sherman Antitrust Act or Commodity Exchange Act, a federal district court ruled in dismissing the case. The plaintiffs lived and transacted entirely abroad and did not establish any U.S. connection for the FX instruments to bring them within the reach of either statute (Wah v. HSBC North America Holdings Inc., August 11, 2016, Schofield, L.).

Alleged FX benchmark manipulation. The pro se plaintiffs, two Malaysian residents, participated in the FX spot, forward, swap and futures markets and dealt directly with "defendants’ trader dealing desk." Stating similar claims to plaintiffs in a consolidated class action also being heard in the Southern District of New York, the plaintiffs alleged that 17 large international banks conspired to manipulate FX benchmarks and overcharged them for transaction fees, interest and commissions.

Observing that pro se plaintiffs merit "special solicitude," the court nevertheless found the complaint’s deficiencies insurmountable. The complaint contained few allegations of plaintiffs’ injuries, as the plaintiffs had copied large portions of their complaint from the plaintiffs in In re Foreign Exchange Benchmark Rates Antitrust Litigation (FOREX). In addition, the complaint did not allege a U.S. connection for the transactions as required.

Wholly foreign transactions. The plaintiffs were similarly situated to the foreign plaintiffs in FOREX, whose claims were dismissed. The complaint did not explicitly allege any transaction on a U.S. exchange or with a U.S. desk of a defendant. The plaintiffs could not articulate any connection to the United States other than their belief that whomever they were dealing with could "call-forward" to an affiliated desk or dealer in this country.

Moreover, the allegations suggested that the plaintiffs lived and transacted entirely abroad during the relevant period. The plaintiffs admitted that they transacted directly with an HSBC entity through a cash deposit account in Singapore while they were living in Singapore and Malaysia.

Foreign Trade Antitrust Improvements Act (FTAIA). The FTAIA provides that the Sherman Act does not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless an exception applies. The conduct must have a direct, substantial, and reasonably foreseeable effect on:

• trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or

• export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States

The effect must give rise to a claim under the Sherman Act. Here, even under the liberal reading afforded pro se plaintiffs, the complaint did not allege any connection to the United States, and instead described FX transactions that were "wholly foreign." The plaintiffs’ antitrust claims were therefore barred by the FTAIA and dismissed.

Commodity Exchange Act. Similarly, the failure to allege any conduct by defendants occurring within the United States also barred claims under the Commodity Exchange Act (CEA). Although the CEA is silent as to extraterritorial reach, it is presumed to be "primarily concerned with domestic conditions," and private lawsuits "must be based on transactions occurring in the territory of the United States." The complaint did not plausibly allege any transactions occurring within the United States, so CEA claims were not cognizable.

Substantive hurdle. The court noted that even if some defendants would be subject to personal jurisdiction because they are either incorporated or have their principal place of business here, the bar on the extraterritorial application of the Sherman Act and the CEA is a separate and substantive hurdle that plaintiffs must overcome to state a claim upon which relief can be granted.

The court cautioned that any application for leave to amend must detail what additional allegations concerning domestic transactions in FX instruments would be added. Otherwise, leave to amend would be denied as futile.

The case is No. 15 Civ. 8974 (LGS).

Attorneys: Chan Ah Wah, pro se. Edwin R. Deyoung (Locke Lord LLP) for HSBC North America Holdings Inc., HSBC Bank PLC, HSBC Holdings PLC, and HSBC Bank USA N.A.

Companies: HSBC North America Holdings Inc.; HSBC Bank PLC; HSBC Holdings PLC; HSBC Bank USA N.A.

Cases: Antitrust NewYorkNews