Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—2d. Cir.: Panel affirms lower court conclusions on CEA, antitrust, and RICO claims, (Oct 18, 2022)

By Mark S. Nelson, J.D.

A trader alleging that overseas banks serving as benchmark rate setters conspired to manipulate Yen-LIBOR and Euroyen-TIBOR could not pursue a law suit because the CEA did not allow extraterritorial application of U.S. law under the circumstances.

Plaintiff Jeffrey Laydon brought a putative class action suit against Coöperatieve Rabobank U.A. and other entities that set the benchmark rate for Yen-LIBOR and Euroyen-TIBOR based on the theory that these banks manipulated such rates thereby hurting Laydon’s trades. The lower court and the appellate panel both concluded that, with respect to the complaint’s Commodity Exchange Act (CEA) claims, the banks’ alleged conduct was extraterritorial and, thus, not subject to suit in the U.S. The panel also rejected Laydon’s assertion that he had antitrust standing to bring a Sherman Act claim and likewise denied Laydon the chance to amend his complaint to add a civil claim under the Racketeer Influenced and Corrupt Organizations (RICO) Act (Laydon v. Coöperatieve Rabobank U.A., October 18, 2022, Park, M.).

Series of short-long trades. Laydon made a series of short and long trades in 3-month Euroyen-TIBOR futures between 2006 and 2011, which he placed on the Chicago Mercantile Exchange, a U.S.-based exchange. The basis for Laydon’s suit was that the Euroyen-TIBOR and the Yen-LIBOR are related to each other and that the banks in Japan and Great Britain that set the benchmark rates for each index provided false data on the Yen-LIBOR (set by the British Banking Association) which thereby influenced Laydon’s trades in Euroyen-TIBOR futures.

CEA claims. The panel restated the general rule that absent clear Congressional intent expressed via statute, a cause of action is presumed to be impermissibly extraterritorial. But that presumption implies a two-step analytical process in which the court mulls whether the presumption has been rebutted and whether there is a domestic application of the statute involved.

Here, CEA Section 22 contains no express indication of whether Congress intended for it to apply outside the U.S. The court emphasized that plaintiff Laydon traded a derivative product that was linked to a foreign asset. The court also noted that the defendant banks’ conduct occurred “almost entirely” overseas. As a result, the alleged manipulative conduct was predominantly foreign and, thus, it would be impermissible to apply to CEA.

Sherman Act claim. Laydon also had alleged that Rabobank and others violated Section 1 of the Sherman Antitrust Act. To survive a motion to dismiss, the court explained that Laydon would have to allege both an antitrust injury and that he would be an efficient enforcer of antitrust laws. The court’s opinion focused on the latter issue.

With respect to enforcement, Laydon, the panel said, would be inefficient because his injury was indirect due to his trading with unknown third parties; similarly, Laydon’s claim was indirect because of the many causal leaps required to bring his claim near to the “first step” after the defendant banks’ conduct.

Moreover, the panel opined that Laydon’s claims could be better represented by more direct plaintiffs, such as interest rate swaps traders. The panel noted that Laydon’s claim for damages was too speculative, largely because of the attenuated causal chain. Laydon’s damages claim also could result in duplicate recoveries and/or complex apportionment.

Civil RICO. Laydon sought to add a civil RICO claim based on the same conduct by the banks that allegedly affected the value of his trades. The panel reiterated that to bring a civil RICO claim, a complaint must allege a RICO violation, an injury to business or property, and causation.

The panel emphasized that Laydon failed to allege that his chosen RICO predicate violation (wire fraud) proximately caused his injury. Here, the panel analogized to its earlier antitrust discussion where the panel had noted that Laydon’s claim was too attenuated or too far removed from the first step taken by the defendant banks and that Laydon failed to allege any direct dealings with the banks. For similar reasons, the panel concluded that Laydon’s civil RICO claim failed to allege causation.

The case is No. 20-3626(L).

Attorneys: Eric F. Citron (Goldstein & Russell, P.C.) for Jeffrey Laydon. Thomas G. Hungar (Gibson, Dunn & Crutcher LLP) for UBS AG; and UBS Securities Japan Co., Ltd.; Marc J. Gottridge (Hogan Lovells US LLP) for Lloyds Banking Group PLC.; Nicole A. Saharsky (Mayer Brown LLP) for Société Générale S.A.; David R. Gelfand (Milbank LLP) for Cooperatieve Rabobank U.A. David S. Lesser (King & Spalding LLP) for The Royal Bank of Scotland PLC,; The Royal Bank of Scotland Group PLC; and RBS Securities Japan Ltd.;

Companies: Cooperatieve Rabobank U.A.

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