In November, we published an article describing an antitrust suit brought against several large banks that mirrored the LIBOR (London interbank offered rate) scandal. Now, the first of those Defendants has settled the claims against them. JPMorgan Chase & Co has become the first bank to settle the lawsuit in which investors accused 12 major banks of rigging prices in the $5 trillion-a-day foreign exchange market. J.P. Morgan, the largest U.S. bank, will pay about $100 million. In a letter filed with the U.S. District Court in Manhattan last month, lawyers for the bank and the investors said a settlement had been reached. Since it involves a class action, the settlement requires court approval.
The 2013 lawsuit is separate from criminal and civil probes worldwide into whether banks rigged currency rates to boost profit at the expense of customers and investors. JPMorgan agreed in November to pay about $1.01 billion to resolve probes by U.S. and European regulators. Five other banks including Bank of America, Citigroup, HSBC, RBS, and UBS also settled with regulators in November for an additional $3.3 billion.
In this class action complaint, investors including the city of Philadelphia, hedge funds and public pension funds accused the 12 banks of having conspired since January 2003 in chat rooms, instant messages and emails to manipulate the WM/Reuters Closing Spot Rates. They said traders would use such names as The Cartel, The Bandits’ Club and The Mafia to swap confidential orders, and set prices through manipulative tactics such as “front running,” “banging the close” and “painting the screen.” Front running is when a broker trades stocks based on internal analyst information prior to giving the clients the information. A broker who purchases stocks in a company that his brokerage firm is about to recommend as a strong buy, is front running.
Banging the close, as we described in an earlier report, refers to a massive push to buy or sell a certain stock right before market close. Painting the screen, sometimes called painting the tape, involves large buying and selling of securities between brokers to create an impression of high market activity, an action specifically declared illegal by the Securities and Exchange Commission.
This is a most unusual and welcomed settlement. I believe that J.P. Morgan Chase did the right thing in addressing its involvement. Hopefully other banks will follow suit. The case is in the U.S. District Court, Southern District of New York.
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