Twelve major banks have reached a $1.865 billion settlement to resolve claims brought by a group of investors alleging that banks conspired to fix prices and limit competition in the market for credit default swaps (CDS). A group of investors and hedge funds contended that banks extracted excessive profits by exploiting their dominant position to charge high trading fees. The complaint alleged that the financial institutions traded in a way that “kept the relevant price information in the hands of the dealer Defendants, who ensured they were on one side of, and thus profited from, virtually every CDS transaction.” The banks and a trade association – the International Swaps and Derivatives Association (ISDA) – “successfully maintained an inefficient and opaque market structure that yielded for them exorbitant profits at the direct expense of the investors”.
The Defendants include: Goldman Sachs Group Inc., JPMorgan Chase & Co., Citigroup Inc., HSBC Holdings Plc, Bank of America Corp., Morgan Stanley, Credit Suisse Group AG, Deutsche Bank AG, Barclays Plc, UBS Group AG, Royal Bank of Scotland Group Plc and BNP Paribas SA. Under the terms of the settlement, the banks will pay different amounts toward the settlement. The size of each bank’s contribution will be derived from its share of CDS trading. Although the tentative agreement has been reached, the settlement still needs a judge’s approval.
U.S. District Judge Denise Cote set a May 2017 trial date, as well as a fall briefing schedule on class certification, in the event the settlement falls apart. A little more than a year ago Judge Cote largely upheld a variety of claims brought by Plaintiffs including the Los Angeles County Employees Retirement Association and Salix Capital US Inc. at the motion-to-dismiss stage. At that time, Judge Cote dismissed claims relating to Section 2 of the Sherman Antitrust Act, which pertains to monopolies, but said the Plaintiffs had sufficiently pled that representatives from the banks secretly met and agreed to the conspiracy.
In court filings the banks had also rejected the conspiracy claims, saying the Plaintiffs’ “blanket allegations” were not legally actionable. Plaintiffs allege the banks conspired to keep new participants from entering the CDS market, keeping the price for trading in CDS artificially high and costing potential class members tens of billions of dollars. The total annual market for CDS is valued in the tens of trillions of dollars, but fluctuates widely with economic conditions.
In addition to Bank of America, Barclays and Goldman the suit names as Defendants BNP Paribas, Citigroup Inc., Credit Suisse AG, Deutsche Bank AG, HSBC Bank Plc., JPMorgan Chase & Co., Morgan Stanley & Co., UBS AG and Royal Bank of Scotland PLC. There are two other Defendants, industry trade group International Swaps and Derivatives Association and financial data provider Markit Group Ltd. The Plaintiffs are represented by Daniel L. Brockett, Steig D. Olson, Sascha N. Rand and Jonathan Oblak of Quinn Emanuel Urquhart & Sullivan LLP and Bruce L. Simon and Clifford Pearson of Pearson Simon & Warshaw LLP. The case is In re: Credit Default Swaps Antitrust Litigation in the U.S. District Court for the Southern District of New York.
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