Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. were among seven banks that have agreed to pay a total of $324 million to settle class action litigation alleging that they rigged a benchmark interest rate used to set terms for swaps transactions. The banks, which lost a motion to dismiss the complaint in March, also agreed to cooperate with lawyers for the Plaintiffs in further investigation of manipulation of the so-called ISDAfix, a tool that determines valuations for interest rate derivative products. The cooperation feature is potentially significant because 15 Defendants that have been sued over alleged ISDAfix manipulation have pending cases.
According to the Plaintiffs, who filed suit in September 2014, the banks worked closely with interdealer broker ICAP PLC, which until January 2014 was tasked by the International Swaps and Derivatives Association with managing the daily setting of the U.S. dollar-rate version of ISDAfix. The banks were responsible for submitting rate quotes, which ICAP essentially adopted. The suit alleges that the parties worked together to set the rate at the point where it was most profitable for them, including engaging in a process known in the industry as “banging the close” where they bought and sold derivative products just before the fix was closed in order to get the price they wanted.
JPMorgan agreed to pay $52 million to settle the case while Bank of America, Credit Suisse AG, Deutsche Bank AG and The Royal Bank of Scotland PLC each agreed to pay $50 million. Citigroup agreed to a $42 million payout and Barclays PLC will pay $30 million to resolve the claims, the Plaintiffs said. Barclays had already paid $115 million last May to settle claims brought by the U.S. Commodity Futures Trading Commission (CFTC) related to alleged ISDAfix rigging.
Class action lawsuits are still pending against BNP Paribas SA, Goldman Sachs Group Inc., HSBC Bank PLC, ICAP Capital Markets LLC, Morgan Stanley, Nomura Securities Inc., UBS AG and Wells Fargo & Co.’s Wells Fargo Bank NA unit. The CFTC and other regulators are reportedly continuing their investigation into allegations of manipulation of the ISDAfix.
The CFTC has reportedly referred the case to the U.S. Department of Justice for an investigation into potential criminal activities. U.S. District Judge Jesse M. Furman noted that many of the claims made by institutional investors related to alleged manipulation of the ISDAfix looked very much like those made against banks in litigation related to the London Interbank Offered Rate (Libor) and other financial benchmarks. Judge Furman rejected the banks’ motion to dismiss in March, writing:
It appears that that sort of rate manipulation can be economically sensible and feasible given that many banks (including some defendants) have admitted that, in approximately the same period of time, they conspired to rig similar benchmark rates – namely, Libor and the leading benchmark interest rate for the foreign exchange market – in order to maximize profits.
The Plaintiffs alleged that the conduct came to a halt once the subpoenas arrived, an assertion that Judge Furman said strengthened their claims. The Plaintiffs are represented by lawyers from Scott & Scott LLP; Quinn Emmanuel Urqhart & Sullivan LLP; Robbins Geller Rudman & Dowd LLP; Grant & Eisenhofer PA; Bernstein Liebhard LLP; Carella Byrne Cecchi Olstein Brody & Agnello PC; Labaton Sucharow LLP; Trief & Olk; Berger & Montague PC, McCulley McCluer PLLC; and Fine Kaplan & Black RPC. The case is in the U.S. District Court for the Southern District of New York.
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