A federal judge in Manhattan on Monday rejected an effort by 14 of the world's biggest banks to throw out a private lawsuit accusing them of rigging an interest rate benchmark used in the $553 trillion derivatives market. US District Judge Jesse Furman said investors led by several pension funds and municipalities could pursue federal antitrust claims over an alleged conspiracy to rig "ISDAfix" from 2009 to 2012, and breach of contract and unjust enrichment claims against most defendants. Other claims were dismissed.
The defendants include Bank of America Corp, Barclays Plc, BNP Paribas SA, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank AG , Goldman Sachs Group Inc, HSBC Holdings Plc , J.P. Morgan Chase & Co, Morgan Stanley, Nomura Holdings Inc, Royal Bank of Scotland Group Plc, UBS AG and Wells Fargo & Co.
ICAP Plc, a British brokerage that once oversaw US dollar ISDAfix, is also a defendant. The lawsuit seeks to recoup billions of dollars of alleged losses. Regulators have also examined ISDAfix manipulation. "On balance, the opinion is very good for the plaintiffs," Dan Brockett, one of their lawyers, said in an interview. The defendants declined to comment or had no immediate comment.
Companies and investors use ISDAfix to price swaps transactions, commercial real estate mortgages and structured debt securities. Banks were accused of rigging ISDAfix for their own gain by executing rapid trades just before the rate was set each day, called "banging the close"; and causing ICAP to delay trades until they moved ISDAfix where they wanted, and post rates that did not reflect market activity. In his 36-page decision, Furman said "that sort of co-ordinated action in a supposedly competitive market is precisely the sort of anticompetitive behaviour the antitrust laws were intended to prevent."
Furman noted that other judges on his court, Naomi Reice Buchwald and Lorna Schofield, have split on whether banks should face antitrust liability for manipulating rate benchmarks. He said he "respectfully disagrees" with Buchwald, who found no such liability in a case involving Libor. Schofield found otherwise in a case involving foreign currency markets and the WM/Reuters Closing Spot Rates, or the Fix.
Buchwald's ruling is being reviewed by the federal appeals court in Manhattan. Its decision could affect the ISDAfix litigation. Furman's ruling, meanwhile, might carry weight with the appeals court. Brockett said the ISDAfix case differed from the Libor case because it also accused banks of manipulating transactions based on a rigged benchmark. The case is Alaska Electrical Pension Fund et al v. Bank of America Corp et al, US District Court, Southern District of New York, No 14-07126.