N.Y. Federal Judge Dismisses Treasury Auction Manipulation Case Against Big Banks

On March 31, 2021, District Judge Gardephe dismissed a multidistrict litigation against Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Goldman Sachs, Morgan Stanley, RBS, and UBS, and three platform companies. The plaintiffs are 21 retirement and benefit funds, unions, banks, individuals and companies that claim the Wall Street giants violated federal anti-trust laws and state laws by conspiring to manipulate the U.S. Treasury Securities primary and secondary markets.
Procedural History
The case originated in July 2015 when the first complaint was filed and later, in December 2015, the panel on multidistrict litigation certified the case as an MDL. Interim lead counsel and lead counsel were appointed in 2016 and 2017.  The Defendants then filed joint motions to dismiss.
The Antitrust Conspiracy
The Plaintiffs allege that the Defendants violated the Sherman Act by conspiring to buy Treasury securities at artificially low prices and sell said securities at artificially high prices. Then, the Defendants manipulated the market by sharing customer information amongst themselves in order to artificially drive up their asking prices.

In order to substantiate their claims, the Plaintiffs alleged that regulators such as the DOJ and NYS Department of Financial services, that have investigated many of the defendants in connection to their involvement in the Treasury markets, have documents which would show that the Defendants exchanged, “confidential, competitively sensitive customer order and bid information with other banks…” However, the Court ruled that this evidence failed to satisfy the pleading standard because they do not constitute direct evidence of a conspiracy and rely on anonymously sourced news articles.

The Plaintiffs also relied on the pleading standard set forth in In re Foreign Exchange Benchmark Rates Antitrust Litigation, which states that, “allegations of large market share and being subject to investigations [are] sufficient at the pleading stage.” (74 F. Supp. 3d 581 S.D.N.Y. 2015). However, the Court rejected this proposition, as none of the evidence put forth by the Plaintiffs provided any specific information about the alleged chat rooms, nor had there been any public sanctions of the Defendants in connection with the regulatory investigations.

Lastly, the Plaintiffs relied heavily on statistical analyses to support their claims that there was parallel conduct. The analyses focused on the econometric patterns of pricing throughout the class period to indicate that a conspiracy was in fact at play. However, the Court concluded that the analyses merely pointed to the general pattern of the treasury market as a whole, and did not distinguish amongst the Defendants. Thus, the Court ultimately decided that, “without more, the conduct was of limited persuasive value.”
Boycott Claims
Additionally, Plaintiffs alleged that the “Platform Defendants” – TradeWeb Markets, TradeWeb IDB, and Dealerweb and the “Boycott Defendants” – Goldman, JPMorgan, Barclays, Citigroup, Bank of America, Morgan Stanley and Credit Suisse engaged in anticompetitive behavior. Together, the Platform Defendants and Boycott Defendants used their dominant market share of Treasury securities to “block technological innovation at the expense of investors…by boycotting any new or existing electronic trading venue.”

To substantiate these claims, Plaintiffs pointed to the close corporate relationship between the Boycott Defendants and Platform Defendants and several strategic business decisions made by TradeWeb and Dealerweb that resulted in the “collective boycott” of another trading platform. Plaintiffs also argued “plus factors” such as, that the Platform Defendants had ample motive and opportunity to join the conspiracy.

The Court dismissed these claims on the grounds that a close corporate relationship is not an allegation but rather a characterization that offers no evidence of any unlawful activity. Second, regarding the alleged boycott of other trading platforms and anticompetitive behavior, the Court referenced the earlier case, In re Interest Rate Swaps Antitrust Litigation (“Swaps I”), which considered similar allegations against the Boycott Defendants’ purchase of TradeWeb. There, the complaint alleged that defendants had used their “leverage” to take control of TradeWeb in order to ensure that their platform would continue to reign supreme. However, the court in Swaps I ultimately concluded that the allegations failed to meet the pleading standards  because the claims lacked specific allegations. The Court reached a similar conclusion here, that Plaintiffs failed to allege that the Platform Defendants actually engaged in any anticompetitive behavior.
Unjust Enrichment
The Defendants argued that just as the antitrust claims and boycott are unfounded, so too are the unjust enrichment claims. The Plaintiffs countered that the unjust enrichment claim should be seen as “an independent, standalone claim, with its own elements.” The Court however, found that since the crux of any unjust enrichment claim is that it would be unjust to allow the defendant to retain what the plaintiff seeks to recover, without proper pleading of the antitrust conspiracy or boycott claims which created the alleged profits, the unjust enrichment claims must also fail.
Conclusion

The Court used its broad discretion to grant Plaintiffs leave to amend the complaint and cure its defects until April 30, 2021.

This post was written by Hannah R. Zelcer.