Last year, we wrote about the first motion to dismiss in a multi-district litigation in which Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Goldman Sachs, Morgan Stanley, RBS, and UBS, and three platform companies were accused of conspiracy to manipulate the primary and secondary markets for U.S. Treasury Securities. Today we will cover the second order dismissing Plaintiff’s claims, this one issued a year to the date from the first.
Background
Back in May of 2021, Plaintiffs filed their Amended Class Action Complaint (“ACAC), attempting to cure the lack of direct evidence that resulted in the first dismissal. Much of the ACAC relied on the testimony of a former senior executive of UBS affiliate company; this individual is not named, but “described that the US Treasury primary dealers acted as an ‘old boys club,’” where traders from UBS spoke to traders at the other Defendant banks “regarding the yields, bid quantities, and direction ahead of the Treasury auctions.” It also added new excerpts of Bloomberg chat discussions, as well as new statistical screens. Plaintiffs claimed that the screens showed alleged anomalies in trading patters that could only be explained by “collusion and market manipulation.”
On August 3, 2021, Plaintiffs and Defendants simultaneously filed opening, opposition, and reply briefs on Defendants’ new motions to dismiss the ACAC. (It is not entirely clear why these documents would appear simultaneously on the PACER docket, but based on prior scheduling orders, it appears likely that a typical, staggered briefing schedule was followed.)
The Auction and Boycott Defendants and the Platform Defendants each jointly filed motions to dismiss. The Platform Defendants argued that the new complaint still failed to address the pleading deficiencies identified by the Court after the initial dismissal. Specifically, Defendants insisted that the ACAC still “pleads no direct evidence of the alleged boycott conspiracy and includes no allegations that purport to support a rule of reason claim.” The Auction and Boycott Defendants make two main arguments: first that the ACAC does not plead direct evidence; and second, that the ACAC does not plead parallel auction conduct. They also argue that Plaintiffs lack antitrust standing to assert auction or boycott claims.
Plaintiff’s omnibus opposition brief begins with the bold claim that the ACAC, in “answering the Court’s call for more Defendant-specific facts…adds the proverbial smoking gun in the form of direct evidence about the conspiracy.” Unfortunately, U.S. District Judge Gardephe did not agree.
Dismissal Order
The lengthy opinion dismissing Plaintiffs’ claims for the second time, without leave to amend, ultimately held:
Having considered Plaintiffs’ new allegations together with those previously alleged in the Complaint and re-pled in the Amended Complaint, and having considered all of Plaintiffs’ allegations in conjunction with the alleged “plus factors” (see Pltf. Opp. (Dkt. No. 411) at 39-41), this Court concludes that “Plaintiffs have not pled sufficient substantive actions tied to specific Boycott Defendants – alleged to have occurred in the same or a similar timeframe – so as to plausibly allege parallel conduct.”
A. The Auction Conspiracy
With respect to the newly-added statements of the UBS executive, the Court concluded that they “do not constitute direct evidence of a conspiracy.” This was because, among other things, the Court found that Plaintiffs “continue[d] their practice of impermissible group pleading,” insofar as the statements of the UBS executive did not identify the employers of the traders allegedly engaged in the improper communications, instead referring to them generally as “traders [] at the primary dealers,” and failing to link specific defendants with specific conversations. The Court also noted that the UBS executive did not have “direct contact with traders at other firms,” so that individual’s allegations were not based on personal knowledge. The Court also considered Plaintiffs’ argument that the statements showed “parallel conduct suggestive of an agreement,” but found it “not persuasive”—again, because of the failure to make allegations that were specific to each Defendant.
In reviewing the Bloomberg Chats, the Court also found them lacking. First, because the chats only involved three of the Auction Defendants, the chats could not provide evidence of participation in a conspiracy by any of the other seven Defendants. Even with respect to the Auction Defendants whose traders were participants in the chats, the Court found the transcripts lacking: without any reference to an agreement among themselves, the chats could not be direct evidence of a conspiracy. The Court also noted that several of the chats made reference to already-executed trades, a fact which was found to “undermine[] any inference that the chat was somehow intended to facilitate coordinated bidding.” The limited number of Defendants involved in the chats posed another problem to the court, namely, that the alleged conspiracy would only be possible with “widespread” information sharing and coordination, and, with just four participants, there were “simply not enough dots to connect” to infer a wider agreement.
Next turning to the new statistical analyses—including both the prior statistical analyses, as well as the two new analyses based on the same data—the Court finds that Plaintiffs have still failed to address the “core deficiency” identified in the first dismissal order, namely, that the analyses were “not aimed at any particular Auction Defendant.”
B. The Boycott Conspiracy
The Boycott Conspiracy represents a separate track of allegations by Plaintiffs, this one focused on the Boycott Defendants’ alleged opposition to the creation or development of an “anonymous, all-to-all marketplace” for the trading of on-the-run (i.e. the most recently issued) Treasuries. Plaintiffs contend that the Boycott Defendants achieved this via a conspiracy to prevent any Dealer-to-Dealer e-trading platform from permitting trading by buy-side investors. The ACAC added only “modest” changes to Plaintiffs’ original allegations, including the identity of some of the specific Defendants who allegedly pressured the various trading platforms.
Plaintiffs identified six separate allegations which they claim are sufficient to support their Boycott Conspiracy claim; these included:
[T]he Boycott Defendants’ (1) creation of BrokerTec in 2000, their formation of the Activity Incentive Plans in 2001, and the Revenue Commission Agreements they entered into in or around 2003 (Am. Cmplt. (Dkt. No. 380) ¶¶ 385-92); (2) pressure on BrokerTec to end its joint venture with MarketAxess in 2004 (id ¶¶ 393- 401); (3) threats to pull liquidity from eSpeed in 2013 (id. ¶¶ 414-23); (4) “thwart[ing] [of] buyside efforts to join BrokerTec and eSpeed” in 2008, and between 2013 and 2016 (id. ¶¶ 441-48); (5) boycotting of Direct Match’s all-to-all platform when it launched in 2016, and the Boycott Defendants’ pressure on State Street to renege on its agreement with Direct Match to serve as its FICC sponsor (id. ¶¶ 449-61); and (6) refusal to use OpenDoor, leading to its closure in 2021 (id. ¶¶ 462-70). (See Pltf. Opp. (Dkt. No. 411) at 32-39)
The Court declined to find any of these allegations sufficient. The 2000-2003 conduct surrounding the creation of BrokerTek and related agreements were found to “pre-date the limitations period by a decade or more,” and Plaintiffs failed to plead facts “linking these matters to their more recent allegations.” The second allegation concerning pressure on BrokerTec fails because Plaintiffs only describe a specific threat made by on Boycott Defendant, “and otherwise resort to group pleading,” as general allegations of threats by other Defendants were not “explain[ed] in any fashion.” Similarly, the Court found that the third and fourth allegations—the threat to pull liquidity from eSpeed and the “thwarting” of buy-side efforts to partner with BrokerTec and eSpeed—both suffered from the same issues of impermissible group pleading and lack of specificity. With respect to the fifth allegation, the boycott of the Direct Match platform and pressure on State Street, the Court found that Plaintiffs did not plead facts suggesting that objections by the Boycott Defendants to a “platform that would disintermediate them from their clients” were pretextual. Finally, the Court found that the sixth allegation—the failure to support OpenDoor, a new all-to-all trading platform launched in June 2020—was also insufficient. Not only did Plaintiffs “acknowledge that they did not know whether or not the Boycott Defendants provided liquidity to OpenDoor,” but the Court found that, even if Defendants did not provide liquidity, that choice alone, “absent factual allegations suggesting coordinated behavior by specific Boycott Defendants,” was not sufficient to plead the existence of an anti-trust conspiracy.
C. Allegations as to the Platform Defendants
Plaintiffs alleged that the Platform Defendants participated in the alleged Boycott Conspiracy by launching a dealer-to-dealer platform (“Dealerweb”) which existed only as a “vessel into which the Boycott Defendants [could] transfer their liquidity” if either of the other relevant platforms converts to all-to-all trading. The Court previously rejected this allegation as insufficient, on the grounds that Plaintiffs failed to allege that the Platform Defendants used Dealerweb in an anticompetitive manner. The Court upheld that determination here, finding that Plaintiffs’ new allegations—most of which concerned Dealerweb’s parent’s acquisition of eSpeed—is not evidence of an antitrust violation, and did not address this central issue.
The last pages of the order are dedicated to the question of leave to amend, which the Court denied: “Plaintiffs gave had ample notice of the deficiencies in their pleadings, and have not been able to cure those deficiencies. There is no reason to believe that further amendment will be productive.” While this decision is sure to be appealed—and, indeed, a notice of appeal was filed on April 28th—it is, for now, the end of the road for Plaintiffs in this dispute.
This post was written by Alexandra M.C. Douglas.