Forex class action deals may hint banks braced to lose Libor appeal

May 26, 2015

Citigroup revealed last week that it has agreed to pay $394 million to settle private antitrust litigation over manipulation of a benchmark price average for trades in the foreign exchange market, bringing the total recovery for plaintiffs in the consolidated forex litigation to nearly $810 million. That number is expected to rise. Citi is the fourth bank to reach a deal in the private case – JPMorgan Chase, UBS and Bank of America have already settled – and at least two other of the eight remaining forex defendants are also reportedly in talks with plaintiffs lawyers.

On the same day Citi’s deal was announced, plaintiffs suing dozens of banks – including 10 of the 12 defendants in the forex case – for rigging the U.S. dollar London Interbank Offered Rate (Libor) filed their opening brief at the 2nd U.S. Circuit Court of Appeals in their attempt to revive their antitrust claims. As you probably remember, U.S. District Judge Naomi Reice Buchwald of Manhattan, in a shocker of a ruling in 2013, dismissed Libor antitrust claims, finding plaintiffs don’t have antitrust standing to sue over Libor manipulation because the rate-rigging was not anticompetitive. A procedural decision this winter by the U.S. Supreme Court in Gelboim v. Bank of America forced the 2nd Circuit – which had previously ducked review of Buchwald’s Libor ruling – to take up the case.

The lead author of the new Libor appellate brief, Thomas Goldstein of Goldstein & Russell, forcefully argues Judge Buchwald ignored fundamental tenets of antitrust precedent when she found the alleged victims of a price-fixing cartel hadn’t suffered an antitrust injury. “It does not matter whether the tool for collusively manipulating prices is agreeing to abuse a benchmark-setting process like Libor or holding a meeting in a proverbial smoke-filled room,” the brief said.

Not surprisingly, Goldstein and his many, many co-counsel on the brief contrasted Buchwald’s antitrust standing analysis with that of the trial judge in the forex cases, U.S. District Judge Lorna Schofield of Manhattan. In January, Judge Schofield denied the forex defendants’ motion to dismiss antitrust rate-rigging allegations that, according to the new Libor brief, are “legally indistinguishable” from those in the Libor case. Judge Schofield, the brief said, explicitly rejected Judge Buchwald’s “unpersuasive” reliance on “two inapposite Supreme Court cases.” (The plaintiffs’ filing does concede in a footnote that two other Manhattan federal judges – including U.S. District Judge George Daniels in consolidated litigation over alleged manipulation of the yen Libor – have adopted Judge Buchwald’s reasoning in antitrust opinions.)

Oral arguments in the Libor appeal are scheduled for Aug. 18, according to the docket at the 2nd Circuit. That’s not far off, and if banks involved in both the forex and Libor cases were sure the 2nd Circuit will uphold Judge Buchwald on antitrust standing, it would seem to make sense for them to wait for the Libor appellate decision before settling forex. Defendants in the forex case, after all, relied heavily on Judge Buchwald’s Libor ruling in their motion to dismiss, so a 2nd Circuit endorsement of Buchwald’s analysis would improve their leverage in settlement talks. The willingness of four big Libor defendants to reach deals with private forex plaintiffs could be a hint the banks are not sure Judge Buchwald’s Libor decision will hold up.

I should point out, however, some key differences in the private Libor and forex cases. Four banks, including JPMorgan and Citi, pleaded guilty last week to conspiring to manipulate forex price averages. No bank has admitted to colluding with other institutions to rig the U.S. dollar Libor, although evidence released by U.S. and British authorities indicates a scheme to rig the yen benchmark rate.

Moreover, the rate-setting processes at issue in the Libor and forex cases are different. The Libor benchmark averages banks’ reported estimates of the interest rates they’d have to pay to borrow money from other banks. Forex benchmarks, on the other hand, are based on banks’ actual market transactions in a specified time period. That seems like a technical distinction, but it could turn out to be significant for purposes of antitrust standing – if not at the 2nd Circuit then possibly at the U.S. Supreme Court.

Michael Hausfeld, who is a lead plaintiffs lawyer in the private Libor and forex cases, said he expects “much more to be disclosed” in each litigation. “As the Justice Department said in its press announcement, this really is just the beginning,” he said. Robert Wise of Davis Polk & Wardwell, who serves as liaison defense counsel for the banks in the Libor case, declined to provide a statement.

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