For shareholder lawyers, Treasury auction antitrust case is next big thing

September 10, 2015

(Reuters) – U.S. securities and antitrust class action lawyers smell big money from the reported Justice Department investigation of bid-rigging in the $12.5 trillion market for U.S. government debt. But before they can begin serious litigation against the two dozen banks and brokerages designated as primary dealers in Treasury securities, they may have to fight one another to lead the case.

The first class action claiming traders colluded to rig prices for T-bills, T-notes and other U.S. securities was filed by the securities firm Labaton Sucharow in July, about six weeks after the New York Post broke the news of the government investigation.

Since then at least 14 additional class actions have hit the docket in federal court in Manhattan. Some of the most successful plaintiffs’ firms in the business want a piece of the case, including Quinn Emanuel Urquhart & Sullivan and Cohen Milstein Sellers & Toll, which filed a chart-laden joint complaint on Aug. 26; Robbins Geller Rudman & Dowd; Berger & Montague and Kessler Topaz Meltzer & Check. Last week, U.S. District Judge Paul Gardephe ordered the cases to be consolidated in his Manhattan courtroom.

Broadly speaking, the suits allege that banks and brokerages conspired to drive up futures prices for Treasury securities in advance of announced auctions, then colluded to deflate actual prices at auction. The complaints claim the conspiracy permitted the banks to take in artificial profits from investors in the futures, primary and even secondary markets for Treasury securities – and to injure investors in debt and derivatives pegged to the benchmark price of T-bills or T-notes.

It’s become almost inevitable in the past few years for investor class actions to run alongside government investigations of rate-rigging. Those private cases have led to mixed results. Litigation over alleged price-fixing in the markets for precious metals and supposed manipulation of the ISDAFIX benchmark is still in early stages. Investors in a potentially huge class action over the London Interbank Offered Rate (Libor) are waiting to see if they can revive their antitrust claims at the 2nd U.S. Court of Appeals. But a consolidated class action over supposed rate-rigging in the foreign exchange market has already led to more than $2 billion in settlements with nine banks.

Daniel Brockett of Quinn Emanuel said the auction price tampering plaintiffs allege in the Treasury securities case is more straightforward than the supposed forex scheme. “This is not a benchmark case like Libor,” he said. “This is the oldest form of antitrust conspiracy in the world – basic collusion at auction to push down prices.”

Obviously, the defendants will have different explanations for the price patterns the Quinn complaint charts. And no bank or trader has admitted tampering with the price of Treasury securities – in contrast to settlements and guilty pleas admitting to Libor and Forex manipulation.

Nevertheless, plaintiffs’ lawyers in the Treasury securities case are thinking big. I talked Thursday to a half-dozen of them, though only Brockett and Gregory Asciolla of Labaton spoke on the record. According to the lawyers I talked to, they are already beginning to work out alliances in preparation for Judge Gardephe’s Oct. 1 deadline for motions to lead the case.

Such politicking is typical in antitrust class actions, in which there is no formal procedure for selecting lead counsel. (That’s in contrast to securities class actions, in which Congress specified the factors judges should consider.) “Ideally, the goal is private ordering, in which counsel agree” to a leadership structure, Asciolla said.

Other lawyers, including Brockett, said it’s likely that more than one plaintiffs’ group will ask to be appointed to head the case. Brockett said Quinn and Cohen Milstein, which hired economics experts to crunch the price data they presented in their complaint, intend to file a motion.

“We’ve looked at this pretty carefully,” he said. “More so than the firms that filed complaints with nothing in them.”

One notable absence from the list of plaintiffs’ firms in the Treasury securities case is Michael Hausfeld of the firm with the same name. Hausfeld is co-lead counsel in both the U.S. dollar Libor and Forex litigation, so he’s certainly well versed in these rate-rigging issues. I emailed him to ask why he’s apparently sitting this one out but didn’t hear back.

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