Editor’s Note: This piece was originally published in The Litigation Daily
A Manhattan federal judge on Wednesday delivered an early-inning win to plaintiffs lawyers at Hausfeld LLP and Scott & Scott in a suit accusing a dozen major banks of widespread manipulation of the $5 trillion-a-day foreign exchange market.
Less than a month after JPMorgan Chase & Co. reached a settlement in the case, U.S. District Judge Lorna Schofield refused to dismiss consolidated class action claims against a group of financial industry giants including Bank of America Corp., Barclays PLC and Citigroup Inc. Schofield held that the plaintiffs plausibly alleged an antitrust conspiracy in which the banks’ top forex traders agreed to rig the market for more than a decade.
The plaintiffs, represented by Hausfeld name partner Michael Hausfeld, Scott & Scott’s Christopher Burke and others, include Philadelphia’s city pension board, along with several public pension funds, investment funds, and hedge funds. They claim traders at the banks used instant messages, emails, and online chat rooms to rig foreign exchange rates including the benchmark World Markets/Reuters Closing Spot Rates, also referred to as “the fix.”
“The U.S. complaint contains specific allegations of chat room participants congratulating each other about the manipulation of the fix,” Schofield wrote in Wednesday’s order. “Even the names the FX traders gave their chat rooms—such as ‘The Cartel,’ ‘The Bandits’ Club’ and ‘The Mafia’—support the inference that the chat rooms were used for anticompetitive purposes.”
The suit dates back to November 2013 and involves allegations similar to those investigated by government regulators, who have secured more than $1 billion in penalties from some of the banks.
The banks moved to dismiss the private action in May 2014. They asserted at the time that the investors’ antitrust claims were threadbare, and that they’d failed to connect the alleged rate rigging to the banks’ efforts to secure more business in the ForEx market.
Schofield rejected those arguments on Wednesday, allowing the proposed class action to move forward. However, she agreed to dismiss a pair of similar lawsuits brought by plaintiffs in South Korea and Norway who traded foreign currency outside of the U.S. The judge ruled that the foreign plaintiffs’ Sherman Act claims were barred by the Foreign Trade Antitrust Improvements Act, and found their New York state claims had “an insufficient nexus to New York.”
Wednesday’s ruling keeps the U.S. plaintiffs’ case intact against all 12 banks named as defendants. The number is likely to shrink to 11, however: JPMorgan Chase & Co. and its lawyers at Skadden, Arps, Slate, Meagher & Flom wrote to Schofield on Jan. 5, indicating that they had reached a settlement.
We contacted Scott & Scott’s Christopher Burke and lawyers for multiple defendants on Wednesday but didn’t immediately hear back.
The defense lineup for the banks includes Shearman & Sterling (for Bank of America); Sullivan & Cromwell (for Barclays); Allen & Overy (for BNP Paribas); Covington & Burling (for Citigroup); Cahill Gordon & Reindel (for Credit Suisse Group AG); Kirkland & Ellis (for Deutsche Bank AG); Cleary Gottlieb Steen & Hamilton (for Goldman Sachs & Co.); Locke Lorde (for HSBC Holdings PLC); Skadden, Arps, Slate, Meagher & Flom (for JPMorgan); Wachtell, Lipton, Rosen & Katz (for Morgan Stanley); Davis Polk & Wardwell (for The Royal Bank of Scotland Group PLC); and Gibson, Dunn & Crutcher (for UBS AG).