Shearman & Sterling LLP | Antitrust Blog | Southern District Of New York Dismisses Benchmark Manipulation Claims Against Banks Not Involved In Setting Benchmark, But Allows Claims To Proceed Against Panel Banks<br >  
Antitrust Litigation
This links to the home page
Antitrust Litigation
  • Southern District Of New York Dismisses Benchmark Manipulation Claims Against Banks Not Involved In Setting Benchmark, But Allows Claims To Proceed Against Panel Banks

    On October 4, 2018, Judge Alvin K. Hellerstein of the United States District Court for the Southern District of New York dismissed, with prejudice, claims that certain banks engaged in an industry-wide conspiracy to manipulate various Singapore financial benchmarks in violation of Section 1 of the Sherman Act, while simultaneously ruling that claims against other defendants that were involved in setting the benchmark could proceed.  The Court also found that it did not have jurisdiction over defendant banks that were not members of the panel that set the financial benchmark at issue, and therefore dismissed plaintiffs’ claims against those defendants.  Frontpoint Asian Event Driven Fund v. Citibank, 16 Civ. 5263 (S.D.N.Y. Oct. 4, 2018).

    According to the complaint, the Singapore Interbank Offered Rate (“SIBOR”) benchmark represents the cost of borrowing funds in the Singapore market and reflects the average competitive rate of interest charged on interbank loans.  SIBOR rates are collected and calculated daily by a trade group comprising banks that submit to a panel each day the interest rate at which it could borrow U.S. and Singapore dollars in the interbank market (collectively “Panel Banks”).  Thomson Reuters then gathers the quotes submitted by the Panel Banks, applies a set formula, and disseminates daily the resulting average rate to subscribers in the United States and other countries.  Plaintiffs allege that SIBOR is often used to price various types of derivatives, and therefore changes in the SIBOR rates can be to the detriment or benefit of those engaged in such derivative transactions.

    On August 18, 2017, Judge Hellerstein granted in part and denied in part defendants’ first motion to dismiss plaintiffs’ original complaint on primarily personal jurisdiction grounds, but allowed leave to amend.  Plaintiffs subsequently filed a second amended complaint on September 18, 2017, and defendants moved again to dismiss.

    In this second ruling, Judge Hellerstein dismissed the foreign defendants which were not members of the SIBOR panel (“Non-Panel Banks”) for lack of jurisdiction, but held that specific jurisdiction existed as to the Panel Banks.

    The opinion first discusses whether plaintiffs’ conspiracy allegations were plausible and sufficient to state a claim.  Judge Hellerstein had already concluded that the conspiracy claims were plausible in his earlier Order.  In particular, Judge Hellerstein relied heavily on regulatory investigations and findings in Singapore, which allegedly led to over 130 traders being disciplined, as satisfying the “plus factors” requirement at the motion to dismiss stage.

    Judge Hellerstein, however, held that the complaint failed to sufficiently allege how foreign Non-Panel Banks were involved in the alleged conspiracy.  Plaintiffs made no allegations that Non-Panel Banks communicated with Panel Banks, or that Non-Panel Banks contributed to or participated in the conspiracy in some other way; instead, plaintiffs simply alleged that these defendants traded SIBOR-based derivatives in the United States with parties other than plaintiffs.  This “innocent activity,” lacking any connection to the alleged conspiracy, was insufficient to plausibly allege a conspiracy, and Judge Hellerstein therefore dismissed plaintiffs’ claims against the Non-Panel Banks.

    Judge Hellerstein found that the Court had personal jurisdiction over all Panel Banks, even those that did not transact directly with plaintiffs, based on the concept of conspiracy jurisdiction.  Judge Hellerstein had previously ruled that conspiracy jurisdiction was unavailable without evidence that any defendant committed any act from within the United States in furtherance of the alleged conspiracy.  In this more recent opinion, however, Judge Hellerstein held that certain defendants’ trading in the U.S. of SIBOR-based derivatives constituted an act in furtherance of a conspiracy.  Specifically, Judge Hellerstein wrote that “where the complaint plausibly alleges a profit-motive, as here, the U.S.-based trading is properly alleged to have been a part of the conspiracy and to be related to the overseas manipulation. Such U.S.-based trading, when alleged to be the object of the conspiracy, can support the exercise of personal jurisdiction.”  (Opinion at *19.)  Furthermore, Judge Hellerstein held that the personal jurisdiction contacts resulting from U.S.-based trading with plaintiffs by certain defendants could be imputed to all other panel members, even those that did not directly transact with the plaintiffs.

    This ruling appears to be in tension with the Second Circuit’s opinion in Charles Schwab Corp. v. Bank of Am. Corp., 883 F.3d 68 (2d Cir. 2018), but Judge Hellerstein did not perceive an inconsistency.  He determined that the alleged LIBOR conspiracy at issue in Schwab focused on maintaining the reputational effects on investors rather than profits from trading in LIBOR-based derivatives, and that the alleged conspiracy in SIBOR included allegations of a profit-motive from the trading of SIBOR-based financial products, meaning, in the Court’s view, that all banks could in theory profit from the alleged conspiracy and thus be subject to personal jurisdiction.