Shearman & Sterling LLP | Antitrust Blog | <p >Southern District Of New York Dismisses Silver Benchmark Manipulation And Silver Trading Conspiracy Claims<br >  </p >
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  • Southern District Of New York Dismisses Silver Benchmark Manipulation And Silver Trading Conspiracy Claims


    On July 25, 2018, Judge Valerie E. Caproni of the United States District Court for the Southern District of New York dismissed with prejudice claims that certain banks participated in a conspiracy to (a) manipulate the London Silver Fixing, and (b) engage in manipulation of silver spot markets and futures markets in violation of Section 1 of the Sherman Act. The Court held that plaintiffs failed to plausibly allege that these banks—which did not participate in the London Silver Fixing—were part of the alleged conspiracy to manipulate that benchmark. The Court also dismissed other conspiracy claims on antitrust standing grounds, based on the remoteness of the injuries allegedly suffered by plaintiffs and the dangers of disproportionate recovery that this remoteness would present. The Court also dismissed claims that the alleged conduct violated the Commodity Exchange Act (“CEA”) and justified recovery under an unjust enrichment theory.

    The London Silver Fixing (the “Fix”) allegedly was a global benchmark for silver prices. Until its discontinuance in 2014, the Fix was allegedly set by a designated group of three banks (collectively, the “Fixing Banks”). In 2014, a group of plaintiffs filed suit against the Fixing Banks, as well as a fourth bank, alleging that they conspired to manipulate the Fix. After the court denied the motion to dismiss against the Fixing Banks, one of the Fixing Banks settled with plaintiffs and, in connection with the settlement, provided electronic chat records and other evidence that plaintiffs maintained connected banks other than the members of the Fix to the alleged conspiracy. Plaintiffs then filed an amended complaint, adding new defendant banks that had never been members of the Fix (collectively, the “Non-Fixing Banks”) as named defendants and alleging a “much broader conspiracy to manipulate the markets for silver and silver-denominated assets.” The amended complaint relied primarily on the electronic messages obtained from the settling Fixing Bank as purported evidence of the Non-Fixing Banks’ participation in the alleged conspiracy.

    The Non-Fixing Banks moved to dismiss, arguing, among other things, that the chats did not render plausible a claim that necessarily depended on the conspirators’ ability to abuse their position as members of the Fix. On July 25, 2018, Judge Caproni granted the Non-Fixing Banks motion to dismiss in its entirety and dismissed them from the case, finding that plaintiffs’ allegations of an overarching conspiracy instead appeared to be “internally inconsistent efforts to manipulate the silver markets episodically.” The Court dismissed plaintiffs’ claims that the Non-Fixing Banks participated in a conspiracy to manipulate the Silver Fix when they were not members of the Fix and the alleged coordinated trading lacked a connection to the Fix Price, and indeed might have made it “more difficult to profit from foreknowledge of the Fix Price.” The Court also held that plaintiffs could not rely on the chats as “direct evidence” of such a conspiracy, as none of the chats suggested that the Non-Fixing Banks had advance knowledge of the Fix price or were otherwise part of a conspiracy to manipulate it.

    With respect to other conspiracy allegations against the Non-Fixing Banks—namely, an alleged conspiracy to manipulate secondary market prices and spreads through manipulative trading strategies—the Court dismissed those claims on antitrust standing grounds. The Court noted that plaintiffs were “umbrella purchasers” who did not deal directly with any Non-Fixing Bank, which the Court stated had a number of implications for the antitrust standing analysis. First, the Court found that more efficient enforcers existed than plaintiffs (i.e., those that did deal directly). Second, the Court found that damages would be difficult to calculate because plaintiffs had failed to show how the alleged manipulation affected broader market prices, which likewise meant that it would be difficult for plaintiffs to demonstrate that they had in fact been harmed. Finally, the Court found a significant risk of duplicative recovery, because in any given transaction, both sides could be injured, depending on the direction of the alleged manipulation. Based on these factors, the Court found that plaintiffs were not efficient enforcers under the antitrust laws and therefore dismissed these claims against the Non-Fixing Banks for lack of antitrust standing. 

    Finally, the Court dismissed plaintiffs’ CEA claims against the Non-Fixing Banks on similar grounds as the antitrust claims. Specifically, the Court held that plaintiffs had not established a link between the Non-Fixing Banks and the Silver Fix and had failed plausibly to allege that they had suffered actual damages.

    The Court’s ruling marks the most recent of a growing number of recent financial benchmark litigation cases in which a court found that plaintiffs lacked antitrust standing because they had not engaged in direct transactions with defendants. See alsoIn re LIBOR-Based Fin. Instruments Antitrust Litig., 2016 WL 7378980 at *16 (S.D.N.Y. Dec. 20, 2016) (“LIBOR VI”); Sullivan v. Barclays PLC, 2017 WL 685570, at *15 (S.D.N.Y. Feb. 21, 2017); In re Platinum & Palladium Antitrust Litig., 2017 WL 1169626, at *22 (S.D.N.Y. Mar. 28, 2017); Sonterra Capital Master Fund Ltd. v. Credit Suisse Grp. AG, 277 F. Supp. 3d 521, 558 (S.D.N.Y. 2017).