The Manipulation Monitor: A Guide to Financial Market Manipulation Antitrust Litigation

Commentary on Antitrust and Other Competition Law Litigation Relating to the Financial Services Industry.
Posted: September 6, 2019

Fannie Mae Bond-Fixing Suit To Proceed Against Goldman Sachs And Others

The New York Times is reporting (via Reuters) that Judge Jed Rakoff of the United States District Court for the Southern District of New York has ruled that an anti-trust action alleging price-fixing of Fannie Mae and Freddie Mac bonds can proceed against Goldman Sachs, Deutsche Bank, BNP Paribas, Morgan Stanley, and Merrill Lynch. Judge Rakoff’s decision was based upon chat-room evidence of coordination he described as “direct” and “smoking gun.” Eleven other banks that were not implicated in the chats were dismissed, including TD Bank, Barclays, and Citigroup, but the plaintiffs have been given an opportunity to plead additional facts to bring them back into the action.

Posted: September 3, 2019

Second Circuit Reinstates Aluminium Antitrust Lawsuit

Law360 (subscription required) and are reporting that the Second Circuit Court of Appeals has ruled in favor of Eastman Kodak, Fujifilm and other plaintiffs by reversing a lower court’s dismissal of antitrust claims they brought against Goldman Sachs, JP Morgan Chase, and other entities. The plaintiffs are manufacturers who allege that the price they paid for aluminium was inflated through manipulation of warehousing services and futures contracts. The action had been dismissed in 2016, when S.D.N.Y. Judge Katherine Forrest ruled that the plaintiffs lacked anti-trust standing. The Second Circuit’s opinion was written by Judge Pierre Leval.

Posted: July 29, 2019

SIBOR Claims Dismissed for Lack of Standing

LAW 360 (subscription required) reports that a suit in the S.D.N.Y. against various banks alleging manipulation of the Singapore Interbank Offered Rate (“SIBOR”) has been dismissed by U.S. District Judge Alvin K. Hellerstein on grounds related to Plaintiff Fund Liquidation Holdings LLC’s standing. Specifically, Judge Hellerstein found that an agreement between the Plaintiff and FrontPoint Asian Event Driven Fund Ltd. and Sonterra Capital Master Fund Ltd. (together, “FrontPoint”) (who originally filed the suit) only assigned claims related to securities-related suits, not antitrust claims like those under the Sherman Act brought by the Plaintiff. The Court also denied a motion to approve a $21 million settlement agreement proposed by CitiGroup and JPMorganChase on the grounds that Plaintiff’s lack of standing meant that the Court did not have subject matter jurisdiction to approve the settlement.

Please keep an eye out on our blog in the near future for a more detailed post on Judge Hellerstein’s decision.

You might also be interested in reading our previous blog post detailing the allegations originally made by FrontPoint in this same case, as well as our blog post covering how FrontPoint’s claims in another case concerning manipulation of Australian Bank Bill Swap Reference Rate were dismissed for lack of standing. The decision to reject FrontPoint’s standing in the Australian Bank Bill Swap Reference Rate case was similar to Judge Hellerstein’s October 2018 decision in the SIBOR matter to do the same.

Posted: June 5, 2019

Chicago Board Options Exchange Dismissed From VIX Manipulation Lawsuit

Reuters and the Wall Street Journal are reporting that an Illinois Federal judge has dismissed claims against Cboe Global Markets Inc. arising out of alleged manipulation of the CBOE’s VIX volatility index. Judge Manish Shah held that common-law negligence claims were preempted by federal law, and that the plaintiffs had failed to plead violations of federal anti-trust and securities laws by the exchange itself. Leave to replead the federal claims was granted.

Posted: June 3, 2019

Jurisdictional Limitations Continue to Trouble SSA Antitrust Plaintiffs

When we last checked in on In re SSA Bonds Antitrust Litigation, 16-cv-3711 (SDNY), we focused on Judge Ramos’ granting the Defendants’ motion to dismiss Plaintiffs’ Consolidated Amended Complaint for failure to state a claim because Plaintiffs failed to allege injury-in-fact sufficient to establish antitrust standing. Now, Plaintiffs have re-pled their claims and several Defendants have moved to dismiss a second time. One issue in this second round of motions to dismiss is whether the culpable individual traders are subject to the jurisdiction of the New York Court federal court. Judge Ramos’ forthcoming ruling on these complex jurisdictional questions will shed light on the extent to which global banks can insulate their traders by locating their desks overseas.

Summary of the Allegations

For a more detailed summary of the allegations, visit our June 27, 2018 post, which gives a full account of the alleged collusion in the Consolidated Amended Complaint.

In short, Plaintiffs, buy side funds and institutional investors, allege a broad conspiracy where Defendants—major banks and the individual traders employed by those banks—leveraged their positions as major players in the supranational, sub-Sovereign, and agency (“SSA”) bond market to manipulate the bid-ask spread on SSA bonds. Plaintiffs’ Consolidated Amended Complaint relied upon statistical analyses and 150 Bloomberg chat messages between traders at the Defendant banks that—according to Plaintiffs—are “smoking gun” evidence of a coordinated effort to manipulate the SSA market in their favor, to the detriment of investors.

Now, Plaintiffs’ Second Consolidated Amended Complaint (“SCAC”, Dkt. No. 506) brings allegations to the table: additional chats and communications obtained as part of settlements with certain defendants. But the jurisdictional issue—one that Judge Ramos has not reached in his previous rulings—remains perhaps Plaintiffs’ largest hurdle in getting their complaint past a motion to dismiss.

The Trader-Defendants’ Jurisdictional Challenges

Since Plaintiffs’ second amended complaint, individual defendants, traders Manku, Heer, Pau, McDonald, and Gudka, (collectively, the “Trader Defendants”) have all moved to dismiss for lack of personal jurisdiction. These Trader Defendants all worked for U.K.-based offices of defendant banks during the relevant timeframe, and none of them are alleged to have transacted in SSA’s with any of the named plaintiffs. (See Dkt. Nos. 538, 543, 541).

The Trader Defendants make similar arguments: First, New York’s long arm statute does not apply to them. As relevant here, New York’s long arm statute requires the Plaintiffs to allege that each Trader Defendant, in person or via an agent “transact[ed] any business within the state,” and (ii) that the cause of action “arise[s] from” that transaction. See Best Van Lines, Inc. v. Walker, 490 F.3d 239, 249 (2d Cir. 2007). Although Plaintiffs allege that each Trader Defendant engaged in transactions with unnamed, New York-based class members, Plaintiffs do not state any such transaction with specificity. In other words, Plaintiffs cannot cite any transaction between a Trader Defendant, on the one hand, and a named Plaintiff, on the other. See SCAC ¶ 111 (alleging only that Manku “was personally responsible for USD SSA transactions that were done at artificial prices with members of the Class in the United States (including in New York)”). Second, the Trader Defendants argue that even if Plaintiffs could allege facts sufficient to satisfy New York’s long arm statute, Constitutional limitations prevent the Court’s exercise of jurisdiction over them. The Trader Defendants each argue that the SCAC fails to allege conduct expressly aimed at the forum. Charles Schwab Corp. v. Bank of Am. Corp., 883 F.3d 68, 86 (2d Cir. 2018). The SCAC’s allegations that the defendants knew or reasonably should have known that the brunt of the injury of their misconduct would be felt in the forum are not sufficient. Id.

In response, Plaintiffs argue that the Trader Defendants splice singular allegations in the SCAC and in so doing, miss the forest for the trees. Each Trader Defendant, Plaintiffs maintain, is alleged to have promoted and priced USD SSA bonds to and for U.S.-based investors. Indeed, Plaintiffs allege that U.S.-based salespeople at the defendant banks would actively refer U.S.-based clients to the Trader Defendants. As to the Trader Defendants’ argument that they did not transact with any of the named Plaintiffs, Plaintiffs insist that the Court may consider the transactions of absent class members in New York. In any event, Plaintiffs argue, the Trader Defendants manipulated the prices for all SSA transactions, including those in which the named Plaintiffs participated.

Regarding Defendants’ purposeful availment of the U.S. marketplace, Plaintiffs’ argue that the entire “purpose and goal of the conspiracy was for the conspirators to ‘avail’ themselves of the opportunity to rip off U.S. customers to increase profits.”

Practical Considerations

Briefing on the jurisdictional issues was complete in March, and Judge Ramos’ forthcoming decision merits close attention from those pursuing manipulation cases in global markets. On the one hand, holding that the Trading Defendants are subject to personal jurisdiction by virtue of their having interacted with unnamed class members in New York would significantly lengthen the jurisdictional reach of financial class action cases. On the other, sustaining the Trading Defendants’ jurisdictional challenge may incentivize global banks to locate their bond traders overseas.

More broadly, the Trader Defendants’ motion comes at an interesting time in the case. The remaining institutional defendants have also asked Judge Ramos to dismiss the case, lodging similar forum and jurisdictional arguments. Additionally, the Securities Exchange Commission and DOJ—two agencies interested in market manipulation cases—have not brought enforcement actions or criminal charges, which might suggest that they view the conduct as better-prosecuted abroad. Plaintiffs also recently obtained access to even more chat messages, provided as part of a settlement with HSBC. If the Court holds their jurisdictional allegations insufficient, will those chats provide grounds to seek another leave to amend?

As these and other issues unfold, we’ll continue to keep our eye on interesting developments in the SSA antitrust litigation.

This post was written by Peter J. Sluka.

We welcome your feedback. If you have questions or comments about this post, please e-mail John M. Lundin, the Manipulation Monitor’s editor, at or Peter J. Sluka at or call John or Peter at (212) 344-5400.

Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.

Posted: May 24, 2019

Four Bank Defendants Dismissed From S.D.N.Y. ForEx Lawsuit

LAW 360 (subscription required) reports that four bank defendants–UBS Group AG, SocGen, RBS PLC, and MUFG Bank, Ltd.–have been dismissed from a pending foreign exchange bid-rigging action in the S.D.N.Y. District Judge Lorna Schofield dismissed UBS Group AG because the complaint did not allege that it had participated in the alleged manipulation activity, and that the plaintiffs had conflated it with other UBS entities. SocGen, RBS, and MUFG Bank were all dismissed for lack of personal jurisdiction, on the grounds that none of their conduct was directed at New York such that they could “reasonably anticipate being haled into court” in New York. The action, Contant v. Bank of America, remains pending against other defendants, including Barclays, BNP Paribas, HSBC, Standard Chartered, and UBS AG.

Posted: May 17, 2019

E.U. Hands Down $1.2 Billion Fine For Rigging ForEx Markets

Today, CNBC, Reuters, and the E.U. itself itself are reporting that the European Commission has fined Barclays, Citigroup, J.P. Morgan, MUFG, and Royal Bank of Scotland a total of 1.07 billion Euro ($1.2 billion) for rigging the spot foreign exchange market for 11 currencies. The bid-rigging was carried out by traders from the various banks communicating with each other over Bloomberg terminals. The fines covered two separate schemes, one taking place between 2007 and 2013, and the other between 2009 and 2012. UBS received immunity because it had reported the bid-rigging schemes to the Commission, thereby avoiding a fine of 285 million Euro.

In a related investigation, U.S. regulators have fined Barclays, BNP Paribas, Citigroup, J.P. Morgan, Royal Bank of Scotland and UBS more than $2.8 for the same conduct.

Posted: April 11, 2019

The VIX is Fixed?! Plaintiffs Think Their Charges Should Stick

We’re back for another installment of the most-fun-to-name series of posts the Manipulation Monitor has to offer. Last time around, we reviewed Defendant’s valiant efforts to rid the world – or, at least, the Northern District of Illinois – of the scourge of VIX-related claims. Plaintiffs have some comments, of course, so we’re back again with VIX-the-fifth. Post the first through post the fourth are linked below – recommended reading before moving on to part two of this post:

Post the First: The VIX is Fixed?! A Preview of the Tricks
Post the Second: The VIX is Fixed?! A Complaint is Remixed
Post the Second: The VIX is Fixed?! Defendants Request this Suit be Nixed
Post the Fourth: The VIX is Fixed?! Plaintiffs Would Like Some Discovery Real Quick

Now that you’re caught up, or at least content to boogie on without background (way to live on the wild side, you crazy antitrust addict you!), let’s look at the opposition:

But Did It Ever Really Happen?

Plaintiffs begin by attacking Defendant’s final argument: that plaintiffs failed adequately to allege that flaws in the VIX franchise were ever exploited. To counter this proposition—which they note Defendants addressed only halfheartedly—Plaintiffs identify four key areas in which their Complaint demonstrates manipulation:

  • Aggregation: “there is nothing wrong,” Plaintiffs argue, with providing aggregate analyses that highlight data patterns demonstrating manipulation; indeed, the practice avoids charges that only anomalous, “outlier” data points are being presented.
  • Griffin & Shams: Plaintiffs next point out that, while they refer to the work done by these eminent academics, all the analyses outlined in their complaint were designed and conducted by Plaintiffs (or, presumably, Plaintiffs’ experts), using data obtained by the plaintiffs, and goes beyond the work of Griffin & Shams to included new methods of analysis.
  • Griffin & Shams, Again: Plaintiffs also counter Defendants’ attacks on the academic paper, accusing defendants of “engaging in sleight of hand” by attacking only the academic paper rather than the analyses carried out by Plaintiffs. Moreover, to the extent that Defendants argue that the academics failed to “fully rule out all potential explanations,” Plaintiffs point out that that is simply not the pleading burden.
  • Witnesses: To defendants’ claim that it is “striking” that Plaintiffs have failed to present a corroborating witness, Plaintiffs again note that at the pleading stage, before discovery, a smoking gun is unnecessary where statistical analysis can give rise to plausible claims.

Trust the Process (this used to be good advice)

Plaintiffs begin this section by outlining the requisite standard for pleading their claims under Rule 10b 5—something Defendants apparently failed to do—and quote recent Second Circuit authority for the principal that “the gravamen of a manipulation claim is the deception of investors into believing that prices at which they purchase and sell securities are determined but the natural interplay of supply and demand, not rigged by manipulators.”

Breaking this standard into its component parts, Plaintiffs first note that pleading deceptive or manipulative conduct for a market manipulation claim only requires them to allege, “to the extent possible, what manipulative acts were performed, which defendants performed them, when the manipulative acts were performed, and what effect the scheme had on the market for the securities at issue.” The what/who/when questions, Plaintiffs address by way of reference to the original complaint, and similarly summarize the effect on the market resulting from the rigged SOQ process. They further note that similar claims were found sufficient in other 10b-5 market manipulation claims, where exchanges engaged in manipulative conduct resulting in purchased by investors deceived into believing that the prices at which the relevant securities were bought and sold were determined by the market. Nor is it plausible to recast Plaintiffs Rule 10b-5(a) and (c) claims as 10b-5(b) misrepresentation and omission claims, Plaintiffs argue: the case law relied on by Defendants for that argument address only fact patterns where the sole fraudulent conduct at issue was misleading statements or omissions, rather than a situation such as Plaintiffs’ complaint describes, where a larger scheme that encompasses such conduct or statements.

CBOE’s argument that it cannot be liable because Plaintiffs do not allege that that entity personally engaged in manipulative trading is also erroneous, Plaintiffs insist, neither 10b-5(a) or (c) require such engagement for liability. Instead, all that is required is “any devise, scheme or artifice,” or “any act, practice, or course of business” used to perpetrate a fraud. Moreover, the CBOE was not “aiding and abetting” the fraud; Defendants ignore Plaintiffs allegations that CBOE was by way of its creation, maintenance, marketing, and expanding of the VIX franchise, a primary act in its own right.

Plaintiff’s next argument addresses scienter. This is a factor to be address collectively, Plaintiffs argue, considering “all of the facts alleged,” and whether they together “give rise to a strong inference of scienter,” not whether any individual allegation meets the requisite standard. To that end, Plaintiffs point out that the complaint directly alleges scienter, and that such allegation is supported by plentiful facts—such as CBOE’s admission that it oversaw every settlement, had complete access to all relevant data, and actively reviewed said data for potential VIX settlement manipulation. Where Plaintiffs access to more limited public data showed numerous signed of manipulation, CBOE’s more granular data gave it even more knowledge. To the extent that CBOE argues that scienter cannot be inferred based on a theory that “any competent observer would detect manipulation,” given that Plaintiffs allege that they were themselves in the dark until recently, it simply cannot stand: CBOE is not an outside investor, but “the ultimate insider act[ing] knowingly or recklessly.” Moreover, the allegations concerning CBOE’s financial motivations are not “generic,” and cannot be compared to the “generalized motives common to all corporate executives to protect their own interests”: the VIX franchise accounted for nearly half of the CBOE’s total revenues, and the importance of the franchise has repeatedly been acknowledged by the CBOE itself. And along the same lines, Plaintiff claim, Defendants’ claim that the importance of VIX would have led the CBOE to cure any problems discovered is both inappropriate to accept at the pleading stage, and without any justification showing that the SOQ process could be cured without diminishing the value of the “crown jewel” franchise.

Next, Plaintiffs address Defendants argument that they failed to sufficiently allege reliance, because Plaintiffs asserted that they relied on the integrity of the VIX SOQ process, rather than alleging reliance on a particular misstatement or omission. Because this is not a misrepresentation case, Plaintiffs explain, all that is required is that they meet the market manipulation case standard: an alleged reliance on the “assumption of an efficient market free of manipulation.” Because they satisfy this pleading requirement, Plaintiffs explain, the allegations adequately plead reliance. They also observe that pleading reliance in a manipulation case does not prevent them from also availing themselves of fraud-on-the-market presumption, noting that courts have uniformly held such presumption to be appropriate. Plaintiffs also explain that they meet the Affiliated Ute presumption, a standard associated with cases applying to failure to disclose, and that under such standard CBOE, as a party aware of the manipulation, had a duty to disclose.

Turning to causation and standing arguments, Plaintiffs rebut the CBOE’s assertion that Securities Exchange Act claims are not well pled by claiming that FRCP 8(a)(2) governs allegations of loss causation, and that the applicable standard thus only requires Plaintiffs to “provide [the] defendant[s] with some indication of the loss and the causal connection that the plaintiff has in mind.” Article III standing poses a similarly low threshold, according to plaintiffs, and requires only a “reasonable causality chain” to link Plaintiffs’ injury to Defendants’ actions. Plaintiff alleges that class members were forced to pay more as buyers, and accept less, as sellers, for VIX products than they would have in a fair market, and the complaint includes detailed allegations of the types of instruments causing harm in which each Plaintiff transacted. Together with their analysis demonstrating abnormal movement in market prices on settlement days, Plaintiffs insist that their allegations are both sufficient at the pleading stage, and substantially similar to allegations upheld in recent Rule 10b-5(a) and (c) cases. The causal connection prong, moreover, does not require a causal connection with a specific statement – Plaintiffs point to Defendants insistence on this point as yet another way they are attempting to force the square peg of market manipulation claims into the round hole of misrepresentation cases. Similarly, Plaintiffs ague that they are not obligated at the pleading stage to tie specific transactions to specific episodes of manipulation and amounts. In support, they cite to a 2016 case involving the ISDAfx benchmark which sets forth that, “at this stage, the appropriate question is whether the alleged manipulation…plausible caused each Plaintiff to suffer some loss under the terms of some derivative at some point.”

On the immunity prong, Plaintiffs counter Defendant’s assertions with the observation that immunity is only granted in “rare and exceptional” circumstances. The burden is on CBOE to demonstrate that self-regulatory organization immunity is appropriate, and it is a high bar: the conduct must be of a regulatory nature such that CBOE was effectively “standing in the shoes of the SEC.” The immunity cannot apply, Plaintiffs posit, where the self-regulated organization is acting in its own market as a regulated entity, not as a regulator—and this is where Defendants apparently fail. In creating, marketing, and selling the VIX derivative products, CBOE was not, according to Plaintiffs, acting as a regulator: it was behaving in every respect as a commercial actor, and the profits it earned while doing so show its role clearly. Plaintiffs highlight several cases on this point, including a comparison to In re Facebook, Inc., IPO Securities & Derivative Litigation, which permitted negligence claims related to the design, testing, and marketing of NASDAQ’s technology on the grounds that they were “undertaken to increase trading volume” – presumably, much like CBOE’s proprietary VIX products – and thus non-regulatory. Plaintiffs also pushed back strongly against Defendant’s assertion that the complaint’s inclusion of regulatory allegation was a “virtual concession” as to the applicability of regulatory immunity. Plaintiffs don’t see it that way. Instead, they argue that the Rule 10b-5 claims are not based on any of the regulatory-related allegations and are present only to serve Plaintiffs’ separate CEA claims. This is very different, Plaintiffs insist, from In re NYSE Specialist Securities Litigation, relied on by Defendants, because Plaintiffs in that case expressly based their securities claim – as opposed to the CEA claim here – on various categories of wrong doing described by Plaintiffs themselves as regulatory failures. Further, the Facebook litigation found that overlapping evidence between claims did not mean that all claims were immunized; accordingly, Plaintiffs CBOE “cannot cloak the entire VIX franchise with immunity merely because the CBOE might have stopped the manipulation with better policing.”

Further addressing questions of immunity and preemption, Plaintiffs next tackle Defendant’s position that, because certain of the CBOE’s rules regarding VIX products were reviewed or approved by the SEC or CFTC, Plaintiffs’ securities claims are barred by immunity. To counter this assertion, Plaintiffs point to the Second Circuit’s decision in City of Providence, where the court declined to grant immunity in respect of the exchange’s offering of proprietary data feeds and co-location services firms, notwithstanding the SEC’s repeated approval of those practices. Indeed, the SEC apparently felt strongly enough about the issue to submit an amicus brief echoing that its “mere approval” of a practice does not give rise to immunity. Defendants also argues that these approvals result in the preemption of Plaintiffs’ Rule 10b-5 claims by the Securities Act. Again, Plaintiffs see things a little differently, explaining that the case Defendants cite in support of this notion addresses preclusion of antitrust claims by potential conflicting securities laws, and further observing that the case has not, in eleven years, been imported to the Rule 10b-5 arena.

Finally (for this section, anyway), Plaintiffs find time to tackle timeliness troubles. Because their Rule 10b 5 claims do not arise from “independently actionable false statements,” Plaintiffs argue that are not limited by the fact that the SOQ process and the defective VIX index were originally designed more than five years ago. The claims are continuous – or, by the data, continuous through as recently as February 2018 – and the repose period has not yet run. And irrespective of the accuracy of that argument, Plaintiffs also point out that the question of repose is fundamentally factual, and thus cannot be decided on a motion to dismiss.

A Sufficient Degree of Plausibility is as easy as C-E-A

Shifting gears now to focus on the Commodities Exchange Act claims, Defendants’ first argument is that Section 5 of the CEA does not contain a private right of action. In response, however, Plaintiffs note that Section 22—conveniently titled “Private Rights of Action”—does contain such rights, including for Section 5 obligations.

Up next is the question of particularity: again, a lack of specific, manipulated quotes. Again, Plaintiffs work to distinguish Defendants’ case cites, including the slightly weaker argument that allegations in other cases that were upheld “where the complaints happened to be able to ‘name names,’ that does not mean those cases establish identifying quotes as a pleading prerequisite in a completely different fact pattern.” More convincingly, Plaintiffs also posit that, even if Defendants were correct that a specific quote might be required at the pleading state, such burden would likely—and has been regularly—lightened by the courts “where, as here, the information is exclusively in the defendants’ control.” Plaintiffs arguments in favor of their plausible pleading of causation follow a similar logical path: such detail is not reasonably required at the pleading stage, and all that needs to be provided is some indication of loss and the causal connection.

Plaintiffs further assert that they plausibly pled that CBOE acted in bad faith. Under the Seventh Circuit’s decision in Bosco, “bad faith” under the CEA has a unique meaning, one akin to “negligence.” Only where the exchange has full discretion is more than “mere negligence” required. The negligence standard applies in this case, Plaintiffs assert, because the claims are about the CBOE’s mandatory obligations regarding rules that the exchange “should know” were being flouted.

Beyond bad faith, Plaintiffs also address CBOE’s contention that an ulterior motive is necessary part of the pleading requirements. Spoiler alert: disagreement. Plaintiffs distinguish the Sam Wong & Sons case relied on by Defendants by noting that the case itself recognized the “common-sense fact” that, “if the action was not reasonable on its own terms, motivation is irrelevant.” Citing Bosco, Plaintiffs go on to note that the Seven circuit expressly held that, even when “more” than negligence is required, “more” can be satisfied by showing “either that the exchange acted unreasonably or that it had improper motivation.” Seems pretty clear that an ulterior motive, while critical for The Enchantress and her supervillain friends in the Marvel universe, is just not a necessity under the CEA. Despite their argument for irrelevancy, Plaintiffs still argue that such ulterior motive is plain here based on selfish financial gain. Perhaps CBOE is channeling Thanos after all?

Negligent or Not?

As Plaintiffs address the plausibility and proper assertion of their negligence claims in less than two pages, I will endeavor to do so here in less than two sentences. To briefly summarize, then: Plaintiffs withdraw their negligence claims respect to the VIX Options and SPX Options. VIX Futures, on the other hand, are not preempted by the CEA – because the CBOE “stepped outside its regulatory shoes”—and the CBOE’s argument that nothing it did was wrong or has been shown to cause damage is incorrect, because CBOE’s course of conduct regarding the VIX franchise creates a duty of care.


And that’s it, dear readers, for this month’s bloggy installment. As always, stay tuned for updates on the outcome of this motion to dismiss and, while you’re waiting, I recommend you peruse my other ramblings on related cases – SOS to GSEs is shaping up to be a fun series, and you can check out the first installment right here: SOS to GSEs: Your Bonds Are a Beautiful Mess.

This post was written by Alexandra M.C. Douglas.

We welcome your feedback. If you have questions or comments about this post, please e-mail John M. Lundin, the Manipulation Monitor’s editor, at or Alexandra M.C. Douglas at or call John or Alexandra at (212) 344-5400.

Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.

Posted: March 26, 2019

Lawsuits Filed Over Eurozone Bond Bid-Ask Rigging

On March 22, 2019, the Ohio Carpenters’ Pension Fund filed a proposed antitrust class action in the Southern District of New York.

The complaint alleges that Bank of America and NatWest (f/k/a RBS) conspired to rig the bid-ask spreads of Eurozone government bonds between 2007 and 2012. The complaint specifically alleges that the defendants were (nominally) competing “primary dealers” for the sale of the bonds to investors, but that they colluded to increase their bid-ask spread collectively in order to avoid competitive disadvantage and potential loss of the issuers’ business.

On January 31, 2019, the European Commission issued a press release stating that it had formed the “preliminary view” that “eight banks participated in a collusive scheme that aimed at distorting competition when acquiring and trading European government bonds,” and that the collusion activity largely took place on internet chat rooms. This story was widely reported by financial press outlets such as Bloomberg. Although the Commission did not name the banks involved, NatWest/RBS has been identified as a likely subject of the investigation. A related lawsuit has been filed in the District of Connecticut.

Posted: March 19, 2019

Forthcoming Mandamus Petition in Gold Fixing Antitrust Case Puts Discoverability of Plaintiffs’ Statistical Market Analyses at Center Stage

When the emergence of big data and supercomputing drew complex statistical analyses—event studies, regression analyses, ANOVA methods and the like—out of the classroom and into the marketplace, those paying attention knew that courtrooms would not be far behind. Today, these complex statistical analyses give market-watchers (potential Plaintiffs) unparalleled ability to identify unnatural market movement and ferret out manipulation. When incorporated into a complaint, these analyses—and the reasonable inferences drawn therefrom—allow market manipulation cases to clear the motion to dismiss stage and progress to discovery, where the machinations behind those unnatural movements are (theoretically) laid bare.

Now, a suit in the Southern District of New York alleging gold price manipulation has brought the discoverability of those statistical analyses—and particularly, the analyses that potential plaintiffs perform, but ultimately do not rely upon in their complaints—into focus. Plaintiffs were ordered to produce the preliminary, uncited analyses performed by their consulting expert, and they have promised to petition the Second Circuit Court of Appeals for a writ of mandamus enjoining enforcement of that order. The Second Circuit’s ruling on that petition threatens to have far-reaching effects on the use of statistical analyses in a complaint and the scope of the attorney work product protection.

Summary of the Allegations

This case concerns an alleged coordinated effort to manipulate the gold benchmark. Plaintiffs, a number of individuals, businesses and funds, allege that Defendants, several large broker-dealer banks including UBS, Barclays, Deutsche Bank, Bank of America, and HSBC, manipulated the daily gold benchmark—the “fix”—by, inter alia, making spoof bids/asks or wash trades during the time period that the fix was calculated (the “PM Fixing”) to steer the fix in a specific direction, usually down. Plaintiffs’ theory of market manipulation stemmed from statistical analyses demonstrating that gold prices acted differently around the PM Fixing than they did at any other time of day. Specifically, Plaintiffs’ proffered statistical analyses showed that that gold prices went down around the PM Fixing more than they went up, and that when prices fell, they fell further than they increased. Moreover, when the gold price dropped during the PM Fixing, Defendants’ gold spot quotes were closer to one another’s quotes than other market participants and lower than other market participants. See Third Amended Complaint, In re Commodity Exch., Inc., No. 14-md-02548 (VEC) ¶¶ 123-283 (S.D.N.Y.) (ECF No. 183). These analyses supported the reasonable inference that Defendants were conspiring to manipulate the PM Fix.

The statistical analyses underlying the complaint’s theory of manipulation were the lynchpin of Plaintiffs’ claims. Without them, Plaintiffs’ claims could not have survived Defendants’ motion to dismiss. When it sustained Plaintiffs’ Consolidated Second Amended Class Action Complaint in October 2016, the Court recognized the importance of the analyses, observing, “[w]hether the detailed statistical analyses contained in the Complaint reveal ground truth about the activities of the Defendant banks who participated in the Gold Fix or are on the ‘lies, damn lies and statistics’ side of the dichotomy remains to be seen.” In re Commodity Exch., Inc., 213 F. Supp. 3d 631, 641 (S.D.N.Y. 2016).

The Discovery Demand

Consistent with their discovery obligations, Plaintiffs produced all the underlying data and analyses on which their complaint was based, including complete datasets, native copies of all graphs or charts, and all data inputs and outputs used to develop any graphs, charts, or analyses cited in their complaints. But Defendants demanded more. It was not enough, Defendants argued, that Plaintiffs produce the data underlying the conclusions set forth in the complaints; Defendants needed everything Plaintiffs’ experts prepared, including all analyses not disclosed in the complaint, all iterations of those analyses, and all data underlying those analyses. See Ltr. Mot. to Compel, In re Commodity Exch., Inc., 14-md-02548 (S.D.N.Y.) (ECF No. 361).

Defendants based their broad demand for all analyses prepared by Plaintiffs’ experts—whether or not they were cited in the complaints—on the argument that in drafting their complaints, Plaintiffs selectively relied on their experts’ analyses, and discovery of the entire corpus of their experts’ work was necessary to avoid the prejudice resulting from that selective utilization of the data. Essentially, Defendants argued that “if you torture the data long enough, it will confess,” and Plaintiffs must produce the entirety of that torture, not just the confession.

Plaintiffs opposed Defendants’ demand. Plaintiffs argued that the materials sought were subject to attorney work product protection, and that protection was not waived because Plaintiffs did not put those materials in issue. Moreover, Plaintiffs argued that since they did not intend to rely upon those analyses for class certification, summary judgment, or trial, Defendants’ demand sought materials that were irrelevant to the litigation going forward. See Ps’ Opp’n, In re Commodity Exch., Inc., No. 14-md-02548 (S.D.N.Y.) (ECF No. 365). As to Defendants’ claims that Plaintiffs utilized only a misleading selection of evidence, Plaintiff’s insisted that Defendants had everything they needed to challenge the verity of the conclusions set forth in their complaint; disclosure of materials beyond that was a bridge too far.

The Court’s Order

On February 25, 2019, Judge Caproni granted Defendants’ motion to compel. See Order, In re Commodity Exch., Inc., No. 14-md-02548 (S.D.N.Y.) (ECF No. 377). The Court considered the factors commonly considered in this jurisdiction when determining whether a party has waived work product privilege under Rule 502(a). Specifically, a waiver applies “to an undisclosed communication or information in a federal or state proceeding only if: (1) the waiver is intentional, (2) the disclosed and undisclosed communications or information concern the same subject matter, and (3) they ought in fairness to be considered together.”

The Court held that Plaintiffs, by making selective use of their experts’ analyses, waived work product protection as to the entirety of the experts’ work because it all concerned the “same subject matter” of gold price fixing.

The Court relied heavily on fairness concerns, largely echoing Defendants’ concerns that Plaintiffs were presenting a misleading slice of the analyses: “the withholding of information that would tend to undermine key statistical conclusions alleged in a complaint would, in this Court’s view, result in ‘a selective and misleading presentation of evidence to the disadvantage of the adversary.’ Fed. R. Evid. 502(a) Advisory Committee Note; Seyler v. T-Sys. N. Am., Inc., 771 F. Supp. 2d 284, 288 (S.D.N.Y. 2011). Intentional disclosure of only favorable statistical results is, by definition, selective and misleading. And in this case, such a selective disclosure would benefit Plaintiffs and prejudice Defendants, as Plaintiffs’ statistical presentation was central to the Court’s decision that Plaintiffs have plausibly alleged Defendants’ participation in price manipulation and an antitrust conspiracy.”

The Mandamus Petition

Just last week, Plaintiffs asked the district court to stay enforcement of its order to produce until a forthcoming petition for a writ of mandamus to the United States Court of Appeals for the Second Circuit can be resolved. Plaintiffs argue that mandamus is necessary to determine whether, under Federal Rule of Civil Procedure 26 and Federal Rule of Evidence 502(a), a plaintiff that includes non-testifying consultants’ economic analyses and data in a complaint retains work-product protection over those consultants’ economic analyses and data that were not utilized to support the allegations in the complaint.

Plaintiffs argue that the district court erred when it held that expert analyses not cited in the amended complaint were waived simply because they concern the same general subject of gold price fixing. See Mot. for Stay, In re Commodity Exch., Inc., No. 14-md-02548 (S.D.N.Y.) (ECF No. 380). Such a hair-trigger application of the subject-matter work-product waiver would subvert the Advisory Committee’s admonition that subject matter waiver be “reserved for . . .unusual situations” in which it is “necessary to prevent a selective and misleading presentation of the evidence.” Fed. R. Evid. 502 (a) Advisory Committee Note to 2011 Amendment. More importantly, it would chill litigants’ ability to discuss their case freely and critically with consulting experts. See Mfg. Admin. & Mgmt. Sys., Inc. v. ICT Grp., Inc., 212 F.R.D. 110, 118 (E.D.N.Y. 2002) (non-testifying expert is one “to whom an attorney may speak freely about litigation strategies and opinions without falling prey to the powerful jaws of mandatory disclosure.”).

Practical Considerations

Given the increased reliance on statistical analyses to both identify cases of suspected market manipulation and allow those cases to clear the motion to dismiss hurdle, Second Circuit guidance on the discoverability of those analyses will have far-reaching consequences in the investigation and litigation of market manipulation cases. Denial of Plaintiffs’ petition for a writ of mandamus threatens to upend the role that consulting experts play in preparation of the statistical analyses that underlie these and similar complaints, and it may seriously compromise the ability of attorneys to ferret out misconduct like the kind alleged here. On the other hand, granting Plaintiffs’ petition risks providing potential plaintiffs an undiscoverable forum to “torture” the market data until it yields an actionable case. Either way, this dispute over the uncited, unreferenced expert analyses merits close attention going forward.

This post was written by Peter J. Sluka.

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