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: December 2, 2019

Analysis of the Second Circuit’s Reversal of the Dismissal of Complaints in In re Aluminum Warehousing Antitrust Litigation

On August 27, 2019, the United States Court of Appeals for the Second Circuit reversed Judge Katherine B. Forrest’s dismissal of three consolidated complaints appearing in In re Aluminum Warehousing Antitrust Litigation, 13 MD 2481. Eastman Kodak Co. v. Henry Bath LLC, 936 F.3d 86 (2d Cir. 2019), vacating and remanding In re Aluminum Warehousing Antitrust Litig., No. 13-MD-2481 (KBF), 2016 WL 5818585 (S.D.N.Y. Oct. 5, 2016) (reported here on September 3, 2019).

This post analyzes the Second Circuit’s decision and briefly reviews developments before the district court since the claims were restored.

The Appeal

In the order appealed from, Judge Forrest dismissed the claims of various plaintiffs who asserted violations of Section 1 of the Sherman Act, 15 U.S.C. sec. 1, resulting from a conspiracy to inflate prices in the “primary” aluminum market (that is, aluminum produced at a primary aluminum plant or smelting facility, rather than reconstituted aluminum scrap.) Judge Forrest relied on the Second Circuit’s 2016 affirmance in In re Aluminum Warehousing Antitrust Litig., 833 F.3d 151 (2d Cir. 2016), of her earlier dismissal of antitrust claims brought by certain “End Users” of aluminum, who had purchased aluminum outside the primary market. As quoted by Eastman Kodak Co. v. Henry Bath LLC, 936 F.3d at 90, the Circuit’s earlier decision in In re Aluminum Warehousing Antitrust Litig., 833 F.3d at 161 had “concluded that those [End User] plaintiffs ‘disavow[ed] participation in any of the markets in which the defendants operate.’”

The Circuit found that Judge Forrest erred in applying In re Aluminum Warehousing Antitrust Litig. to dismiss the claims of the plaintiffs in Eastman Kodak Co. Specifically, the Court of Appeals disagreed with her reliance on the conclusion that the injury Plaintiffs claimed “occurred in the market for the purchase of primary aluminum, while the market restrained by the defendants was ‘first and foremost’ the market for aluminum warehousing”. Eastman Kodak Co., 936 F.3d at 95, quoting In re Aluminum Warehousing Antitrust Litig., 2016 WL 5818585 at *1. Rather, the Circuit concluded, “The defendants allegedly restrained the market for purchase and sale of primary aluminum, and the market in which the plaintiffs were injured was the market for the purchase and sale of primary aluminum. The observations this court made in Aluminum III [833 F.3d 151] about the difference in that cases [sic] between the market alleged to have been restrained by the defendants, and the market in which the plaintiffs suffered injury, have no application to these complaints.” 936 F.3d at 95.

Some factual context is required to understand the Circuit’s disagreement with Judge Forrest. As explained by Eastman Kodak Co., 936 F.3d at 91-92, the spot metal price for aluminum has two components. The first of these, the LME Cash Price, is set by the London Metals Exchange based on the value of the metal as established though market forces, without regard to the cost of delivery. “The second component, the benchmark regional premium, which in the United States is the Midwest Premium . . ., reflects the costs associated with making deliveries, including transportation, insurance, and warehouse storage while awaiting delivery.”

Plaintiffs alleged that certain defendants from the financial industry (the “Financial Defendants”) had acquired other defendants involved in the warehousing and delivery of aluminum (the “Warehousing Defendants”). Delays at the Warehousing Defendants’ facilities tend to increase the Midwest Premium, and thus the spot price of aluminum. Plaintiffs alleged that Financial and Warehousing Defendants conspired to create such delays, causing Plaintiffs injury.

Judge Forrest’s conclusion that “the market restrained by the defendants was ‘first and foremost’ the market for aluminum warehousing” was therefore mistaken:

The district court was perhaps correct as to “first,” in a temporal sense, but not as to “foremost.” . . . defendants’ alleged anticompetitive purpose was not to add delays and costs to warehouse customers demanding delivery of their stock. The purpose was to inflate the prices of the metal, so that the defendants’ large stocks of aluminum would be re-sold at artificially inflated prices because of their inflation of the Midwest Premium. The burden inflicted by the defendants on the warehousing market was merely the means to accomplish the defendants’ anticompetitive objective. There is no rule in antitrust law that defendants who undertake to restrain markets by concerted anticompetitive actions can be liable to victims in only one market, much less that they can be liable only in the market that is the first locus of restraint, regardless of the identity of the market that motivated the restraint.

936 F.3d at 96-97.

Subsequent Developments

As Judge Forrest had resigned from the bench effective September 2018, the Aluminum Warehousing matters were reassigned to the Hon. Paul A. Engelmayer in September 2019, shortly after restoration by the Second Circuit.

On November 4, 2019, Judge Engelmayer held a conference and set a schedule for briefing of a class certification motion that Plaintiffs had brought, which had been administratively terminated by Judge Forrest pending her determination on Defendants’ motion that led to the 2016 dismissal. Defendants also had submitted a related motion in 2016 to disqualify an expert from whom Plaintiffs had submitted a declaration in support of class certification. That, too, had been left pending upon the 2016 dismissal.

Judge Engelmayer directed that Defendants file further opposition to class certification, and any additional arguments regarding the expert, by November 15, 2019, with Plaintiffs to respond by December 5. That briefing is on schedule.

This post was written by Schlam Stone & Dolan partner Thomas A. Kissane.

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 Thomas A. Kissane at or call John or Tom at (212) 344-5400.

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Posted: November 13, 2019

The VIX Is Fixed?! Judge Shah Says This Complaint Must Be Kicked.

After such a long blogging hiatus, I am back and bursting with a multitude of manipulation-related updates. To keep this post under ten pages, today’s target will be Judge Shah’s decision on the first motion to dismiss in In re: Chicago Board Options Exchange Volatility Index Manipulation Antitrust Litigation. And yes, I said the “first” motion to dismiss – the wheels of justice may turn slowly, but not quite so slowly as this blog has been. Luckily for our readers, this just means that there are fine grinds of not only an order, but an amended complaint and complete motion to dismiss briefing coming your way soon.

Since it has been such a long time since the last post in this series, reader might all benefit from a review of past installments, which cover the Griffin & Shams paper on the manipulation of the Chicago Board Options Exchange’s (CBOE) Volatility Index (VIX); the consolidated class action complaint; defendant’s motion to dismiss, and plaintiff’s opposition papers; and briefing on a motion for expedited discovery.

The VIX is Fixed?! A Preview of the Tricks
The VIX is Fixed?! A Complaint is Remixed
The VIX is Fixed?! Defendants Request this Suit be Nixed
The VIX is Fixed?! Plaintiffs Would Like Some Discovery Real Quick
The VIX is Fixed?! Plaintiffs Think Their Charges Should Stick

And now that we (I) remember what this dispute was all about, time to take a deep dive into the order.


After a detailed overview of the VIX’s function and foundation, Judge Shah launched directly into a pithy review of the standing question. First, the court observed that, to adequately allege Article III standing, plaintiffs must demonstrate (1) that they “suffered an injury in fact that is concrete and particularized and actual or imminent”; (2) that the injury is “fairly traceable” to defendant’s actions; and (3) that the harm is “likely to be redressed by a favorable decision.” It was enough, the court decided, that Plaintiffs alleged Defendant’s manipulation of the VIX, that such manipulation caused them to lose money, and that damages would remedy that injury. Under these facts, “Plaintiffs have standing to pursue their claims.”

Securities Exchange Act

Plaintiffs brought claims against CBOE Exchange, Inc. and CBOE Global under the Securities Exchange Act and regulations, alleging that the CBOE entities manipulated the VIX marketplace by designing a settlement process that was susceptible to manipulation, and then by failing to prevent the yet-unidentified Doe Defendants from taking advantage of those vulnerabilities.

First, the court addressed Defendant’s argument that self-regulatory organizations like the CBOE Exchange are entitled to “absolute immunity” from private suits when they perform their statutorily delegated adjudicatory, regulatory, and prosecutorial functions. Observing that “exchanges are also private entities that engage in non-governmental activities to serve their private business interests,” and that immunity applies only when the self-regulated entity is “performing delegated functions,” the court noted that such immunity determinations must be make “on a case-by-case basis.”

The doctrine is one of “rare and exceptional character,” and one which places the party seeking immunity the burden of demonstrating it is warranted. Under these circumstances, Judge Shah found that the CBOE had not met their burden. Specifically, because CBOE was acting in its private when designing the SOQ settlement process, creating and promoting VIX-related products, and listing those products on the exchange, the court found that it could assume—drawing all inferences in plaintiff’s favor, as it must at the motion to dismiss level—that plaintiff’s claims were based on these non-immune acts, rather than on the CBOE’s regulatory actions.

The CBOE also argued that the Securities Exchange Act precluded plaintiff’s claims because the SEC approved many aspects of the VIX enterprise, including the settlement process. The court failed to find preclusion, however, stating that regulatory approval does not automatically preclude a private right of action unless “Congress, when passing the relevant statute, intended” such preclusion. Noting that the CBOE was unable to point to any cases where a court has found preclusion where, as here, one provision within a statutory regime could precludes another provision within the same system, the court goes on to observe that the two provisions applicable to this case “are not clearly repugnant.” The private right of action and SEC oversight are not in conflict with one another, but “offer different mechanisms to further the same broad goal: fighting manipulation.” For example, “the SEC may not have foreseen [the] risk when approving the exchange’s rules,” so a private suit would not undermine the agency’s decision to approve those rules. Because the two mechanisms are complementary, the court held that preclusion is not warranted.

Loss Causation
Up until now, you may have come away with the impression that this decision was pretty favourable for plaintiffs. Unfortunately, this is the section where the tables start to turn. The court sets the stage in this action with a simple observation that “a private plaintiff bringing a claim for securities fraud must prove that the defendant fraud caused an economic loss,” and goes on to explain that that allegations that a plaintiff purchased a security at an inflated price are insufficient for a misrepresentation claim unless a subsequent price drop results in an actual loss. Giving deference to the fact that Plaintiffs here bring a manipulation claim, not a misrepresentation claim, the court still holds that “the same principal applies,” and Plaintiffs “must identify both sides of the transaction to show that they suffered a loss.” Because Plaintiffs have access to their own trading data, the court reasons, they should be able to identify transactions in which they lost money—and therefore, no relaxation of the pleading standard is necessary. It is insufficient to list, as plaintiffs did, the securities bought or sold, and for what price; “[to] plead loss causation, plaintiffs must identify specific transactions where they lost money, either because they experienced a net loss or because they made less than they would have absent manipulation.” Without identifying specific transactions giving rise to loss, plaintiffs have not adequately plead loss causation.

The court begins this section of its order with a brief overview of the two instances under which a rebuttable presumption of reliance can be established. The first, Affiliate Ute, addresses a situation where there exists an omission of a material fact by one with a duty to disclose. The second, the “fraud on the market” doctrine, applies to public statements, and allows the court to assume that, because public information is reflected in the price of a security, an investor buying or selling at the market price implicitly relied on the statement. First observing that the court has never addressed whether either of these presumptions apply to manipulation claims, Judge Shah held that, “because the manipulation was communicated to the public, in the sense that it was incorporated into the pricing of the securities plaintiffs bought and sold, the principle behind the fraud-on-the-market presumption warrants a presumption of reliance here.” With this presumption taken into account, the Court found that plaintiffs have sufficiently alleged reliance.

The court dedicated several pages to the question of whether or not Plaintiffs have adequately plead scienter. The inference of scienter, the court explains, must be more that “merely plausible or reasonable,” but reach the standard of being “at least as compelling as any opposing inference of nonfraudulent intent.” The “critical question,” then is whether the CBOE intended to deceive or manipulate investors when it designed the VIC-related products, or if they were “merely careless” in failing to respond to manipulation.

The first question is whether or not Plaintiffs have adequately which individuals within the CBOE acted with the requisite intent, because, as Defendants argued, it is not enough to simply refer generally to an organization’s “collective knowledge.” Here, the court found that Plaintiff’s allegations—that the VIX was uniquely important to the CBOE’s success, and it can be inferred that, if near-constant manipulation was occurring in that market, some member of CBOE’s management was aware of the fact and continued market the products despite that—give rise to more than just a “general reference” to the CBOE’s collective knowledge.

A strong inference of scienter can be found where plaintiffs have alleged facts sufficient to show either (1) a motive and opportunity to commit fraud or (2) strong circumstantial evidence of conscious misbehavior or recklessness. The CBOE did not dispute the fact that it had the opportunity to manipulate as alleged, but argued that plaintiffs have failed to allege anything beyond a generalized profit motive for doing so. The court agreed: “CBOE did not enjoy any additional benefit from the manipulation itself. It merely earned the same trading fees it would have for any legitimate transaction.” However, given the court’s comment that “Plaintiffs have not alleged that CBOE benefited in any additional way by attracting the business of market markers,” I think we can all guess what additional facts might appear in Plaintiff’s amended complaint.

Looking at circumstantial evidence of scienter, Plaintiffs argued that the CBOE had full access to all relevant trade information, and that, as it was required to do, it reviewed that data for signs of manipulation. Because manipulation was evident even on the basis of public data, Plaintiffs argue that Defendant’s knowledge of manipulation is the most compelling inference. Even taken together with other similar circumstantial allegations, the court found that they were not sufficient to suggest that the CBOE intended to manipulate the market.

Commodities Exchange Act

Moving on to the Commodities Exchange Act, the Court first addresses Defendant’s argument that Plaintiffs have failed to identify any specific failure to enforce a particular rule. What Plaintiffs did allege was that, by allowing manipulation to take place, the CBOE failed to enforce Rules 601 and 603 of the regulations to the CEA. While Defendants argue that this allegation is more general that any previously successful claim, the Court read the complaint as “alleging that each time a Doe Defendant manipulated the VIX Futures, CBO failed to enforce its rules prohibiting manipulation.” This was, in the eyes of the court, sufficiently concrete.

Bad Faith
In bringing a claim under the Commodities Exchange Act, a plaintiff must establish that the registered entity acted in bad faith, either by their actions or by their failure to act. Whether or not Plaintiffs have adequately pled bad faith, the Court explained, would depend in part on whether CBOE was exercising a discretionary power when it caused the alleged injury. If it was exercising discretionary power, then Plaintiffs are required to plausibly allege that the CBOE acted unreasonably or had an improper motivation.

Plaintiff alleges that the CBOE acted in bad faith in their failure to enforce both the CEA regulations and their own rules prohibiting manipulation. Defendants argue that enforcing such rules is discretionary, and that Plaintiffs have failed to allege that it acted unreasonable or with an improper motive. In this case, Judge Shah sided with the Plaintiffs, observing that “even assuming enforcing the regulations constitutes a discretionary function, plaintiffs have plausible alleged that CBOE also failed to enforce its own rules prohibiting manipulation.” Because enforcement of the CBOE’s own rules are is not discretionary, Plaintiffs adequately allege that the CBOE’s failure demonstrated bad faith.

Actual Damages
The court, in a delightful display of brevity, took care of this factor in ten short lines. Relying on his earlier reasoning, Judge Shah stated again that, “without identifying both sides of a transaction, plaintiffs have not shown they lost money and have not plausibly allege they suffered actual damages.”

Secondary Liability
The argument on secondary liability concerns actions taken by CBOE Global and CBOE Options in aiding and abetting CBOE Futures and the Doe Defendants in violating the CEA. To adequately allege a claim for aiding and abetting liability in these circumstances, Plaintiffs must allege that CBOE Global and CBOE Options (1) knew of the principal’s intent to violate the act; (2) intended to further that violation; and (3) committed some act in furtherance of the principal’s objective.

Plaintiffs tried to argue that, because the two related entities knowingly benefitted from the manipulation, it does not matter whether or not they knew of the Does’ intention to manipulate the VIX. The Court was not interested in that position, stating plainly that “Plaintiffs were required to allege that defendants intended to further the primary violations, and they have failed to do so.”


And that brings us to Plaintiff’s state-law negligence claim, in which they allege that the CBOE owed them a duty of reasonable care in designing, testing, and promoting the VIX calculation process, the SOQ settlement process, and VIX Futures. The CBOE argues that the CEA preempts the negligence claim, because to enforce the negligence claim would bear upon the actual operation of commodities futures markets. Plaintiffs argue, in response, that the preemption inquiry mirrors the immunity analysis, and because CBOE was not acting as a regulator, the CEA does not preempt the claim.

Here, the court sides with Defendants: because the SEC approved of the design process that forms the basis of the negligence claim, that holding the CBOE subject to varied and conflicting state negligence regimes would run counter to the Congressional intent that markets be subject to uniform standards. Permitting state-law negligence claims to proceed would “hamper the efficient operation of the futures market,” and so such claims must be preempted.

And that, dear readers, brings me to the end of this long-awaited blog post. Stay tuned for a review of the [Corrected] Consolidated Amended Class Action Complaint, and feel free to debate in the comments exactly how many names a complaint needs to have.

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.

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Posted: October 22, 2019

Plaintiffs in Mexican Bond Market Fixing Case Seek Time To Amend, Citing New Evidence

In our October 4, 2019, post we noted several news reports on the dismissal of an antitrust lawsuit alleging a conspiracy to inflate the price of Mexican government bonds. The original allegations of that suit are detailed in our post here.

Specifically, Judge Oetken’s September 30, 2019, decision (found here) found that Plaintiffs’ complaint failed to allege facts that “plausibly suggest that the particular defendants named in this suit were part of . . . [the alleged] conspiracy.” In other words, the court found that the Complaint lacked individualized allegations as to each defendant, and instead treated all defendants as one by relying on impermissible “group pleading.” For example, the Court found that the participation by one of the defendant banks (left unnamed in the complaint) in the leniency program of Mexico’s antitrust regulator, the Comisión Federal de Competencia Económica (“COFECE”) and public reports that COFECE was investigating the banks as each insufficient to plausibly suggest wrongdoing by the particular defendants named in the complaint.

Judge Oetken’s order gave Plaintiffs 21 days to file a letter to inform the Court “whether they intend to move for leave to file a Second Consolidated Amended Complaint and, if so, explaining why leave should be granted.” Yesterday, Plaintiffs filed that letter (found here).

In their letter, Plaintiffs request 45 days for leave to amend the complaint. Plaintiffs argue that there have been several recent developments that would allow them to add allegations to the complaint which would allow them to plausibly suggest that the particular defendants named in the suit are part of the conspiracy in compliance with the Court’s September 30, Order.

Specifically, Plaintiffs report that they have reached agreements in principal with two Defendants, in which one or both Defendants would provide “(a) transcripts of communications between Defendants; (b) a copy of COFECE’s 600-page Statement of Objections summarizing the results of its investigation; and (c) transaction-level data reflecting their MGB trades.” Plaintiffs state that the chatroom transcripts will show traders from at least BBVABancomer, Bank of America Mexico, Barclays Mexico, Citibanamex, Deutsche Bank Mexico, HSBC México, S.A., Institución De Banca Múltiple, Grupo Financiero HSBC (“HSBC Mexico”), JPMorgan Mexico, and Santander Mexico “sharing highly sensitive pricing information, engaging in coordinated trading, and restricting MGB [Mexican Government Bond] supply.” Citing a recent case from an antitrust suit involving allegations of price-fixing of precious metals, Plaintiffs argue that these chats are direct evidence of a conspiracy, as it is not rational for competitors to share pricing information absent the existence of an anticompetitive agreement.

Plaintiffs also report that they have “learned that COFECE has formally charged seven Defendants with engaging in ‘absolute monopolistic practices’1 in the MGB market: BBVABancomer, Bank of America Mexico, Barclays Mexico, Citibanamex, Deutsche Bank Mexico, JPMorgan Mexico, and Santander Mexico.” Plaintiffs distinguish this new development from allegations regarding COFECE’s investigation in the original complaint, which the Court’s September 30, Order found to be insufficjent, as none of the banks “ha[d] been accused of wrongdoing . . .” by COFECE.

Finally, Plaintiffs report that they are preparing a new economic analysis using “new, non-aggregated transaction-level MGB pricing data” in light of the Court’s September 30 ruling that aggregated data is insufficient to link Defendants to the conspiracy.

In a footnote, Plaintiffs note that Defendants do not consent to leave for Plaintiffs’ requested motion to amend.

Please stay tuned to this blog for updates regarding the Court’s ruling on Plaintiffs’ request.

1The article relied upon by Plaintiffs (published by Bloomberg and available here notes that Mexican publication El Financiero has reported that “Banco Bilbao Vizcaya Argentaria SA, Citigroup Inc., Banco Santander SA, Bank of America Corporation, Barclays Plc, Deutsche Bank AG and JPMorgan Chase & Co. were notified of probable violations of Mexico’s antitrust laws . . .” but that COFECE is still unable to name banks alleged to have participated in wrongdoing to otherwise comment on the case.

This post was written by John F. Whelan.

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 John F. Whelan at or call John Lundin or John Whelan at (212) 344-5400.

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Posted: October 4, 2019

Court Dismisses Mexican Bond Price Fixing Suit

Reuters, Bloomberg, and Law360 are reporting that S.D.N.Y. Judge Paul Oetken has dismissed an anti-trust lawsuit alleging that 10 major banks, including JP Morgan Chase, Barclays, and Deutsche Bank, colluded to inflate the price of Mexican government bonds. The court found that the complaint lacked particularized allegations with regard to any of the defendants and instead relied on impermissible “group pleading.” The plaintiffs have 21 days to request leave to file an amended complaint.

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.

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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.