Hello sports fans, and welcome back—I know you’ve all been standing by for a second slice of the strange and scintillating story of shenanigans in the snarled sphere of HFT. In this supplemental stab at spelling out the slightly circuitous state of the stock exchange nation, we will cover the Exchange Defendant’s renewed motion to dismiss, Plaintiff’s opposition to that motion, and, finally, Defendant’s reply brief.

And if you’re curious as to where the story currently stands, I encourage you to spend a few seconds skimming our first installment — that post contains background to the high frequency trading market, as well as an overview of past motion practice and the remaining Section 10(b) and Rule 10b-5 claims contained in the Second Consolidated Amended Complaint (SCAC), to which this renewed motion to dismiss applies.

Here We Go Again: The Exchange Defendant’s Renewed Motion To Dismiss

The December 2017 decision from the Second Circuit held that the Exchanges were not entitled to absolute immunity with respect to the securities fraud claims, thus vacating the lower court’s dismissal. Defendant’s motion to dismiss the SCAC was accordingly limited to grounds for dismissal not yet addressed—and much pithier than earlier briefings, as a result.

Defendant’s motion presents in two parts: first is the straightforward argument that the SCAC fails to plead either Article III standing, or to state a claim upon which relief can be granted; second, Defendants argue that Plaintiff’s remaining claim, brought under Section 10(b) of the Exchange Act and Rule 10b-5, are in fact precluded by the Exchange Act insofar as the claim obstructs the SEC’s comprehensive regulatory structure.

• Standing

According to Defendants, to successfully plead Article III standing, Plaintiffs are required to allege that they have suffered an injury-in-fact, and that such an injury was directly traceable to Defendant’s challenged conduct. Because Plaintiffs have not specified “even basic transaction details [or] factual allegations that anyone was injured, much less that they were among the injured,” they simply have not pleaded Article III standing, and the claim should be dismissed under Rule 12(b)(1).

Defendant’s second standing argument is premised on the purchaser-seller statutory standing rule, which “limits the class of plaintiffs to those who have at least dealt in the security to which the . . . representation or omission relates.” This argument focuses on the same lack of specificity as covered in the Article III standing argument—namely, Defendants believe that, in order to meet standing requirements, Plaintiffs are required to identify the specific securities that are the subject of manipulation with a high degree of specificity. Moreover, Defendants assert that the “in connection with” requirement of Rule 10b-5 cannot save Plaintiffs claim, as it is separate and additional to the “purchaser or seller” standing rule.

• Failure to State a Claim Upon Which Relief Can Be Granted

Arguing under Rule 12(b)(6), Defendants further claim that the SCAC does not adequately plead reliance, loss causation, scienter, or the falsity of any alleged misstatement. A plaintiff may establish reliance through either direct reliance or through one of two recognized presumptions of reliance: a “fraud-on-the-market” presumption allows reliance on public statements, and the Affiliated Ute presumption, which arises where there is an omission of a material fact by one with a duty to disclose. Defendants posit that the reliance Plaintiffs pled was limited to an “integrity of the market in the securities listed and traded on the public exchanges”—and that this theory does not qualify as actual reliance, or fall into either of the identified presumptions of reliance. Specifically, there is no “fraud on the market” reliance because “Plaintiffs have failed to plead the existence of an efficient market for a specific security,” and do not point to statements made by the Exchange Defendants that could have affected the price at which Plaintiffs traded. Affiliated Ute is similarly unavailing, according to the Defendants, because it simply does not apply to market manipulation claims, and, further, because the presumption only applies where there are actionable omissions in the face of fiduciary duties owed—and the Exchange Defendants owed no fiduciary duties to the investors. Moreover, defendants insist, Plaintiff’s “integrity of the market” theory was rejected by the Second Circuit in the 2013 Fezzani v. Bear, Stearns & Co. decision.

Loss causation—a specific economic harm resulting from a defendant’s conduct—requires that Plaintiffs must allege not only that they bought or sold specific securities at manipulated prices, but also that the prices of those securities would have been lower or higher, respectively, absent such manipulative conduct. If you’re sensing a theme in Defendant’s arguments here, well, let’s just say you’re not alone.

Defendants turn next to scienter—particularly important in manipulation claim, they point out, as scienter is oftentimes the only factor distinguishing legitimate trading from improper manipulation. The PLRSA requires that the facts alleged give rise to a strong inference that defendants acted with the required state of mind; this can be proved through facts showing either (a) that defendants had both motive and opportunity to commit fraud, or (b) strong circumstantial evidence of conscious misbehavior or recklessness. As Plaintiffs rely on circumstantial evidence, they must demonstrate conscious recklessness, and, Defendants argue, the conduct they allege is within the core functions of the Exchanges and one thus cannot infer an intent to defraud—particularly because the products and services concerned were publicly disclosed.

Finally (for the 12(b)(6) section, at least), Defendants argue that Plaintiffs have not pled the falsity of any alleged misstatement with sufficient particularity. First, Plaintiffs have waived any attempt to base claims on alleged misstatements, rather than manipulation, when they failed to respond to challenges to that theory in the earlier motion to dismiss. Second, Defendant again fall back on lack of specificity in the SCAC: Plaintiffs identified only generic statements about market integrity, any do not show how any challenged statement was in fact false or misleading.

• Preclusion

Defendant’s other main argument for dismissal deals with the perceived conflict between Plaintiff’s claims and the comprehensive regulatory structure provided by the Exchange Act. Private lawsuits, Defendants argue, undermine Congress’ intent that the SEC is the expert in the field and the entity making rules regarding the markets. Relying on Credit Suisse Secs. (USA) LLC v. Billing, Defendants lay out the four-factor framework to be used in determining whether or not the Exchange Act’s regulatory scheme precludes private claims:

(1) the existence of regulatory authority under the securities law to supervise the activities in question;
(2) Evidence that the responsible regulatory entities exercise that authority;
(3) The ‘risk’ that allowing the claims to proceed would produce conflicting guidance, requirements, duties, privileges, or standards of conduct; and
(4) Whether the conduct at issue lies squarely within an area of financial market activity that the securities law seeks to regulate.

Based on these four factors, Defendants believe that Plaintiffs claims should be precluded. With respect to factor one, the SEC clearly possess the regulatory authority to supervise the conduct about which Plaintiffs complain: the Exchanges are in fact required to file proposed rule changes before making any of the offerings covered in the SCAC—the proprietary feeds, the co-location services, and the complex order types—and the SEC must approve these rules before they are promulgated. As to the second factor, it is clear that the SEC does in fact exercise its regulatory authority on these topics. For example, the SEC has instituted enforcement proceedings concerning proprietary data feeds not in compliance with SEC rules. The third factor also favors preclusion, according to Defendants, because there is actual conflict between Plaintiff’s claims and the Exchange Act’s regulatory structure. Specifically, the SEC has approved all of the challenged services, warts and all, and concluded that they are consistent with the SEC rules. They have thus exercised their expertise and authority, and Plaintiff’s challenge to the same approved practices are an explicit conflict. Finally (for real…for this section), the fourth factor also favors preclusion because all of the challenged products and services “lie squarely within an area of financial market activity that securities law seeks to regulate”: all of these products and services relate to the dissemination of information, and that is firmly within the remit of the SEC.

Excuse Me, I Have Something To Say: The Plaintiff’s Oppose This Motion

Making full use of the case-saving Second Circuit decision, the preliminary statement of Plaintiff’s opposition quotes heavily from that document, taking particular note of the following excerpt:

[The SCAC] sufficiently pled that the exchanges created a fraudulent scheme that benefitted HFT firms and the exchanges, sold the products and services at rates that only the HFT firms could afford, and failed to fully disclose to the investing public how those products and services could be used on their trading platforms.
They also take the time to point out that the Second Circuit had further held that the SCAC “sufficiently alleges conduct that can be fairly viewed as manipulative or deceptive within the meaning of the Exchange Act,” and that Defendants had committed “primary” violations of Section 10(b) and Rule 10-5.

• Standing

In response to Defendant’s arguments against standing, Plaintiffs focus on the historically broad interpretation of the “purchaser or seller” standard set in Blue Chip. Specifically, they point out that the court has previously held that a sale of a security, plus a fraud used “in connection with it,” is sufficient for redress under Section 10(b). Plaintiffs further note that “neither the SEC nor the Supreme Court has ever held that there must be a misrepresentation about the value of a particular security in order to run afoul of the Exchange Act,” and go on to identify several cases in which courts have “espoused a broad interpretation of the “in connection with” phrase.

In addition to this broad interpretation, Plaintiffs rely on In re Blech Sec. Litig. and Sharette v. Credit Suisse Int’l for the argument that “allegations of the nature, purpose, and effect of the fraudulent conduct and the roles of the defendants are sufficient for alleging participation” because, very practically, the exact mechanism of the fraudulent scheme is unlikely to be known to the Plaintiffs.

• Failure to State a Claim Upon Which Relief Can Be Granted

On the topic of scienter, Plaintiffs responsive argument focused on the duty of the court to “assess all allegations holistically” to answer the question: “When the allegations are accepted as true and taken collectively, would a reasonable person deem the inference of scienter at least as strong as any opposing inference?” They further argue that the SCAC successfully pleads scienter under the “motive and opportunity” theory because they are able to show—through the substantial kickback payments received by the Exchanges for providing the HFT firms access to material trading data via enhanced feeds and access to trading floors, and for implementing complex new order types—that Defendants benefited in a concrete manner from the purported fraud. They note other cases in which similar profits were held sufficient under a motive and opportunity theory, and point again to the Second Circuit’s decision in this case, where it held that the Plaintiffs had sufficiently pled that Defendants had created a fraudulent scheme benefiting the exchanges and the HTF firms.

Under the indirect theories of scienter, Plaintiffs also argue that the allegations contained in the SCAC collectively supply sufficient circumstantial evidence from which one could infer recklessness. Even if the specific manipulative intent was not shared as between the HFT firms and the Exchange Defendants, the Court could still infer that the Defendants knew, or were reckless in not knowing, that their actions catered to the HFT firms at the expense of individual and institutional traders. Plaintiffs further point to the Defendant’s active concealment of their schemes—namely, the functionality and use of their complex order types—despite the fact that the “guaranteed economics” of those schemes would come at the expense of Plaintiffs.

With respect to reliance, Plaintiff’s insist that the allegations of the SCAC are sufficient both because the Affiliated Ute presumption applies, and because the complaint pled reliance on the integrity of the public markets. First, Plaintiffs undercut Defendants assertion that Affiliated Ute does not apply simply because the exchanges owned no fiduciary duties with a citation to In re IPO, which held that “where a defendant has engaged in conduct that amounts to market manipulation under Rule 10b-5 (a) or (c), that misconduct creates an independent duty to disclose.” On the integrity of the market theory, Plaintiff points to ATSI and In re Blech, both of which permitted a plaintiff to plead reliance by alleging than an injury was caused by reliance on “an assumption of an efficient market free of manipulation.” Plaintiffs make use of a footnote to differentiate their application of the case with the Court’s earlier decision concerning the Barclays defendants: Affiliated Ute did not apply there because Plaintiffs did not adequately plead that Barclays had committed manipulative acts, and because what claims were made against Barclays were based on misrepresentations, not the omissions that Affiliated Ute is concerned with. In contrast, Plaintiffs claims against the Exchange Defendants are not based on misrepresentations, and the Second Circuit has already found that Plaintiffs adequately alleged market manipulation.

On loss causation, Plaintiffs point out that, at the pleading stage, it is only necessary that they provide defendants with notice of what the relevant economic loss might be, or what the causal connection between the loss and their misconduct their might be. Moreover, manipulation cases are “simply different” from regular securities fraud cases, and the relevant standard does not require specifics of what price was paid for what security.

Addressing Defendants Article III standing argument, Plaintiffs first note that, because the issue was not raised in Defendant’s earlier motion, it should not be raised now. Even if it is permitted, Plaintiffs argue that the bar for alleging an injury sufficient to meet Article III’s requirements is a low one, and one that the SCAC easily surpasses. It is enough, Plaintiffs note, quoting Harry v. Total Gas & Power N. Am. Inc., that the alleged manipulation is “within the realm of possibility.”

• Preclusion

The final section of Plaintiffs brief addresses Defendant’s preclusion arguments. First protesting that the concept of preclusion is merely a rehash of their original motion to dismiss, but under a different framework. Namely, Defendants assert that private lawsuits would conflict with congressional intent that the SEC make the rules regulating the market, but the Second Circuit addressed this contention:

Plaintiff’s claims are not a challenge to the SEC’s general authority or an attack on the structure of the national securities market. Instead, they are properly characterized as allegations of securities fraud against the exchanges that belong to that ordinary set of suits in equity . . . .

Plaintiffs further argue that the preclusion defense, like the Article III standing claim, is barred at this stage in the proceedings. Under FRCP 12(g)(2), a party is foreclosed from making successive, pre-answer 12(b) motions that include new defenses.

Moving on the Defendant’s application of the four Credit Suisse factors: Plaintiff’s first argument is that the test simply does not apply. The Supreme Court identified these factors, Plaintiffs argue, as considerations relevant to the determination of whether “the securities laws are clearly incompatible with the application of the antitrust laws.” Because this case does not arise under antitrust law, and because no other case has attempted to apply the factors to cases in which an Exchange act claim was precluded by the Act’s own regulatory structure, the test is simply not applicable under these circumstances. And even if the preclusion defense is properly presented in this case, it is, or so Plaintiffs argue, not ripe for decision at this point—there are questions of fact that remain.

The Last Word: The Exchange Defendant’s Reply Memorandum

Defendant’s reply memorandum closely tracks the same three arguments presented in its opening brief. First looking at standing, continue to insist that the SCAC does not adequately plead Article III standing because it “contains no factual allegations sufficient to show anything about the impact” of the challenged products and services, and thus fails to show how any trade of theirs was negatively impacted, or how they relief sought would address their injury. With respect to statutory standing, Defendants view plaintiff’s arguments as ignoring the purchaser/seller standing requirement in favor of assertions that the “in connection with” clause be read broadly—and argument with fails, according to Defendants, because the “in connection with” standard is separate from the purchaser/seller requirement.

The next section of Defendant’s reply attacks Plaintiffs arguments on reliance, loss causation, and scienter. Reliance has not been adequately pled, Defendants argue, because both the Affiliated Ute presumption and the “integrity of the market” theory were rejected in the court’s initial motion to dismiss decision as it related to Barclays, and that Plaintiff’s attempt to distinguish the two were unavailing. With respect to loss causation, Defendant’s decry Plaintiff’s “attempt to reduce their loss causation burden to a triviality,” and insist that “under any reasonable understanding of loss causation, Plaintiff have to offer more than the general allegations they present here.” For scienter, Defendants point to Second Circuit precedent making clear that generalized allegations of motives possessed by all corporations—namely, increasing profitability—are insufficient to plead scienter.

Finally, on claim preclusion, Defendants react strongly to Plaintiff’s suggestion that the argument is merely a prior argument recast: “Although some aspects of this argument [. . .] overlap with arguments the exchanges have made before, that does not make the arguments the same.” They further argue that, contrary to Plaintiff’s analysis, the Credit Suisse factors not only apply to when the Exchange Act precludes a claim brought under federal law, but that an application in that context makes even more sense than its present application to antitrust cases.

Conclusion

For those who have read to the bitter end: congratulations! This does conclude our HFT write-ups for the time being, but when the motion to dismiss decision is issued, you know where to come for the liveliest—or at least lengthiest—summaries in the blogosphere.

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 jlundin@schlamstone.com or Alexandra M.C. Douglas at adouglas@schlamstone.com or call John or Alexandra at (212) 344-5400.

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In our June 6, 2018, post, we gave an overview of the general factual allegations made in In Re: Libor-Based Financial Instruments Antitrust Litigation, 11-MD-02262 (In re Libor), the multi-district litigation in the Southern District of New York where many civil cases relating to manipulation of LIBOR or the London Interbank Offered Rate for the U.S. dollar have been transferred. In this post, we discuss class certification of the various plaintiff-groups in In re Libor.

On February 28, 2018, in a Memorandum and Order available here, U.S. District Judge Naomi Reice Buchwald ruled on motions for class certification for all three plaintiff groups. This post only highlights certain rulings from that nearly 400 page decision. Much of the decision, for example, rules on Daubert motions challenging whether expert opinions offered in support of class certification are reliable such that they can be considered by the Court. That discussion is not covered here.

Class Certification

The main issues surrounding the various proposed classes’ certifications were whether each had Article III standing under the U.S. Constitution, had satisfied the prerequisites for class certification under Fed. R. Civ. P. 23, and whether the class definitions were objective such that identification of particular members would be feasible (the ascertainability requirement).

Fed. R. Civ. P. 23(a) only allows a member of a class to sue on behalf of the other members of a class if “(1) the class is so numerous that joinder of all members is impracticable [numerosity]; (2) there are questions of law or fact common to the class [commonality]; (3) the claims . . . of the representative parties are typical of the claims . . . of the class [typicality]; and (4) the representative parties will fairly and adequately protect the interests of the class [adequacy of representation].” Fed. R. Civ. P. 23(b) additionally requires that one of three categories be met. All three proposed classes sought certification under 23(b)(3), which requires that the Court find that “the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.”

Exchange Based Plaintiffs

The exchange-based plaintiffs sought certification of a class defined as:

All persons, corporations and other legal entities (other than Defendants, their employees, affiliates, parents, subsidiaries, and co-conspirators) (“Eligible Persons”) that transacted in Eurodollar futures and options on Eurodollar futures on the Chicago Mercantile Exchange between January 1, 2005 and May 17, 2010 (the “Class Period”) and that were harmed or satisfy one or more of “A,” “B,” or “C” below.

SUBPART A. Eligible Persons that sold a Eurodollar futures contract, or bought a put option or sold a call option on Eurodollar futures before August 7, 2007 and purchased all or part of this short position back at the final expiration formula price of a Eurodollar futures contract expiring after August 7, 2007 and before May 17, 2010.

SUBPART B. Eligible Persons that (1) purchased Eurodollar futures contract(s) or call options on Eurodollar futures on the following dates: April 7, 2006, August 17, 2006, October 26, 2006, and December 22, 2006; or (2) sold Eurodollar futures contracts or purchased put options on Eurodollar futures on the following dates: September 29, 2005, November 28, 2005, June 30, 2006, September 1, 2006, November 29, 2006, February 28, 2007, March 1, 2007, July 30, 2007, and August 6, 2007; or (3) purchased or sold Eurodollar futures contracts (or options) and that were harmed between January 1, 2005 and August 6, 2007 inclusive.

SUBPART C. Eligible Persons that initiated a Eurodollar futures contract or options position on or after April 15, 2009 and on or before May 17, 2010 (“Period 3”), and who satisfy “1” or “2” below.

1. Eligible Persons included in “C” are those that purchased or sold a Eurodollar futures or options contract to initiate a position during Period 3 that were harmed.
2. Eligible Persons included in “C” are also those that purchased a Eurodollar futures contract (including Eurodollar futures contracts the expiration for which was less than 365 calendar days after the date of such purchase) to initiate a long position during Period 3, and continued to hold all or part of such long position until liquidating the position after Period 3.

The Court analyzed class certification for the Exchange-Based plaintiffs by treating them as two separate subclasses: one based on those seeking claims under a trader-based manipulation theory (the “Trader-Based Subclass”) and those seeking claims under a persistent suppression theory (the “Persistent Suppression Subclass”).

The Trader-Based Subclass consists of Eurodollars futures traders who held certain Eurodollar future positions on dates specified in subparts B.1 and B.2 of the class definition and traders who “were harmed” as a result of trader-based manipulation during the Class Period (January 1, 2005 to May 17, 2010). It was found to have Article III standing, and to have met the numerosity and commonality requirements of Rule 23(a) and the ascertainability requirement. However, the Court found that the Trader-Based Subclass failed to meet the typicality and adequacy of representation requirements of Rule 23(a) and the predominance and superiority requirements of Rule 23(b)(3). Trader-based claims were found to be too “day-to-day” and “episodic” in nature to be considered to have all arisen from the “same events and conduct” and thus could not meet the typicality requirement under Rule 23(a). The class members were also found to have heightened conflicts between them such that the adequacy of representation requirement could not be met. Specifically, since members had different net trading positions on Eurodollar futures contracts on different days, members have differing incentives in establishing the existence of and magnitude of manipulation on different days.

The Court also found that there were too many individual questions concerning one of the defendants’ intent to manipulate Eurodollar futures prices, the extent of LIBOR manipulation, the impact of manipulation of Eurodollar futures, and the damages of individual class members to find Rule 23(b)(3) predominance requirement to have been met.

Thus, the Court denied class certification for the Trader-Based Subclass.

The Persistent Suppression Subclass consists of those who 1) purchased a Eurodollars futures contract when prices were artificially inflated; 2) sold a Eurodollars futures contract when prices were artificially depressed; 3) purchased a Eurodollars futures call option or sold a Eurodollars futures put option when Eurodollars prices were artificially inflated; or 4) sold a Eurodollars futures put option or purchased a Eurodollars call option when Eurodollar futures prices were artificially depressed.

The Court found that the persistent suppression subclass to have met the ascertainability requirement and all four Rule 23(a) requirements. However, the Court found that the persistent suppression subclass did not meet the Rule 23(b)(3)’s predominance and superiority requirements. There were too many individualized questions of specific intent to manipulate Eurodollar futures prices through reputation-motivated suppression of LIBOR, the existence and causation of artificial Eurodollar futures prices, and damages for common question to sufficiently predominate. For the same reasons, the Court also found that a class action would not be superior to other to other available methods for fairly and efficiently adjudicating the controversy.

Thus, the Court denied class certification for the Persistent Suppression Subclass.

Lender Plaintiffs

Berkshire Bank (“Berkshire”), the sole Lender Plaintiff remaining, sought certification for a class defined as:

All lending institutions headquartered in the United States, including its fifty (50) states and United States territories, that originated loans, held loans, purchased whole loans, purchased interests in loans or sold loans with interest rates tied to USD LIBOR, which rates adjusted at any time between August 1, 2007 and May 31, 2010.

The Court found that Berkshire met Rule 23(a)’s numerosity, commonality, and typicality requirements, and had also met the ascertainability requirement. However, Berkshire failed to show adequacy of representation. The Lender Defendants brought to the Court’s attention that interim class counsel agreed to pay Berkshire’s CEO’s son, an attorney, 15% of the net fees received in exchange for responsibility and work done on the litigation. There is not a per se rule against there being a familial or business relationship between class counsel and a class representative; it is rather a fact-sensitive inquiry. Since the relationship was not disclosed by the plaintiff, Berkshire CEO’s son had a limited role in the litigation (he had not even filed a notice of appearance or signed any papers, but merely reviewed filings and provided comments to class counsel), and would likely receive more in fees than Berkshire stood to receive in discovery, the Court found that in this instance that relationship was close enough to render Berkshire inadequate as a class representative.

Although the Court could have denied class certification of a class with Berkshire as its representative on that basis alone, it went on to analyze whether questions of law or fact common to class members predominate over any questions affecting only individual members, and whether a class action for the Lender Plaintiffs would be superior to other available methods for fairly and efficiently adjudicating the controversy

Regarding predominance, the Court found that there were too many individual questions concerning reliance, damages, affirmative defenses, and variations in state law for the common question of misrepresentation to dominate. For example, because different lenders have different exposure to LIBOR, different reasons for issuing loans, different understanding of what LIBOR represents, and different knowledge of whether LIBOR was being manipulated, issues regarding the reliance element of Berkshire’s common law fraud claim were all individual. The issue of damages was also considered to be individualized, since related questions such as what alternative rate a plaintiff would have used, what the but-for spread on each loans what have been, the other terms a loan contained, and other instruments taken into account in the netting calculation were all individual issues. This lack of predominance and the variation in state law regarding the Lender Plaintiff’s claims also created manageability problems that led the Court to conclude that a class action would not be superior to individual actions.

Thus, the Court denied class certification for the Lender Plaintiff class.

Over-the-Counter (“OTC”) Plaintiffs

The OTC Plaintiffs sought certification of a class defined as:

All persons or entities residing in the United States that purchased, directly from a Panel Bank (or a Panel Bank’s subsidiaries or affiliates), a LIBOR-Based Instrument that paid interest indexed to a U.S. dollar LIBOR rate set any time during the period August 2007 through August 2009 (“Class Period”) regardless of when the LIBOR-Based Instrument was purchased.

“LIBOR-Based Instrument” was defined as:

LIBOR-Based Instrument” means an interest rate swap or bond/floating rate note that includes any term, provision, obligation or right for the purchaser or counterparty to be paid interest by a Panel Bank (or a Panel Bank’s subsidiaries or affiliates) based upon the 1 month or 3 month U.S. dollar LIBOR rate. For the avoidance of doubt, the term LIBOR-Based Instrument does not include instruments on which a Panel Bank (or a Panel Bank’s subsidiaries or affiliates) does not pay interest, such as bonds/floating rate notes issued by entities other than Panel Banks (or Panel Banks’ subsidiaries or affiliates). Nor does the term include instruments that include only a term, provision, or obligation requiring the purchaser or counterparty to pay interest, such as business, home, student or car loans, or credit cards.

The Court granted the OTC plaintiffs’ motion for class certification in part and denied it in part.

First, the OTC defendants challenged the proposed class’ Article III and class standing by arguing that since the remaining OTC plaintiffs only allege that they purchased LIBOR interest-rate swaps, and not bonds, they cannot assert claims on behalf of bondholders. The Court agreed with the OTC plaintiffs that the difference between the types of financial instruments did not deprive the proposed class of Article III standing, since plaintiffs only have to show that the purchase of each type of instrument can be traced to some type of injury-in-fact, not the same injury-in-fact. Similarly, because the purchase of interest rate swaps concerned the same set of concerns related to defendants’ conduct, the OTC plaintiffs were also found to have class standing to represent bondholders.

The OTC plaintiffs were also found to have met Rule 23(a)’s numerosity and commonality requirements. The Court could not find the breach of implied covenant of good faith and unjust enrichment claims of named OTC plaintiff Bucks County Water and Sewer Authority (“Bucks County”) against the Royal Bank of Canada (“RBC”) to be typical, however, since RBC asserted that Bucks County released those claims in a 2012 agreement with RBS, a unique defense that threatened to become a central focus of the litigation since Bucks County was the only plaintiff still asserting claims against RBC. Class certification against RBC was therefore denied. The OTC Defendants also disputed whether the entire class could meet Rule 23(a)’s typicality requirement, arguing that the defense of whether plaintiffs suffered any injury at all was so individualized and economically complex that it was unique for each plaintiff. The Court rejected this argument, however, and ruled that the fact that damages would have to be calculated on an individual basis did not defeat typicality. The typicality requirement was found to have been met, therefore, for all claims, except for those against RBC.

THE OTC Defendants also argued that plaintiffs could not meet the adequacy of representation requirement, as each class member would have an incentive to establish lower amounts of suppression at the time it entered into a swap and greater suppression thereafter, in order to minimize the extent to which absorption will reduce its damages. Although the Court did acknowledge that there are conflicts created by differing incentives among plaintiffs to show lower amounts of suppression, such conflicts were not fundamental, since the one-directional nature of suppression would constrain the conflict.

For purposes of addressing whether questions of law or fact common to the OTC plaintiffs predominate over any questions affecting only individual members, the Court analyzed the OTC plaintiffs’ antitrust claims separately from their state-law implied covenant and unjust enrichment claims. The Court found that common questions predominated the OTC plaintiffs’ antitrust claims, since evidence of defendants’ alleged price-fixing conspiracy would be subject to common proof and the only individualized questions related to individual damages, which was not enough to find against predominance. However, the Court found that common questions did not sufficiently predominate over various state law claims. Claims regarding the implied covenant of good faith would have to be determined by various transaction-specific agreements which did not uniformly designate the same forum for choice-of-law. Similarly, the unjust enrichment claim would be governed by the law of the state in which the class member resides or has a principal place of business. Since the class definition extends to all 50 states, the variation in state law precluded class certification for that claim.

For similar reasons, the Court found that a class action is superior to other available methods for adjudicating the antitrust claims, but not for the state law claims.

Conclusion

In summary, the Court certified a class for the OTC plaintiffs as to the antirust claims against Bank of America and JPMorgan Chase only, but did not certify a class for state-law claims.

Even in more niche financial instruments, there are a number of cases asserting allegations of secondary market and bid spread manipulation. This is true of the supranational, sub-sovereign, and agency bond market, better known as the “SSA” market. Since late 2016, 13 actions have been consolidated in In re SSA Bonds Antitrust Litigation, No. 1:16-cv-03711-ER (SDNY) (“In re SSA“). In this post, we focus on the facts alleged in In re SSA. In an upcoming post we will discuss the ongoing settlements and the motion to dismiss briefing in this consolidated action. At core, the allegations paint a picture of bank market maker collaboration and collusion to the harm of secondary market purchasers and participants.

What are SSAs?

SSA stands for supranational, sub-sovereign, and agency bonds. These bonds make up a niche portion of the international bond market, including bonds issued by those entities and projects straddling the lines between sovereign government issuers, and private credit issuers. The SSA market is highly diverse, but is chiefly made up of bonds issued by entities or institutions that are tasked by governments, or the international community, and international organizations, to further some public policy goal or initiative. This can include anything from infrastructure development, to economic stimulus, to export acceleration, to social security funds. Well known entities that issue SSA Bonds include the supranational organizations such as the World Bank Group and the European Investment Bank, sub-sovereign issuers, such as Canada’s provinces, and Germany’s federal states, and agencies, such as public banks, infrastructure development bodies, and major government owned entities and institutions like Germany’s Kreditanstalt für Wiederaufbau (“KFW”), a government-owned investment bank.

Overview of the Alleged Collusion

At core, Plaintiffs, buy-side funds such as pension and retirement funds, and asset management companies, allege that Defendants, large dealer banks including Bank of America, Barclays, BNP Paribas, and Credit Suisse, among others, being the only major sellers and market makers in the second over the counter (“OTC”) SSA bond market, took advantage of the opaque nature of price quoting for these OTC instruments, to share information and manipulate the bid and ask spreads for the sale of these instruments.

SSA bonds are not quoted on an open, anonymous exchange like the New York Stock Exchange. Instead purchasers are quoted the value of a bond from a dealer bank’s trading desk, primarily over the telephone, or through electronic chat messaging, often with a time gap of several minutes. To the extent electronic trading platforms were used, these used a “request for quote” protocol, that was not generally dissimilar to that of the phone and instant messaging systems. Investor purchasers, at the time of their request for quotes, would reveal their identity, the specific instrument they wished to purchase, the volume they sought to trade, and often even the trade’s direction. Individuals at the bond trading desks of the dealer defendants would then, rather than compete against one another, as Plaintiffs believed they were, instead allegedly share this information amongst one another, using this information against their clients.

In essence, according to the Plaintiffs, this primarily allowed dealers to rig the bond market in two distinct ways. First they served as a single monolithic cartel which set the prices together, rather than competing against one another to provide the best prices to their clients. Second, they used their clients’ trading information to discern their clients’ trading strategies and positions, and based on that information, set terms and prices to take advantage of their clients’ weaknesses, which were sometimes discernable from the information shared amongst the alleged cartel. Plaintiffs are alleged to have taken great efforts to hide their trading strategy and trading information so that dealers could not take advantage of them in this way, and the improper real time sharing of clients’ information entirely undermined that.

Plaintiffs seek damages, restitution, injunctions and declaratory relief under Section 1 of the Sherman Act, 15 U.S.C. § 1.

This post was written by Lee J. Rubin.

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 jlundin@schlamstone.com or Lee J. Rubin at lrubin@schlamstone.com or call John or Lee at (212) 344-5400.

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On June 20, 2018, the New York State Department of Financial Services announced that it has fined Deutsche Bank $205 million for “for violations of New York banking law, including efforts to improperly coordinate trading activity through online chat rooms, improperly sharing confidential customer information, trading aggressively to skew prices, and misleading customers.”

DFS found that:

a number of Deutsche Bank foreign exchange traders participated in multi-party online chat rooms where participants shared confidential information, discussed coordinating trading activity, and attempted to manipulate foreign exchange currency prices or benchmark rates. By engaging in these activities, these traders sought to diminish competition and increase their profits by executing foreign exchange trades at the expense of customers or the wider market.

One improper practice apparently employed by certain Deutsche Bank traders involved accumulating a large trading position and then using the position to make aggressive trades just before and during the fix window, with the intention of moving the ultimate fix price in a desired direction, up or down – known as “jamming the fix.”

This technique involved accumulating a large trading position, and then using the position to make aggressive trades just before and during the fix window, with the intention of moving the ultimate fix price in a desired direction, up or down (known as“jamming the fix”). Certain Deutsche Bank traders boosted the potential impact of this strategy by using multi-bank chats to share sensitive and confidential client information. This allowed them to learn, for example, whether other traders had large positions in the opposite direction, so that they could attempt to coordinate trading strategies and achieve maximum influence on the published fix rate. The DFS investigation found that it appeared to be understood by other Deutsche Bank traders that the New York foreign exchange spot desk welcomed fix business, in part because of profits generated through manipulation. Deutsche Bank foreign exchange staff were also willing to assist customers who also sought to manipulate fix business.

The DFS investigation also discovered that certain Deutsche Bank employees sought to manipulate submission-based benchmarks for certain currency pairs. The benchmarks, supposedly derived from an objective submission process, instead became potentially tainted when traders sought submissions premised on benefitting their own particular trading positions. In addition, on a number of occasions, certain Deutsche Bank traders and salespeople improperly swapped customer identity and order information with competitors at other banks. With information about the prices competitors were quoting, traders could collude to maximize their profits at customers’ expense.

Deutsche Bank sales staff also engaged in other improper conduct designed to benefit the bank by shortchanging customers. One such practice was “deliberate underfills” in which a trader fully fills a market order for a customer but holds back some of the order while monitoring further price movements. If subsequent price movements favor the bank, the salesperson then “splits” the order, such that the bank reports to the customer that the order was only partly filled, and the bank keeps part of the trade for the bank’s own account without the customer’s knowledge or consent. The bank subsequently fills the remaining part of the customer’s order, but potentially at a price less favorable to the customer.

The DFS investigation also found that Deutsche Bank sales staff employed other tactics designed to secretly increase the “markup” charged to customers for trade execution. In a number of instances, Deutsche Bank staff intentionally failed to correct, or even intentionally made, errors or misleading entries in trade execution records so as to keep extra profit for themselves and the bank.

If you have questions or comments about The Manipulation Monitor, please e-mail John M. Lundin, the Manipulation Monitor’s editor, at jlundin@schlamstone.com or call him at (212) 344-5400.

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“To dismiss or not to dismiss” is the question that Judge Failla presently mulls, and will likely continue to do for the coming weeks. Or months? Anticipation is running high here at the Manipulation Monitor, so let’s hope it is not a question of years.

For those of you who may be wondering what, exactly, is at risk of dismissal, a prudent proposition may be to promenade yourself into the recent past for a perusal of a popular post on this very topic – the original Stock Loan Lowdown.

Now that we’re all up to speed, it’s time to dig in to the defenses put forward by the Prime Broker Defendants in their motion to dismiss papers, filed back in January 2018. Defendants’ arguments cover four main topics: first, Plaintiffs failed to adequately allege a violation of the Sherman Act; second, Plaintiffs lack antitrust standing; third, Plaintiffs’ claims are time barred; and fourth, Plaintiffs have failed to state a claim for unjust enrichment. Let’s get started.

Adequacy of Allegations under the Sherman Act

1. Plausibility

The first argument put forward by the Prime Broker Defendants goes directly to the heart of Plaintiffs’ allegations: is the conspiracy they allege not just “conceivable,” but plausible, as required under Twombly? Defendants argue that it is not, and their leading reason is, on its face, a simple one: stock loans are poorly suited to anonymous trading. That is to say, because lenders are able to recall loaned shares at any time, a rational borrower seeks not an anonymous trade via an exchange, but rather to develop relationships with the source of their loans and thus minimize the risk that those loaned shares will be recalled. Proof of this, Defendants assert, is the fact that such an exchange did not emerge despite the actions of the Defendants, given that there are numerous other prime brokers who could have participated if demand existed.

In further support of their theory of implausibility is Defendant’s assertion that no clearinghouses offer their clearing services directly to borrowers and lenders. As such clearing arrangements are a necessary precondition for the alternative trading environment that Plaintiffs envision, Defendant’s position is that the marketplace as Plaintiffs discussed could not reasonably be expected to come to fruition.

Beyond assertions of facial implausibility, the Prime Broker Defendants focus on the two pathways through which Plaintiffs may satisfy the plausibility standard required: they must either provide “direct evidence” of a conspiracy, which is explicit and requires no inferences to establish the proposition, or “circumstantial facts” showing parallel conduct together with “plus factors” demonstrating that the conduct was the result of a preceding agreement, and not independent business priorities.

Direct evidence of a conspiracy—the “smoking gun” style of evidence so common in courtroom dramas—does not exist in this case, because “Plaintiffs fail to allege who attended any such meeting, where and when it occurred, what a was discussed, and what agreement was allegedly reached.” Defendant’s position is, essentially, that none of the examples given in Plaintiffs’ complaint provide enough factual specificity to rise to the level of direct evidence. The reference by a BofAML executive to a “meeting of the five families,” for example, fails this test because it does not provide precise details of the circumstances of the meeting, identify the executive in question, or even specify who the members of the “five families” may be.

Defendants further assert that the Plaintiffs have failed to plead the existence of any parallel conduct from which a conspiracy can be inferred. Their first complaint here is that a pleading must allege “particular activities” by each “particular defendant,” and cannot rely on generalizations about the defendants as a group. For example, such statements as “the Prime Broker Defendants not only boycotted the platform themselves, but pressured other market participants to do so,” are not sufficiently nonconclusory to successfully allege parallel behavior. Moreover, the complaint does not distinguish between the Defendants within their various corporate families, thus failing, as per the Prime Broker Defendants, to place them on notice as to how each Defendant participated in the conspiracy.

Where Plaintiffs did offer specific allegations concerning the individual defendants, those allegations demonstrate conduct that was “more divergent than parallel.” Claims of parallel behavior concerning AQS, for example, are undermined by the fact that at least one defendant, BofAML, was initially a strong supporter of the platform. Indeed, Defendant’s brief later makes the request that, “[b]ecause BofAML did not act in “parallel” with the other Defendants (indeed, it invested in AQS)—and there are no “plus factors” linking it to any conspiracy—BofAML should be dismissed.” That the others put forth an identical position of support for AQS only as a broker-only platform is not, according to Defendants, parallel conduct preceded by conspiracy, but merely sound—and independent—business judgments arising from the fact that the by-laws of the OCC only permitted broker-dealer members of the OCC to transact on the platform. Parallel behavior as concerns SL-x faces a similar issue: as Defendants were approached together about forming a consortium for the purpose of investing in that entity, it was only reasonable, so Defendants suggest, that they would have engaged in a common response.

Defendants further attack Plaintiffs’ allegations of a common motive to conspire, arguing that “it is not enough to allege that each Prime Broker Defendant had an interest in maintaining its profits.” Rather, Plaintiffs must demonstrate that Defendants had a strong interest in conspiring to engage in conduct that they were unlikely to undertake absent a conspiracy. In this case, Defendants allege, the unilateral business motives of the individual defendants were responsible for the actions that Plaintiffs claim as conspiratorial.

1. Rule of Reason

The second branch of Defendant’s argument pertains to the “rule of reason” analysis that is the standard for antitrust claims. The alternative—per se liability—is limited to those agreements whose “nature and necessary effect are so plainly anticompetitive” that no industry analysis is needed to establish illegality. The rule of reason analysis, in comparison, requires Plaintiffs to bear the burden of showing that the alleged agreement “produced an adverse, anti-competitive effect within a relevant geographic market.” Arguing that the conduct alleged in the complaint does not fit into any previously recognized category of conduct that is illegal per se, Defendants maintain that the rule of reason must apply to the challenged actions by Equilend and the Prime Broker Defendants.

In support of that notion, Defendants point to the lack of allegations defining EquiLend’s product, geographic market, or market share and power. This argument is particularly strong, Defendants claim, with respect to the allegations concerning the creation of DataLend to compete with Data Explorers. The operative word there is, of course, “compete,” for how can evidence of competition demonstrate a restraint of trade? Specifically, Defendants argue that Plaintiffs’ allegations about DataLend’s lower prices merely show “robust competition,” and, in fact, the Prime Broker Defendants did not even decline to subscribe to the service offered by Data Explorers.

Defendants make similar arguments concerning SL-x and AQS. A decision not to merge with SL-x, even if taken based on the unanimous decision of EquiLend’s board of directors, cannot be seen as anti-competitive where Plaintiffs failed to allege that such a merger would have been in EquiLend’s best interest—particularly given that SL-x lacked an operational platform. EquiLend’s later decision not to make a capital investment is subject to the same analysis. Even EquiLend’s ultimate purchase of SL-x’s patents after its failure was legitimate joint venture conduct, per Defendants, even though they never ultimately commercialized the technology. With respect to AQS, Defendants point out that Plaintiffs did not allege any facts demonstrating why a deal between AQS and OCC would have posed “a significant threat to the Prime Broker Defendants,” and, further, that Defendants’ subsequent acquisition of AQS was not for the purpose of “burying it”—AQS had, in fact, already failed.

1. Standing, Statute of Limitations, and Unjust Enrichment

With apologies for lumping these disparate categories together, this section will overview Defendant’s three remaining arguments for dismissal, beginning with Defendant’s assertion that the injuries pleaded are too speculative to confer antitrust standing.

Defendants characterize Plaintiffs’ claim of injury as one based on a “hypothetical world of all-to-all trading in which the elimination of the Prime Broker Defendants as middlemen would have allowed borrowers and lenders to execute stock loan trades at lower costs.” This is unavailing, say the Defendants, for two reasons: first, neither Data Explorers nor SL-x had any plans to offer all-to-all trading; second, to the extent that AQS did hold that goal, rules requiring broker-dealers to function as intermediaries would have prevented its actualization. In order to plead antitrust standing, a plaintiff must allege that it is “an efficient enforcer of antitrust laws”; one of the ways that can be demonstrated is the speculative of the alleged injuries. Describing Plaintiffs’ injury theories as both “conjectural” and “attenuated,” Defendants posit that their speculative nature alone is sufficient to defeat antitrust standing. Defendants rely here—as they do at several points in their brief—on the case of In re Interest Rate Swaps Antitrust Litigation, which ruled that, despite the presence of three out of four “enforcer factors” favoring antitrust standing, their “extraordinarily conjectural” injury theory was sufficient to preclude standing.

Next, Defendants’ statute of limitations argument was presented in two parts. First, while Plaintiffs’ complaint, filed August 16, 2017, asserts claims for damages stretching back to January 7, 2009, claims under Section 1 of the Sherman Act are subject to a four-year statute of limitations. To the extent that Plaintiffs allege continuing violations, Defendants say, that exception only permits a Plaintiff to recover for “damages caused by over acts committed inside the limitations period.”
Under New York law, the statute of limitations for Plaintiffs’ unjust enrichment claims vary depending on the relief sought: six years for an equitable remedy, but just three where money damages are sought. Defendants argue that Plaintiffs’ sought-after “restitution of [] monies of which they were unfairly and improperly deprived” is a demand for monetary damages subject to the three-year limitation period. Under that standard, claims for conduct prior to August 16, 2014 is barred.

In response to Plaintiffs’ argument that the Prime Broker Defendants fraudulently concealed their conduct, thus tolling the limitations period, Defendants claim that such concealment allegations conflict with Plaintiffs’ theory of the case. Specifically, Defendants point to allegations by Plaintiffs that Defendants openly threatened industry participants, including members of the proposed class—if such threats occurred, Defendant ask, how could it also be true that the Plaintiffs did not know of the behavior? Other arguments in this section concern the adequacy of Plaintiffs’ pleadings, with Defendants contending that Plaintiffs failed to meet their burden in proving that “misleading” statements by the Defendant were intentionally false when made.

Finally, with respect to unjust enrichment, Defendant’s argument is simple: the claim is based wholly on Plaintiffs’ antitrust claim. If the antitrust claim fails, as Defendants believe it should, then there no longer exists a “viable claim of illegality,” and any claims for unjust enrichment are, essentially, no longer unjust, and thus must be (justly?) dismissed.

The EquiLend Defendants

Concurrently with the Prime Broker Defendant’s filing, Defendant EquiLend filed a brief supplemental memorandum of their own. The two arguments in this brief contend, first, that all allegations relating to EquiLend are insufficient under Twombly, and, second, that no personal jurisdiction exists over EquiLend Europe.

In order to pass muster under Twombly, the complaint must plead facts sufficient to plausibly suggest that EquiLend joined a conspiracy to boycott. As an initial matter, EquiLend protests the conflation of the three EquiLend entities, both between each other and often together with the Prime Broker Defendants as a group. These collective allegations do not satisfy Plaintiff’s burden to plead individual participation of each participant entity. Even within this group pleading, EquiLend insists that the complaint contains no allegation of a communication in which EquiLend agreed to boycott any entity. The two statements attributable to CEO Brian Lamb are, according to EquiLend, impermissibly vague, and no facts are pled that would allow for the inference that the statements (instructions not to “break ranks,” and to “support an agenda”) were either an invitation or agreement to a boycott.

To the extent that the complaint alleges that the EquiLend board meetings served as a “forum” in which the Prime Broker Defendants conspired to actuate their boycotts, EquiLend relies on the holding in In re Interest Rate Swaps Antitrust Litigation to assert that, even if the allegations were well-pled, such conduct by the Prime Broker Defendant would not implicate EquiLend.

EquiLend’s other arguments with respect to the allegations are largely repetitive of those put forward by the Prime Broker Defendants: the actions that EquilLend took with respect to AQS, SL-x, and DataLend were all the result of rational, competitive business strategy that ought to be examined under the rule of reason.

Finally, the arguments concerning EquiLend Europe are straightforward: the brief argues that the entity has no meaningful connection to the United States, that it is incorporated in the United Kingdom, has its head offices in London, keeps no office, employees, bank accounts, or assets in the United States, and serves no clients here. Plaintiff’s allegations as they concern EquiLend Europe are limited to the result of overlap between the individuals serving as directors of EquiLend and EquiLend Europe, and that overlap is not sufficient to create personal jurisdiction over EquiLend Europe.

EquiLend and the Prime Broker Defendants have done their best to undercut the allegations put forward by Plaintiffs, but we all know this isn’t a done deal. To find out just what Plaintiffs had to say in response, keep your eyes open for the next installment of this Stock Loan Lowdown series.

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 jlundin@schlamstone.com or Alexandra M.C. Douglas at adouglas@schlamstone.com or call John or Alexandra at (212) 344-5400.

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On June 18, 2018, the CFTC entered an order requiring JPMorgan Chase to pay a $65 million penalty for attempted manipulation of the ISDAfix benchmark rate.

The CFTF order states that the CFTC found that between January 2007 and January 2012, JPMorgan Chase “made false reports and attempted to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a leading global benchmark referenced in a range of interest rate products, to benefit its derivatives positions, including positions involving cash-settled options on interest rate swaps.”

Here is how the CFTC describes ISDAfix and JPMorgan Chase’s misconduct relating to it:

During the Relevant Period, USD ISDAFIX was set each day in a process that began at 11:00 a.m. Eastern Time with the capture and recording of swap rates and spreads from a U.S. based unit of a leading interest rate swaps brokering firm (Swaps Broker). ISDAFIX rates and spreads are published daily and are meant to indicate the prevailing mid-market rate, at a specific time of day, for the fixed leg of a standard fixed-for-floating interest rate swap. They are issued in several currencies and are published for various maturities of U.S. Dollar-denominated swaps. The most widely used USD ISDAFIX rates and spreads, and the ones at issue in this Order, are those that are intended to indicate the prevailing market rate as of 11:00 a.m. Eastern Time. The 11:00 a.m. USD ISDAFIX rate is used for the cash settlement of options on interest rate swaps, or swaptions, and as a valuation tool for certain other interest rate products.

The Order finds that certain JPMC traders understood and employed two primary means in their attempts to manipulate USD ISDAFIX rates: trading attempted manipulation and submission attempted manipulation.

Trading Attempted Manipulation

According to the Order, JPMC attempted to manipulate the USD ISDAFIX by bidding, offering, and executing transactions in targeted interest rate products, including swap spreads and U.S. Treasuries at or near the critical 11:00 a.m. fixing time to affect rates on the electronic interest rate swap screen known as the “19901 screen” and thereby increase or decrease the Swaps Broker’s reference rates and influence the final published USD ISDAFIX. As one JPMC employee acknowledged in an electronic communication with one of the Swaps Broker’s employees, it was possible to “muscle the fix at 11” through trading at 11:00 a.m. Another member of the JPMC Swaps Desk (JPMC Swaps Trading Assistant) provided the following description to a colleague at JPMC regarding the efforts by a JPMC Swaps Desk trader to “muscle” the USD ISDAFIX:

[Y]ou know how there is an 11am screen print for ISDA of where rates are . . . well— sometimes clients put orders in to do trades at the 11 o’clock screen shot—so they get positioned for that and then there’s often a big push to move the screen a ¼ [basis point] in their favor but sometimes there are other dealers trying to go the opposite way so it ends up being a screaming match to try and figure out which way it’s going to go so today, [an identified JPMC swaps trader] didn’t win the battle and he was pissed.

The description of a “battle” at 11:00 a.m. to control the 11:00 a.m. reference point snapshot is consistent with both trading records during the Relevant Period, as well as recorded audio instructions at least one JPMC Swaps Trader gave to the Swaps Broker regarding executing his trades just prior to 11:00 a.m. For example, the trader gave the following instructions to the Swaps Broker just before 11:00 a.m. regarding his intentions for trading the 10-year and 30-year tenors at 11:00 a.m.:

“At 11:00, I want to hit, lift 10s. Okay . . . I’ll lift them up. I’ll play the game for up to 400 . . . I’d like to keep it up at ¼ if I can. I don’t want bonds to go over fifty so if they go up to fifty bid, I’m a ¼ offer. If they lift me, they go down immediately. I’ll, I’ll sell whatever he wants to sell, okay.”

JPMC’s efforts to manipulate or “muscle” the USD ISDAFIX and prices on the 19901 screen were common knowledge and openly joked about by certain JPMC traders. When transferring a position between desks, a JPMC trader jokingly commented, “ha, don’t let the rates go up.” In another electronic communication, a senior trader on the JPMC Swaps Desk openly mocked another senior trader on the desk for bragging about his ability to manipulate the 11:00 a.m. ISDAFIX setting in a group chat, writing “remember when i moved the screen in 2y[year] spreads at the 11am setting? [F]vcking [sic] awesome…noone [sic] was paying attention and i [sic] lifted it up and then it went down.”

Submission Attempted Manipulation

The Order also finds that on certain days in which JPMC had a trading position settling or resetting against the USD ISDAFIX, JPMC attempted to manipulate the final published USD ISDAFIX rates by submitting rates that were false, misleading, or knowingly inaccurate because they purported to reflect JPMC’s honest view of the true costs of entering into an interest rate swap in particular tenors, but in fact reflected traders’ desire to move USD ISDAFIX higher or lower in order to benefit JPMC’s positions.

Electronic communications captured examples of discussions between the JPMC submitters and other JPMC trading desk employees. As evidenced in one electronic communication, a JPMC trader requested that the JPMC submitter “give the lowest 3[year] possible (and the highest 2 [year] and 5 [year]” because his desk had “an exercise with the options desk on the 2s/3s/5s.” The request to raise and lower the particular tenors in question was made the day before the reference point snapshot was even taken, indicative of the manipulative intent of the author.

If you have questions or comments about The Manipulation Monitor, please e-mail John M. Lundin, the Manipulation Monitor’s editor, at jlundin@schlamstone.com or call him at (212) 344-5400.

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Bloomberg reports that Citigroup has agreed to pay $100 million to settle claims by 42 states against it relating to”misrepresent[ing] the integrity of the Libor benchmark to state and local governments, not-for-profit organizations and institutional trading counterparties.”

According to Bloomberg,

“[t]he settlement agreement quoted extensive electronic and phone communications obtained in the case, including a communication on March 28, 2008, between a New York-based manager and former Libor submitter to one of his backups.

‘Avoid Being Highest’
“Also I note that our 1-6mths LIBORS were the highest out of all contributors,” the submitter said. “Given the potential negative publicity that this could have I would go lower (and certainly try to avoid being the highest).”

Other messages showed submitters expressing concern that a high Libor would signal the bank was “in trouble” while one that’s too low would attract unwanted attention, according to the settlement agreement. The bank moved its submissions up after a Wall Street Journal report in April 2008 questioned whether Libor submissions truly reflected the banks’ borrowing rates, according to the settlement.

“[T]here is a little bit of internal political pressures for us to be seen, but not heard anywhere at all in the market,” one message said.

Another message by a Citi financial strategist said the British Bankers’ Association, which used to oversee Libor, was “simply sticking its head in the sand and not acknowledging what everyone in the market recognizes — LIBOR is nowhere near where banks may (or may not) extend unsecured credit.”

There have been at least 76 actions filed across the United States since 2011 relating to manipulation of LIBOR or the London Interbank Offered Rate for the U.S. dollar. Since August 2011, 71 of these actions have been transferred to a Multi-District Litigation in the Southern District of New York: In Re: Libor-Based Financial Instruments Antitrust Litigation, 11-MD-02262 (“In re Libor“). Because In re Libor encompasses so many of the civil cases brought by plaintiffs for claims relating to LIBOR benchmark manipulation, we will treat it as one case for purposes of our discussion of LIBOR. Unless otherwise specified, the allegations made are taken from the [Corrected] Fourth Amended Consolidated Class Action Complaint, available here. In this post, we focus on the alleged facts and identification of parties in In re Libor. In an upcoming post we will discuss the procedural posture of class certification of the various parties and the claims asserted.

Overview of How LIBOR Works

LIBOR is a daily interest rate relating to ten currencies for different ranges of maturity published by the British Bankers Association (BBA), a trade association. In this context, it refers specifically to the rate published for the U.S. dollar. It is a “benchmark” rate in that it is used to determine the interest rates for notes, futures, options, and other transactions. For example, a note with a variable interest rate might be calculated as the LIBOR rate plus a certain other percentage.

The BBA calculates LIBOR using submissions received by its agent Thompson Reuters from each of the sixteen members of a panel composed by the BBA, made up of banks in the London interbank money market for U.S. dollars. Each panel member-bank’s submission was a response to the following question from the BBA: “At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?” In other words, each bank submits a prediction on what interest rate it would pay to borrow unsecured U.S. currency in the London interbank market. The BBA’s rules require the submission to be based on “that bank’s perception of its costs of unsecured funds in the London interbank market.” According to plaintiffs, this requires the banks to “independently exercise its good faith judgment each day about the competitive interest rate that it would be required to pay, based upon its own expert knowledge of market conditions, including supply and demand conditions and the panel bank’s own competitive posture as a borrower within the market for interbank loan funds.”

Thomson Reuters, on BBA’s behalf, calculates the LIBOR rate for each maturity by disregarding the highest four and lowest four submissions, and calculating the mean of the middle eight submissions. Thomson Reuters then publishes the calculated LIBOR as well as the individual rates that each bank submitted at around 11:30 am each business day. According to the BBA’s own rules, each bank’s daily submissions remain confidential before its publication by Thomson Reuters.

Overview of the Alleged Collusion

Plaintiffs allege that the panel-members colluded by each agreeing to lower the interest rates in their LIBOR submissions far below what each was actually paying to borrow unsecured U.S. currency. Plaintiffs offer several motives for the banks’ alleged collusion. For one, it was in each bank’s interest to report having to pay a lower rather than higher interest rate, because paying a higher interest rate would reflect poorer creditworthiness and thus a greater risk associated with that bank. Especially since no bank wanted to stand out as being associated with more risk than other banks in the market, each bank had all the more incentive to coordinate its LIBOR submissions with each other. Finally, Plaintiffs allege that the banks artificially lowered their LIBOR submissions in order to manipulate futures contracts for Eurodollars (U.S. dollars held in commercial banks outside the United States), the interest rates for which are tied to LIBOR.

Plaintiffs have offered proof of their allegations from several different sources, including instant messages and e-mails made public from various settlements by some of the panel-member banks with governmental authorities and other civil settlements; these communications show agreements by those responsible for LIBOR submissions to accommodate requests from internal and external swap traders and other panel member banks to set a bank’s LIBOR submission at a certain rate. These communications also show, according to plaintiffs, that the banks based their submissions on how they wanted to be perceived compared to each other, not on what actual interest rates each was paying to borrow U.S. Currency.

Plaintiff-Groups

There are several different classes of plaintiffs that have sought class certification in In re Libor. The following is a brief description of the different types of plaintiffs that have sought class certification.

Over-the-Counter (“OTC”) Plaintiffs: generally consists of persons or entities in the United States who bought an interest rate swap or bond/floating rate note directly from a panel-member bank (or one of its affiliates) that required that panel-member bank to pay interest at a rate tied to the 1 or 3 month LIBOR rate.

Lender Plaintiffs: generally consists of lending institutions headquartered in the United States that originated, held, or purchased loans, or purchased or sold interests in loans tied to LIBOR between August 1, 2007 and May 31, 2010.

Exchange-Based Plaintiffs: generally consists of those who purchased or sold Eurodollar futures contracts or call options on Eurodollar dollars, or bought put options on them on the Chicago Mercantile Exchange on or between certain specified dates.

Defendant-Groups

The panel-member banks during at least some of the relevant time period consisted of Bank of America, N.A., Barclays Bank plc, Citibank, N.A., Credit Suisse Group AG, JPMorgan Chase Bank, N.A., HBOS plc, HSBC Bank plc, Lloyds Bank plc, WestLB, UBS AG, Royal Bank of Scotland plc, Deutsche Bank, AG, Royal Bank of Canada, Société Générale S.A., The Bank of Tokyo-Mitsubishi UFJ, Ltd., Rabobank U.A., The Norinchukin Bank. However, certain of these entities (or their related successor entities) have since settled and are no longer defendants, or are in the process of having settlements approved by the Court.

Interdealer brokers who Plaintiffs allege aided and abetted the panel-member defendants by assisting the banks in communicating their LIBOR submissions also were made defendants. These actors, which included ICAP plc, Tradition (UK) Limited, and Tullett Prebon plc are no longer parties to the case, however.

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 jlundin@schlamstone.com or John F. Whelan at jwhelan@schlamstone.com or call John Lundin or John Whelan at (212) 344-5400.

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Coming up today on the Manipulation Monitor’s compendium of curious competition cases is an overview of claims of chicanery in the high frequency trading markets. Specifically, this post will provide an overview of five litigations, listed below, all of which concern the operation of stock exchanges and the Barclay’s Liquidity Cross (or “LX”) dark pool, and which have been MDL’d under In Re: Barclays Liquidity Cross and High Frequency Trading Litigation, 1:14-md-02589-JMF (SDNY).

City of Providence, Rhode Island v. Bats Global Markets, Inc. et al., 1:14-cv-02811-JMF 2014 (S.D.N.Y.)
American European Insurance Company v. Bats Global Markets, Inc. et al., 1:14-cv-03133-JMF 2014 (S.D.N.Y.)
Harel Insurance Co, Ltd. v. Bats Global Markets, Inc. et al., 1:14-cv-03608-JMF 2014 (S.D.N.Y.)
Flynn et al v. Bank of America Corporation et al., 1:14-cv-04321-JMF 2014 (S.D.N.Y.)
Great Pacific Securities v. Barclays PLC et al., 1:15-cv-00168-JMF 2015 (C.D. Cal.)

Procedural Posture

The four cases initially brought in the Southern District of New York had previously been consolidated, for pre-trial purposes, as City of Providence v. BATS Global Markets, Inc., No. 14-cv-2811. In these four cases, various investors (collectively, the “SDNY Plaintiffs”) brought claims under the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., against seven stock exchanges—BATS Global Markets, Inc., Chicago Stock Exchange, Inc., Direct Edge ECN, LLC, the NASDAQ Stock Market LLC, NASDAQ OMX BX, Inc., New York Stock Exchange, LLC, and NYSE Arca, Inc. (collectively, “the Exchanges”)—as well Barclays PLC and Barclays Capital Inc. (together, “Barclays”). The fifth action, Great Pacific Securities v. Barclays PLC et al., 1:15-cv-00168-JMF, was initially filed in the US District Court for the Central District of California, but consolidated by order of the Judicial Panel on Multidistrict Litigation in December of 2014. In this fifth action, Plaintiff Great Pacific Securities (“Great Pacific”) sued Barclays alleging violations of California state law.

On January 23, 2015, Barclays’ and the Exchange defendants each filed motions to dismiss the second consolidated amended complaint (“SCAC”). Barclays further filed an addition motion to dismiss the claims brought by Great Pacific. All three motions were argued on June 18, 2015.

On August 26, 2015, Judge Jesse M. Furman granted all three motions to dismiss, though granting leave for Great Pacific to amend its complaint. With respect to the claims against the Exchanges, the court found the behavior complained of fell “within the scope of the quasi-governmental powers delegated to the Exchanges” by the SEC, and that the Exchanges were thus immune from suit. The court further found that, even if the Exchanges were not immune, the SDNY Plaintiff’s manipulative-scheme claims failed to meet the heightened pleading standards required for fraud under FRCP Rule 9(b), and, moreover, that no private right of action exists under the relevant statute, Section 6(b) of the Exchange Act. The claims against Barclays by both the SDNY Plaintiffs and Great Pacific, while arising under different statutory schemes—SDNY Plaintiff’s claims under federal securities law, and Grand Pacific’s under California state law—both were dismissed for failure to identify any manipulative acts on which Plaintiffs reasonably relied. The court was further of the opinion that the SDNY Plaintiff’s allegations against both defendants amounted to, at most, the contention that Barclays and the Exchanges aided and abetted the HFT firms by creating conditions through which those firms could influence the price at which securities were traded—but neither Section 10(b) nor Rule 10b-5 create liability for aiding and abetting the violation of another party, thus further justifying dismissal.

The SDNY Plaintiffs appealed this order. In a decision issued on December 19, 2017, the Second Circuit concluded first, that the defendant Exchanges were not entitled to absolute immunity with respect to the securities fraud claims; second, that Plaintiffs had sufficiently alleged that the exchanges were engaged in manipulative conduct; and, third, that Plaintiffs had alleged participation by the Exchanges in a fraudulent scheme, rather than merely aiding and abetting. Accordingly, the decision of the district court in favor of the defendants was vacated, and the case remanded for proceedings consistent with the appellate decision.

The Barclays defendants were not parties to the appeal, and the SDNY Plaintiffs did not appeal the lower court’s decision with respect to their claims under Section 6(b) of the Exchange Act, dismissed on the grounds that the section provides for no private cause of action. A court conferenced followed the appellate decision, and, as a result, member cases Flynn v. Bank of Am. Corp., 14-CV-4321, and Great Pac. Sec. v. Barclays PLC, 15-CV-168 were closed, while Plaintiff Foresta AP-fonden was terminated from both the MDL’d case and member case 14-cv-2811. For those keeping track, this leaves just three of the five actions still in play, each of which allege violations of Section 10(b) of the Exchange Act, and Rule 10b-5, against the Exchange defendants.

The Remaining Claims

Now that we’ve established the somewhat convoluted procedural posture, let’s delve into the allegations being made in the remaining actions.

Who are the “SDNY Plaintiffs,” anyway? Each of the plaintiffs in the remaining cases are institutional investors who participated in the buying and selling of shares of U.S.-based stock exchange listed stock for investment purposes, including on the Exchanges named in this action. These include City of Providence, Rhode Island; Plumbers and Pipefitters National Pension Fund; Employee’s Retirement System of the Government of the Virgin Islands; and State-Boston Retirement System. The case was brought as a class action on behalf of all public investors who purchased and/or sold shares of stock in the United States between April 18, 2009, and the present, and generally alleges a “scheme and wrongful course of business” whereby the Exchange Defendants (and Barclays, though this write up will, given the result of the appeal, focus on the Exchanges) employed various devices and manipulations to defraud investors in a manner that, by design, manipulated the U.S. securities markets and trading on those markets, diverting “billions of dollars annually” from other market participants, and generating every more in kickback payments for the Exchanges.

Some of the basics of the stock trade are important here, so let’s take a step back to look at the rise of high-frequency trading before delving into the specific behavior that Plaintiffs claim to underlie the manipulation. Until (what some may consider to be) quite recently, there was no centralized, national market for the exchange of stocks. In 1975, however, Congress amended the Exchange Act to give the SEC the authority to issue rules stitching together the various disparate exchanges together. The SEC duly promulgated a host of regulations to fulfill this unified vision, all of which were consolidated into a single rule—“Regulation NMS” (“NMS” standing for “National Market System”)—in 2005. Regulation NMS also requires the publication of market plans (“NMS Plans”) which, among other things, compel the exchange to transmit real-time information regarding transactions on that exchange to a centralized entity. This centralized entity, known as the “Processor,” consolidates the information into a single, consolidated data feed.

Immediate acceptance of the most competitive offer by a broker or exchange matching a buyer to a seller is an additional requirement of Regulation NMS, and one that is facilitated by the existence of the centralized feed. This combination of a consolidated price and “best available price,” requirement, together with the authorization, in 1998, for electronic platforms to register as exchanges, has ushered in the rise of high-frequency trading (“HFT”). HFT is a catch-all term that refers to the practice of using computer-driven algorithms to buy and sell stock positions very quickly, taking advantage of small differences in stock prices, often across different exchanges. In the last fifteen years or so, the volume of HFT orders placed has risen from around ten percent of the Exchanges’ trading volume to nearly three-quarters.

This success of the arbitrage described above relies heavily on the ability of high-frequency traders to react expeditiously to information about the stock market. Plaintiffs identified three different practices undertaken by the Exchanges that improve the speed at which high-frequency traders can execute their trades. The Exchanges were motivated to implement these different practices, so the complaint alleges, because they directly benefit from the promotion of high frequency trading practices. Namely, the Exchanges make a commission on each trade that passes through their system: more trades, more profit, and, given the proportion of daily trades conducted by the high-frequency traders, more reason to cater to that group. Plaintiffs believe that these incentives resulted in the exchanges rigging their markets in favor of the HFT firms. To quote from the SCAC (itself quoting market experts),

The primary purpose of the stock exchanges has devolved to catering to a class of highly profitable market participants called [HFTs], who are interested only in hyper-short term trading, investors be damned. The stock exchanges give these HFTs perks and advantages to help them be as profitable as possible, even if doing so adversely affects you, the investors, because HFT firms are the exchanges’ biggest customers.

To satisfy the demands of HFT firms and to attract greater order flow—and yes, more commission fees—the Exchanges (1) designed and implemented complex “order types,” or commands that traders could use to tell the Exchange how to handle their bids and offers; (2) provided HFT firms with enhanced proprietary data feeds; and (3) permitted “co-location,” or the installation of the HFT firm’s servers in close proximity to the servers used by the Exchanges.

Complex Order Types

The implementation of new order types, which the SCAC describes as “exceedingly complex,” has the basic goal of providing customers of the Exchanges different ways to interact with the market. First, Plaintiffs allege that the Exchanges’ disclosures of complex order type functionality and handling practices to the SEC and to the public at large are wholly insufficient “for even the most sophisticated investor” to understand or utilize the new order types. As a result, these complex orders types are only utilized by the HFT firms, to the detriment of Plaintiffs.

Specifically, through these complex order types, HFT firms are able to engage in what the complaint describes as “superior queue positioning.” Standard practice would typically rank bids by price and time of receipt; here, the complex order types allow the bids made by the HFT firms to be placed at the top of the “order book,” rather than positioning them appropriately in the sequence. This lets the HFT firms execute “predatory strategies,” allowing them to profit on their trades to the detriment of unknowing and unsuspecting investors, and further gives the firms an increased opportunity to collect “makers” rebates—and avoid paying the “taker” fee—from the Exchanges. As a result, investor orders that would have been eligible for the makers rebates were converted into unfavorable executions incurring taker fees. The complaint further argues that this practice essentially inserts HFT firms as intermediaries between legitimate customer-to-customer trades, and further results in discriminatory handling of investor orders during sudden price movements.

Because of the complexity, limited marketing, and general lack of clarity surrounding these new order types, Plaintiffs believe that they were created by the Exchanges at the behest of their best customers, the HFT firms, through “exclusive, backroom communications.” The SCAC quotes several different traders and others market participants, including Eric Hunsader, founder of market data firm Nanex; Hunsader is quoted as having observed that “[e]xchanges are losing out to dark pools, so when HFTs ask for a new order type, they get a new order type.” The result was hundreds of new order-type options, many of which are detailed in the complaint.

It is important to note that the creation of these new order types was approved by the SEC. Accordingly, a portion of the complaint was dedicated to detailing how the Exchanges thwarted the rule-making process by failing to include important information about the functioning of the order types in their regulatory filings. The failure to provide the SEC with full information in its filings not only “deprived the SEC of information essential to performing its statutory regulatory function,” but, according to the complaint, derived the investing public of both adequate notice of the new order types, and of the opportunity to comment on the same.

Enhanced Data Feeds

As described above, all of the Exchanges are obligated to transmit real-time transaction information regarding to a centralized entity, the public securities information processor (“SIP” or “Processor”). The Exchanges are not permitted to release market data to private recipients before disseminating the data to SIP, but they do provide the opportunity to subscribe to enhanced or direct data feeds. The information in these feeds is inclusive of the data sent to SIP—or, in the case of enhanced feeds, more detailed—and is sent directly to the private subscribers at the same time as it is transmitted to the SIP. However, because the transmittal of information to SIP is consolidated, the HFT firms subscribing to the enhanced feeds receive market data more quickly than those who are dependent on SIP. Because the cost of receiving these alternative data feeds is beyond the reach of the majority of traditional buy-and-hold investors, the practice means that HFT firms are able to pay for access to public information sooner than the investing public—and thus trade on information before it is publicly disseminated. The allegations in the complaint explain that the more timely receipt, and particularly of enhanced data, allows the HFT firms to track when an investor changes price on their order or how much stock an investor is buying or selling, allowing the firms to predict short-term price movements “with near certainty.”

Regulation NMS requires that all trades be executed on the exchange offering the best price at the time of the order, and this—the national best bid and offer, or “NBBO”—is calculated based on data from SIP. While Regulation NMS did not establish a maximum or minimum speed at which the data destined for SIP must be collected and transmitted, it did require that the SIPs transmit such data so as to be received by all market participants at the same time. Provision of data to the HFT firms either more quickly, by way of direct feeds, or simply with detail more enhanced than that provided to the Processor, via enhanced feeds,” place the Exchanges outside of the ambit of their regulatory function. The high fees charged for these alternative feeds are highly profitable, and, as a result, the Exchange Defendants offering these feeds have a clear incentive to direct their resources towards development of these feeds at the expense of the SIPs and the investors who rely on them.

Co-Location

The last of the practices alleged by the Plaintiffs and still in play today concerns a much simpler method of manipulation: physical proximity. Essentially, what is complained of in this instance is the practice of the Exchanges of permitting the installation of servers belonging to the HFT firms at or extremely close to the servers used by the Exchanges themselves. As anyone with a wireless router just slightly too small for their living space has probably realized, the miracle of wireless transmission is in fact impacted by proximity. The fractions of seconds shaved off transmission time benefits the HFT firms in the same manner as the direct receipt of trade data allegedly does.

Like the direct and enhanced data fees, the cost of co-location is typically beyond that which a traditional buy-and-hold investor could afford. The complaint cites to a 2010 report in the Daily Finance which claims that the Exchanges were at that point collecting more than $1.8 billion per year from HFT firms for co-location fees alone. While both alternative feeds and co-location are in theory available to all investors, they are cost-prohibitive for all but those entities making frequent, speculative, short-term investments. And as the complaint notes—why would the HFT firms be willing to pay such high fees, if not for the “informational and technological advantage” that they receive in return?

Watch this space . . .

This summary merely skims the surface of a lengthy complaint and contested motion practice. While I have focused here on the claims that will be moving forward, I encourage anyone interested in the issues here to review the case documents. The Exchange defendants filed their renewed Motion to Dismiss on May 18, so please stay tuned for the Manipulation Monitor’s review of that brief, and Plaintiff’s opposition, in the coming weeks.

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 jlundin@schlamstone.com or Alexandra M.C. Douglas at adouglas@schlamstone.com or call John or Alexandra at (212) 344-5400.

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On May 22, 2018, Judge Victor Marrero of the SDNY issued an order winding up In Re: Municipal Derivatives Antitrust Litigation, 1:08-cv-02516-VM-GWG). This multi-district litigation was a 2008 case; the cases that were combined in the multi-district litigation likely were from even earlier.

The reasons complex litigations such as these take so long are many and complicated. I leave it to others to debate the merits of those reasons. If you are going to engage in such litigation, know that it may not be a swift process.

If you have questions or comments about The Manipulation Monitor, please e-mail John M. Lundin, the Manipulation Monitor’s editor, at jlundin@schlamstone.com or call him at (212) 344-5400.

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