Posted: October 2, 2018

Mexican Government Bond Defendants Seek Dismissal–Part 1

In this post, we cover a recently filed motion by the defendants in In re Mexican Government Bonds Antitrust Litigation, 18-cv-02830, (In re MGB) to dismiss Plaintiffs’ Consolidated Amended Class Action Complaint (the “Complaint”) for failure to state a claim. The motion to dismiss is available here. Certain of the defendants also have filed a motion to dismiss for lack of personal jurisdiction and improper venue, available here. This post, however, will only discuss the former motion.

Defendants’ motion to dismiss for failure to state a claim is made on several grounds, including failure to plead plausible allegations of an antitrust conspiracy, failure to plead allegations for individualized defendants, failure to establish antitrust standing, and failure to state a claim for unjust enrichment. Defendants also moved to dismiss Plaintiffs’ claims as being time-barred and barred by the Foreign Trade and Antitrust Improvements Act. This post will summarize Defendants’ arguments concerning whether Plaintiffs made plausible allegations of an antitrust conspiracy and adequately alleged allegations for individualized defendants. The remaining arguments will be summarized in a separate post.

Our July 30, 2018, post summarizes the factual allegations in the Complaint, and is worth reading first in order to fully understand defendants’ arguments.

Failure to Allege a Plausible Antitrust Conspiracy

Auction-Rigging Conspiracy. Plaintiffs allege that Defendants rigged the weekly auctions of Mexican Government Bonds (MGBs) conducted by the Mexican Government by sharing information with each other and coordinating bids to fix prices. Defendants argue that Plaintiffs fail to plead underlying evidentiary facts that allow for a plausible inference of such an unlawful agreement. In order to meet the requirement under cases such as Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009) to plead facts which allow for the plausible inference of a conspiracy, Defendants assert that Plaintiff must either show direct evidence (a “smoking gun” such as a recorded phone call) or show parallel conduct among defendants and certain “plus factors” indicating that the parallel conduct was the result of an agreement, not just coincidence or market forces.

Defendants state in their motion that the news reports cited in the Complaint do not show direct evidence. Plaintiffs cite the reports for the proposition that an unidentified defendant has been granted leniency in Mexico’s cartel leniency program. Defendants dispute that the news reports stand for that proposition. They argue that all the reports say is that an institution has agreed to cooperate with authorities; the reports do not identify the scope of the Mexican authorities’ investigation, if the cooperator is a defendant, or what the cooperator actually did.

Neither, according to the Defendants, have the Plaintiffs alleged any particular instances of parallel conduct, such as, for example, unprecedented changes in pricing structure. Defendants also walk through why each of the pieces of evidence relied upon by Plaintiffs are inadequate as plus factors, even though Defendants assert that such an analysis should be unnecessary given that no parallel conduct has been alleged.

  • News Reports: all reports say is that there is an investigation by Mexican authorities, and that an entity is cooperating with that investigation; that an investigation is taking place is, in and of itself, insufficient to raise the inference of a conspiracy.
  • Inter-firm Communications: Plaintiffs detail in their Complaint that there was a “revolving door” of employees between Defendants, such that many Mexican Government Bond traders previously worked together in the same bank, before moving on to work for another market maker. Defendants contend that a “revolving door” is inadequate as a plus factor because Plaintiffs do not detail specific communications around the time of the Mexican Government’s auction.
  • Prior Cases in Other Markets: The Complaint also detailed admissions from the Defendants and findings from various regulatory authorities purporting to show that the same Defendant banks have colluded to fix prices in other markets. Defendants argue these ‘if it happened there, it could have happened here’ allegations do not substantiate a fraud claim.

Defendants also devote a significant part of their brief to attacking the sufficiency of the economic evidence represented by statistical charts appended to the Complaint. The statistical charts, Defendants argue, are insufficient to serve as “plus factors” for several reasons: 1) they show aggregated averages which lump together different auctions and maturity periods, obscuring trends and outliers and ignoring the effects of important events like the global financial crisis and the changes in Mexico’s credit rating; they do not differentiate between defendants and non-defendants, or identify the activities of individual defendants; 3) they do not show statistically significant results; 4) they use cherry-picked data, as each chart compares a different “before” and “after” period than the other, and features a different set of bonds. Moreover, what each chart purports to show could just as easily be explained by non-anti-competitive behavior. For example, one charts purports to show that “average trading prices for auctioned MGBs tended to rise following the announcement of auction results.” However, Defendants point to scholarship that suggests that this is not due to conspiratorial conduct, but rather due to the pricing information that an auction provides the market.

Spread-Widening Conspiracy. Plaintiffs also allege that after the MGBs were initially offered on the secondary market, Defendants agreed to artificially widen the “bid-ask spread,” the difference between the bid price that a Defendant would agree to buy a particular type of MGB from a consumer and what a Defendants would agree to sell that same type of MGB for. Defendants similarly attack this allegation as conclusory, and lacking plausible evidentiary facts. Defendants point out that Plaintiffs do not even allege that the investigation by Mexican authorities pertains to the alleged spread-widening. These allegations are particularly implausible, Defendants argue, because the non-defendant suppliers of MGBs whom customers were free to buy from makes it unlikely that Defendants widened the spread on all transactions over an eleven year period.

Defendants also assert that the charts purporting to support Plaintiffs’ economic evidence of spread-widening suffer from the same defects that the charts relating to auction-rigging do. Particularly, the charts use median figures that obscure variation of bid-ask spreads for more than a decade, do not show individual defendants’ spreads, and do not claim to show statistically significant results.

Group Pleading

Defendants attack the allegation made against “Defendants” as failing to allege the conspiratorial conduct engaged in by each individual defendant; Plaintiffs “. . . fail to identify a single collusive act or communication by any individual Defendant.” Moreover, the charts purporting to support the economic evidence do not show the auction bids for each defendant, or each defendants’ bid-ask spread or fill rate. The news reports cited by defendants are similarly defective to support these generalized allegations; one report cited by Plaintiffs states that all participants in the market were under investigation, but since an investigation in and of itself cannot be an inference of a conspiracy, Plaintiffs’ allegations are insufficient.

Defendants also argue that the allegations against the Market Maker Defendants’ affiliates are also insufficient, as Plaintiffs merely plead that these entities directed and controlled the Market-Makers that bid at the auctions or that traded with Plaintiffs. Merely alleging direction and control, or corporate affiliation is conclusory and not enough to state a claim, according to Defendants.

This post was written by John F. Whelan.

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

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