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Posted: September 4, 2018

SSA Swindling? – Part II – Dismissal With Leave to Replead for Failure to Allege Injury in Fact

This week, we follow last week’s dismissal of In re SSA Bonds Antitrust Litigation, No. 1:16-cv-03711-ER (SDNY) (“In re SSA“), an action first introduced in our June 27, 2018, post, where one can find a full account of the alleged collusion in the Amended Complaint. In this post, we focus on the Defendants’ December 12, 2017, Joint Memorandum of Law in Support of the Motion to Dismiss, and Judge Ramos’ August 24, 2018, Opinion and Order granting the Motion to Dismiss.

Brief Overview of the Alleged Collusion

In brief, Plaintiffs are buy side funds, such as pension and retirement funds and asset management companies. They alleged that the Defendants, large dealer banks including but not limited to Bank of America, Barclays, and Credit Suisse, used their position as major players in the supranational, sub-Sovereign, and agency bonds (“SSA”) market to manipulate the bid-ask spread on SSA bonds. Plaintiffs based their allegations primarily on about 150 chats, phone calls, and other correspondence among individuals employed at the dealer-banks regarding certain deals. These 150 communications were produced by Bank of America and Deutsche Bank. After the Plaintiffs filed their complaint, certain defendants settled the case. This included Bank of America and Deutsche Bank, who settled for a combined $65.5 million in August of 2017.

Defendants’ Motion to Dismiss

The Defendants moved to dismiss the case in late 2017, arguing that the Plaintiffs lacked antitrust standing, and otherwise failed to state a claim because the Plaintiffs, relying mostly on the 150 communications, were unable to point to a transaction with an artificially set price of which Defendants were a part. Defendants asserted that Plaintiffs’ claim that they were injured because they transacted during a period when the entire SSA market was “rigged” were both implausible and unsubstantiated.

According to Defendants, Plaintiffs were not efficient enforcers because their claims were too remote and indirect, more efficient enforcers exist, and damages done to them were too speculative. Plaintiffs’ argument that Defendants participated in a decade-long global conspiracy to manipulate the entire SSA bonds market was implausible. Plaintiffs were unable to allege that the Defendants participated in the conspiracy with any evidence besides the correspondence among a handful of individuals dealing with a handful of deals. The allegation that they set artificial prices for a few particular deals, even if proven true, could not substantiate the claim that the entire market was rigged or that the Defendants participated in any misconduct in connection with Plaintiffs’ deals. Further, Plaintiffs did not allege a conspiracy because they failed to allege an industry-wide mechanism or benchmark that affected prices, or that every major bond dealer was involved in the alleged conspiracy. Additionally, Plaintiffs failed to allege that Defendants were participating in the conspiracy throughout the alleged class period.

Additionally, Defendants asserted that Plaintiffs abandoned attempts at providing sufficient allegations of SSA rigging using economic analysis, and that the economic literature provided by Plaintiffs was totally irrelevant. As a consequence, Plaintiffs did not plausibly allege an injury, and their complaint should be dismissed.

The Southern District Dismisses without Prejudice and with Leave to Replead

In late August of 2018, Judge Ramos granted Defendants’ motion dismissing Plaintiffs’ Consolidated Amended Complaint for failure to state a claim because Plaintiffs failed to allege injury-in-fact sufficient to establish antitrust standing, with leave to replead until October 23, 2018. Judge Ramos based his decision primarily on the fact that, as Plaintiffs had not purchased any of the deals in question, the 150 communications on which Plaintiffs relied were not sufficient to plausibly allege a widespread conspiracy which harmed Plaintiffs, and therefore Plaintiffs had not alleged injury-in-fact sufficient to establish standing.

Judge Ramos did note that Plaintiffs could however satisfy the pleading standard with statistical analyses which would show a comparison of bid-ask spreads paid by class members to spreads made on comparable instruments after the period of collusion ended. However, as Plaintiffs Amended Complaint lacked any allegations providing this statistical analyses Judge Ramos dismissed the Amended Complaint. Judge Ramos however made a finding that it was not yet futile for Plaintiffs to replead, and granted Plaintiffs the right to do so.

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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