Posted: August 28, 2020

Update on Alleged Manipulation of the Market for Mexican Government Bonds

We write to update you on events in the consolidated actions in the Southern District of New York before Judge Oetken known as In re Mexican Government Bonds Antitrust Litigation, 18-cv-02830 (In re MGB), which relates to allegations of a conspiracy among several banks to inflate the price of Mexican Government Bonds, debt securities issued by the Mexican government at regularly scheduled weekly auctions.

Introduction

To briefly summarize developments in In re MGB covered in previous posts: Plaintiffs’ Consolidated Amended Complaint was dismissed on September 30, 2019, for lacking individualized allegations as to each defendant. Plaintiffs requested leave to file a Second Consolidated Amended Class Action Complaint, arguing that chatroom transcripts, a summary from Comisión Federal de Competencia Económica’(“COFECE “) of the results of its investigation into Defendants, and transaction-level data received since the filing of their Consolidated Amended Complaint (later revealed to have been given to Plaintiffs pursuant settlement agreements with affiliates of Barclays PLC and JPMorgan Chase & Co.) would allow them to plead individualized allegations as to each defendant. Plaintiffs were granted the requested leave, and filed their Second Consolidated Amended Class Action Complaint, which purported to incorporate that new evidence. Defendants have made a motion to dismiss the Second Consolidated Amended Class Action Complaint; that motion has since been fully briefed.

In re EGB

Since our last post on In re MGB, the parties have submitted letters to the Court concerning a decision on a motion to dismiss filed in another matter published since Defendants’ motion to dismiss was fully submitted: In re European Government Bonds Antitrust Litigation (In re EGB), 2020 WL 4273811, 2020 U.S. Dist. LEXIS 130724 (S.D.N.Y., July 23, 2020, No. 19-cv- 2601) (the “Decision”) (a copy of the decision can be found here). In re EGB concerns allegations of a conspiracy among banks to manipulate the prices of debt securities issued by Eurozone countries’ central governments.

In their July 30, 2020, letter to the Court (found here), Plaintiffs argue that the Decision supports denial of Defendants’ motion for several reasons.

First, according to Plaintiffs, the Decision used market-wide statistics in considering whether there were adequately individualized allegations. Specifically, it relied upon allegations in the complaint regarding statistics showing the narrowing of bid-ask spreads by four defendants in finding that the complaint sufficiently alleged individualized allegations of involvement in the conspiracy as to the four defendants. Plaintiffs note that there are also statistical allegations in their own Second Consolidated Amended Class Action Complaint, in addition to chatroom transcripts and COFECE’s report.

Second, Plaintiffs argue that the Decision confirms that allegations of direct transactions with Defendants at prices altered by the conspiracy is sufficient to allege antitrust standing, as Plaintiffs contend they have alleged in their own Second Consolidated Amended Class Action Complaint.

Third, according to Plaintiffs, the Decision supports the finding of personal jurisdiction of the Foreign Defendants in In re MGB. Specifically, Plaintiffs cite that the Decision found sufficient allegations that foreign defendants availed themselves of the market in the United States through an “agency relationship” where the European Government Bonds were sourced by foreign defendants and then sold by the foreign defendant’s U.S.-based affiliates, at prices set by the foreign defendants, with the foreign defendants’ knowledge. Plaintiffs contend that their Second Consolidated Amended Class Action Complaint alleges that the foreign defendants used U.S. broker-dealer affiliates in a similar manner. Finally, Plaintiffs argue that the global divisional arrangement alleged in their Second Consolidated Amended Class Action Complaint is similar to the structure found by the Decision to find an agency relationship between foreign defendants and U.S.-based affiliates.

Defendants responded to Plaintiffs’ letter with their own letter to the Court on August 3, 2020 (available here).

As to the issue of whether the Decision supports Plaintiffs’ contention that statistical allegations of anomalous pricing are sufficient to allege individualized allegations of involvement in the conspiracy, Defendants argue that Plaintiffs ignore that the Decision dismissed claims against defendants for which there was no individualized data showing the narrowing of bid-ask spreads as those particular defendants. According to Defendants, the Second Consolidated Amended Class Action Complaint contains no individualized statistical allegations for any defendant. However, Defendants’ letter does not address whether the chatroom transcripts and COFECE’s report are sufficient to allege individualized allegations of involvement in the conspiracy by each defendant.

As to whether the Decision supports Plaintiffs’ antitrust standing, Defendants argue that Plaintiffs ignore that Defendants’ contention is that Plaintiffs have not plead any actual antitrust injury. Specifically, Defendants argue that Plaintiffs have not shown that MGBs were purchased by them on the days they were auctioned, and are only able to show bid-ask spread averages over an eleven year period, not spreads on individual transactions by Plaintiffs. Defendants also argue that Plaintiffs cannot tie any chatroom transcripts to individual transactions by Plaintiffs.
Moreover, the Decision, according to Defendants, also holds that only those who directly transact with defendants can be an “efficient enforcer” of anti-trust laws. However, the Defendants argue that the Second Consolidated Amended Class Action Complaint contains no allegations of direct transactions with any defendant.

As to the issue of personal jurisdiction, Defendants essentially contend that the Second Consolidated Amended Class Action Complaint merely alleges that Defendants’ U.S.-based affiliates’ trading desks marketed and arranged trades, not that the U.S.-based affiliates were controlled by the Foreign Defendants, as Defendants argued that the Decision found was alleged as to the foreign defendants in In re EGB. Moreover, unlike in In re EGB, Plaintiffs here do not allege that Defendants operated an “in-forum branch office” or a “trading hub.” Finally, Defendants point out that Plaintiffs’ contention that the Decision stands for the proposition that activities like quoting prices, creating recommendations, and collecting proceeds creates an agency relationship is in conflict with other decisions in the Southern District of New York.

We will let you know when the Court issues a ruling on that motion to dismiss the Second Consolidated Amended Class Action Complaint, and keep you apprised of other updates regarding In re MGB.

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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