Updated: October 31, 2017
Status: Ongoing Case
In October 2014, Labaton Sucharow filed a class action on behalf of purchasers of interest rate derivatives (IRDs) whose value was tied to or impacted by the setting of ISDAFix, a key benchmark in the IRD market including interest rate swaps, swaptions, and swaps futures.
The action alleges that a group of major dealers colluded to manipulate ISDAFix for the purpose of enriching themselves to the detriment of the class. Preliminary analyses conducted by Labaton Sucharow suggest that ISDAFix may have been manipulated for nearly eight years, beginning as early as January 2006. Because the market for IRDs is extremely large, the harm caused by ISDAFix manipulation is potentially significant. The investors most likely to have suffered damages from ISDAFix rate manipulation are those who entered, settled, or terminated IRDs. Notably, this includes many pension funds who regularly engage in IRD transactions.
To date, the plaintiffs have settled with defendants Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, JPMorgan, Royal Bank of Scotland, UBS, and HSBC for a total of $408.5 million. Litigation continues against the remaining defendants. The case is currently in the class certification stage.
The case is Alaska Electrical Pension Fund et al v. Bank Of America Corporation et al., No. 14-cv-07126 (S.D.N.Y). Labaton Sucharow represents Genesee County Employees' Retirement System. Alaska Electrical Pension Fund; County of Beaver, Pennsylvania; Magnolia Regional Health Center; County of Montgomery, Pennsylvania; County of Washington, Pennsylvania; County of Westmoreland, Pennsylvania; and City of New Britain, Connecticut are also plaintiffs. The defendants are ICAP Capital Markets LLC and major dealer-banks, including Bank of America, Barclays Bank, Citigroup Inc., and JPMorgan Chase & Co.
ICAP Capital Markets LLC (ICAP) and major dealer-banks are suspected of collusive conduct, involving, among other things: (1) engaging in a high volume of trades in the time period prior to setting the "reference point," which was the rate used as the basis for the contributing banks' rate submissions for the calculation of ISDAFix, in order to manipulate the reference point to a non-competitive level; and (2) agreeing to use the manipulated reference point as the rate the banks would submit to ICAP for calculation of ISDAFix, thus ensuring ISDAFix would be artificial as well. ICAP brokered a substantial amount of these transactions and was fully aware of the submitting banks' motives and practices, yet permitted and facilitated this process because of the large commissions its brokers earned. In fact, so large were the commissions earned by ICAP's Jersey City office that it was dubbed "Treasure Island" by industry insiders.
Government regulators in the United States and Europe-including the Commodity Futures Trading Commission (CFTC) in the U.S., the UK's Financial Conduct Authority, and Germany's financial regulator BaFin-have ongoing investigations into possible manipulation of ISDAFix, which may uncover support for allegations of impropriety. Indeed, the investigation in the U.S. appears to be picking up steam, as the CFTC has reportedly referred the matter to the U.S. Department of Justice for possible criminal prosecution.