Source: https://www.schlamstone.com/financial/page/3/
Timestamp: 2019-04-18 19:10:18+00:00

Document:
In this post, we follow up on our October 2, 2018, post, which covered arguments made 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”) concerning whether Plaintiffs made plausible allegations of an antitrust conspiracy and made adequate allegations for individual defendants. We now summarize the remaining arguments made in Defendants’ motion, which concern whether plaintiffs have established antitrust standing, have failed to state a claim for unjust enrichment, and whether Plaintiffs’ claims are time-barred and barred by the Foreign Trade and Antitrust Improvements Act.
As before, we commend your attention to our July 30, 2018, post, which summarizes the factual allegations in the Complaint.
In order to have standing to assert antitrust claims, it is required that a plaintiff allege that it has experienced an “antitrust injury” and that it be an efficient enforcer of antitrust laws. Defendants assert that Plaintiffs’ antitrust standing is insufficient on both grounds.
Antitrust Injury: For purposes of antitrust standing, an “antitrust injury” must be 1) an injury-in-fact; 2) that has been caused by the violation; and 3) that is the type of injury contemplated by the statute. Defendants argue that Plaintiffs have failed to adequately plead that each of their various theories as to Defendants’ collusion actually resulted in injury to Plaintiffs.
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 have failed to show how the allegedly suppressed auction prices raised prices Plaintiffs paid on the secondary market such that injury was caused to them.
Post Auction Inflation: Plaintiffs alleged that prices were inflated by Defendants during the post-auction period of the day of the MGB auction by the Mexican Government, but according to Defendants, Plaintiffs do not allege that prices were inflated “on Non-Auction Days, when Defendants do not have new inventory of MGBs to sell.” Defendants argue that since Plaintiffs do not plead that they bought the MGBs on the day they were auctioned, or, to the extent they bought MGBs on auction days, that they bought tenors that were actually auctioned that day, Plaintiffs have failed to show how this alleged inflation caused injury to Plaintiffs.
Spread-Widening Conspiracy: Plaintiffs 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, as listed in the “two-way quote.” Plaintiffs further allege that because of this, they were “overcharged each time they purchased MGBs from Defendants and underpaid each time they sold MGBs to Defendants.” Defendants argue that this is a conclusory assertion of injury, since the charts included in the Complaint only show “median” bid-ask spreads from 2006 through 2017, and do not therefore show that the bid-ask spread was widened for all transactions over the course of 11 years, or at least identify a single, particular transaction that was.
Bondes D: There are four types of MGBs, each of which differ from each other in how interest is paid to the holder. According to Defendants, Plaintiffs do not actually allege that they themselves bought one particular type of MGB, Bondes D. Therefore, Defendants argue, Plaintiffs could not have suffered any injury as to those bonds.
Efficient Enforcer. There are four factors which guide whether a plaintiff will be an efficient enforcer of antitrust laws: i) the directness of the plaintiff’s injury, (ii) the existence of more direct victims of the anticompetitive conduct, (iii) the extent to which the plaintiff’s alleged damages are “highly speculative,” and (iv) the potential for duplicative recovery or complex questions regarding apportionment of damages.
According to Defendants, Plaintiffs seek to certify a class which would include all persons who have entered into a trade for MGBs. This would include what Defendants call “umbrella” claims, meaning claims arising out of trades with non-Defendants. Defendants attack Plaintiffs’ ability to be an efficient enforcer of umbrella claims on several grounds.
Defendants assert that causation of injury by Defendants for umbrella claims is too attenuated for Plaintiffs to be efficient enforcers of such claims. Plaintiffs and non-defendants are independent actors; in such transactions, Plaintiffs were not required to transact at a given bid/ask price or even required to interact with non-defendants at all. The chain of causation between Defendants’ alleged suppression of bid/ask prices and prices of non-defendant transactions are thus severed. Defendants rely on a string of cases which they contend hold that such attenuation prohibits plaintiffs from asserting antitrust standing for umbrella claims.
Defendants also argue that Plaintiffs cannot be efficient enforcers of umbrella claims because parties that traded directly with a Defendant are “more direct victims” of the alleged conspiracy. They additionally claim that it would be “exceptionally complex” to isolate impact of Defendants’ conduct on umbrella claims, as one can only speculate as to what the umbrella claims would be, absent manipulation.
Finally, Defendants assert that allowing Plaintiffs antitrust standing for umbrella claims would impose liability on Defendants disproportionate to their gains, since Defendants would be liable to any non-party who traded with Plaintiffs, going beyond the scope of the Sherman Act’s intent.
The Foreign Trade and Antitrust Improvements Act (“FTAI”) excludes conduct involving trade or commerce with foreign nations from Sherman Act claims. The FTAI does not apply to i) import activity involving foreign commerce or ii) to conduct that has a “direct, substantial, reasonably foreseeable effect” on domestic or import commerce and gives rise to a claim under the Sherman Act (known as the ii.	“Domestic Effects Exception”). The Domestic Effects Exception requires that there be a “reasonably proximate causal nexus” between overseas conduct and alleged domestic effects.
Defendants argue that neither exception can apply to Plaintiffs’ allegations that Defendants rigged the auctions in Mexican run by Mexican authorities at which the MGB were originally sold to Defendants. Those transactions only took place between Mexican market-maker entities and the Mexican government, making the auctions wholly foreign transactions to which the import exception cannot apply. Defendants also note that Plaintiffs have not even plead that the Domestic Effects Exception applies, but argue that even if they had, such alleged manipulation of the Mexican auctions would only have limited, indirect, effects on transactions in U.S., not “substantial” and “reasonably foreseeable” effects required for the exception to apply.
Defendants argue that Plaintiffs’ unjust enrichment claims should be dismissed for several reasons: First, Plaintiffs’ only basis that Defendants were “unjustly” enriched are based upon the conspiracy allegations, which are defective in and of themselves for being conclusory (as further explained in our previous post). Second, the unjust enrichment claims are duplicative of Plaintiffs’ other claims. Third, the claims are based upon transactions between the parties which are governed by contracts, and unjust enrichment is only available where there is no actual agreement between the parties. Finally, unjust enrichments claims do not apply to any transactions with which the Plaintiffs did not deal directly with the Defendants.
Sherman Act claims are subject to a four-year statute of limitations, which runs from when the cause of action accrues, not from a plaintiff’s discovery of the action. The cause of action would thus run, according to Defendants, when the MGB transaction between the parties occur and plaintiff pays an anticompetitive price. Since Plaintiffs filed their complaint on March 30, 2018, that would claims based on transactions before March 30, 2014 would be time-barred. The statute of limitations can be tolled if Defendants fraudulently concealed facts underlying Plaintiffs’ claims, which Plaintiffs allege that the Defendants in fact did. However, fraudulent concealment can only be a basis for tolling the statute of limitations if it is done by affirmative acts of concealment or if it was done as part of a “self-concealing” conspiracy.
Plaintiffs’ allegations of fraudulent concealment fail, according to Defendants, because they are not plead with particularity, as required by Rule 9(b), and, separately, they do no allege any acts of concealment separate from those that form the basis of their claim. Defendants not only contend that Plaintiffs have failed to show that the nature of the conspiracy is “self-concealing,” but also assert that Plaintiffs’ own allegations that Defendants’ alleged collusion caused “dramatic” price changes on auction days that were absent on non-auction days show that the existence of the alleged conspiracy was apparent from publicly available information. Defendants also note that Plaintiffs rely on public reports from as early as October 2013. Defendants assert that these public reports should have been sufficient to put Plaintiffs on notice so as to cause the statute of limitations to run. Otherwise, Plaintiffs would have “it “both ways,” asserting on one hand that there are public reports which evince Defendants’ conspiracy, but on the other asserting that Defendants’ conspiracy is self-concealing such that the statute of limitations should be tolled.
Under the current briefing schedule, Plaintiffs opposition is due on or by November 16, 2018. Stay tuned to this blog, as we will be sure to inform you as to any new developments from Plaintiffs’ opposition.
This week we cover the Motion to Dismiss and affirming Appellate decisions decided in 2014 and 2016 in In re: Aluminum Warehousing Antitrust Litigation, 1:13-md-02481-KBF (SDNY), an action previously introduced in our September 24, 2018, post, where one can find a full account of the alleged collusion.
Plaintiffs allege a conspiracy by the London Metal Exchange (“LME”), Glencore, Goldman Sachs and JP Morgan Chase & Co., among others, to restrain aluminum output and increase storage costs, both leading to an increase in price for, and injury to, Plaintiffs.
In the summer of 2014, JudgeForrest of the Southern District granted defendant LME’s motion to dismiss brought under the Foreign Sovereign Immunities Act (“FSIA”) on the basis that LME was an organ of the United Kingdom (“UK”) Government, and was not engaged in commercial activity so as to fall into the commercial activity exception to the FSIA. See In re Aluminum Warehousing Antitrust Litig., No. 13-MD-2481 KBF, 2014 WL 4211353 (S.D.N.Y. Aug. 25, 2014). Judge Forrest found that LME was essentially a regulatory arm of the UK Government and was acting in an inherently regulatory capacity. LME’s load out rules and arrangements with reference to warehouses were both implemented to serve a regulatory purpose, and were not negotiated at arms-length but were mandatory and compulsory, establishing LME’s regulatory role. As such LME was a state organ and LME’s activity did not fall within the commercial activity exception to the FSIA. See id. at *11-15.
At about the same time Judg eForrest issued a separate opinion dismissing the Plaintiffs’ claims, on a number of grounds. See In re Aluminum Warehousing Antitrust Litig., No. 13-MD-2481 KBF, 2014 WL 4277510 (S.D.N.Y. Aug. 29, 2014).
Among these included a lack of antitrust standing. Plaintiffs did not allege that they were competitors or consumers of the Defendants. Rather they alleged that Defendants’ independent actions had an effect which increased the Midwest Premium, thereby impacting the sales price in Plaintiffs’ independent trades. Because Plaintiffs’ did not allege that they were consumers or competitors of Defendants, they were forced to plead facts sufficient to show that their injury was “inextricably intertwined” as required under Blue Shield of Virginia v. McCready, 457 U.S. 465 (1982), Crimpers Promotions Inc. v. Home Box Office, Inc., 724 F.2d 290 (2d Cir.1983) and Province v. Cleveland Press Publ’g Co., 787 F.2d 1047, 1052 (6th Cir.1986). Because Plaintiffs failed to allege that they were “manipulated or utilized by [d]efendant[s] as a fulcrum, conduit or market force to injure competitors or participants,” that is to say they were manipulated “as a means to carry out the restraint of trade in the product market” within the language of Province, so as to support a claim that their injury was “inextricably intertwined” with that of consumers or competitors, the case was dismissed for lack of antitrust standing.
On appeal, the Second Circuit affirmed Judge Forrest’s reading under McCready, Crimpers and Province noting that because Defendants were not used as a “fulcrum, conduit or market force,” and they thus could not assert a claim under the “inextricably intertwined standard.” See In re Aluminum Warehousing Antitrust Litig., 833 F.3d 151, 161-163 (2d Cir. 2016).
Additionally, in In re Aluminum, 2014 WL 4277510 at *24-34, per Judge Forrest, Plaintiffs failed to plausibly allege facts supporting either an agreement among the warehouse defendants to restrain load-outs of aluminum, or an agreement between the trader defendants and warehouse defendants to effectuate that conspiratorial scheme. They drew this conclusion, based on the fact that, given the allegations as pled, the story was consistent with the defendants acting in accordance with the market forces of supply and demand, rather than a conspiracy. Defendants were holding a cheap good now, as it was anticipated to become more expensive later, which is consistent with lawful competitive behavior. The court also noted that Defendants, who made money by trading warrants and selling storage space, were not competitors and did not directly gain from an increase in the Midwest premium, and as such lacked financial motive to act. The plaintiffs did not even allege a plausible market in which defendants restrained trade. As such, there was no conspiracy under either a per se or a rule of reason analysis.
Additionally, the Plaintiffs failed to plausibly allege the details of any conspiracy. The generalized allegations of defendants being on LME committees especially without allegations of how decision-making changed when the trader defendants acquired the warehouses, was wholly insufficient. The same can be said of the mere affiliation between individuals employed by Goldman Sachs and the warehouse defendants, in the absence of more particularized allegations. In light of this all, especially given that defendants’ conduct was self-interested, defendants alleged cancelling of warrants in parallel and delaying load-outs in parallel were not sufficient to satisfy the requirement that Plaintiffs plead parallel conduct to justify an inference of a conspiracy.
Further, per Judge Forrest, Plaintiffs failed to allege facts sufficient to support their monopolization claims because they failed to fully define a relevant market, or assert that any of the defendants had the power to unilaterally effect the Midwest premium. The attempts to rely on the acts of multiple different actors was improper as the law does not recognize a “shared monopoly.” Metro’s control of a large percentage of the warehouses was not sufficient on its own to satisfy the test as they did not unilaterally control the warrants and futures contracts that determined the ingress and egress of aluminum to and from warehouses. Id. at*34-37.
Finally, per Judge Forrest, the Plaintiffs various state law claims rely on the same antitrust, conspiracy, monopolization and unfair conduct allegations, and otherwise were not pled with particularity to allow the court to determine how the conduct violated each individual state statute. Id. at *37-38; In re Aluminum Warehousing Antitrust Litig., No. 13-MD-2481 KBF, 2014 WL 4743425 (S.D.N.Y. Sept. 15, 2014). On appeal this was affirmed on the same grounds. See In re Aluminum Warehousing Antitrust Litig., 833 F.3d at 163.
Reuters and Yahoo News are reporting that the CFTC has ordered Bank of America N.A. to pay a fine of $30 million to settle charges that it “made false reports and attempted to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a leading global benchmark” between 2007 and 2012. The US Dollar ISDAFIX benchmark is referenced in a range of interest rate products.
Reuters reports that CBOE is working with FINRA “to develop machine learning techniques to tell whether market conditions surrounding the VIX settlement are potentially anomalous” in order to address concerns that traders could manipulate its VIX volatility index by strategically placing S&P options orders.
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.
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.
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 week we cover the allegations in the multi-district litigation In re: Aluminum Warehousing Antitrust Litigation, 1:13-md-02481-KBF (SDNY) (“In re Aluminum Antitrust Litigation”). We will leave a discussion of the subsequent motion to dismiss briefing and decision, and the appeals to a later date. In short, the Plaintiffs in In re Aluminum Antitrust Litigation allege that Defendants created a monopolistic restraint on the supply of primary aluminum, first by using a minimum per-warehouse distribution rule to monopolize market share, and then converting that minimum warehouse distribution rule into a maximum, creating delays in the distribution of Aluminum and an increase in price, despite the existence of a high market supply of primary aluminum.
Aluminum, a very abundant metal, is used in a number of industrial products including airplanes and automobiles, packaging materials, construction materials, and consumer electronics. Primary aluminum refers to aluminum produced directly from mined ore. Large integrated producers create primary aluminum and sell to two broad categories of customers: manufacturers/processors/brokers in the physical market and traders/speculators in the resale market. After creation of primary aluminum, the supply is often warehoused.
According to Plaintiffs, demand for primary aluminum is relatively inelastic as aluminum is not readily replaceable with other metals in its various uses, regardless of price increases. Likewise, supply is also inelastic as the cost structures of smelters make it the case that they either produce at full capacity or not at all. The combination of these two market realities make it difficult for aluminum purchasers and manufacturers to fight back against price increases.
Nearly all industrial contracts for the physical delivery of primary aluminum express the price of aluminum using a formula with at least two standardized components: (1) the LME Settlement Price, the cash offered price at the end of the LME’s second morning trading session, and (2) a regional premium (e.g. the Midwest Premium, the Benchmark in the United States), which is meant to cover the cost of delivery to a customer, and which is compiled based on a reporting of the preponderance of physical transactions between buyers and sellers of spot aluminum on a given day for delivery to relevant geographic points. These components are published by private companies, including Platts and Metal Bulletin. From 2008 to 2012, the relationship between global production and demand was relatively stable, with the market tending toward surplus. Directly before the start of the Class Period, the supply of aluminum in the Midwest United States greatly increased, which should have caused the Midwest premium to decrease.
According to Plaintiffs, Plaintiffs, a number of first level and direct purchasers of aluminum for physical delivery within the United States, purchased primary aluminum at a price that included the London Metal Exchange (“LME”) Price, and the Midwest Premium or Midwest Transaction Price. Plaintiffs allege that Defendants, LME, Metro, Glencore, Pacorini, among others, and a number of financial institutions including Goldman Sachs and JP Morgan, worked together to unlawfully restrain trade by lengthening the amount of time it takes to load-out aluminum from warehouses, prolonging queues and restraining load-out rates in the market for warehouse services of aluminum in LME registered warehouses in the U.S. and Canada, thus causing an increase in the Midwest Premium, and consequently an increase in the price of primary aluminum.
Plaintiffs allege that in 2003, LME created a minimum rate of load-outs, 1,500 metric tons per day per warehouse location. This favored large warehouses like those held by Metro and Glencore/Pacorini. As a consequence, Metro at the time of the change of the minimum load-out rule announced that it would increase rents to at least three times the competitive rental rates. Simultaneously, regardless of actual capacity and commercial reasonableness, Metro and the other defendants entered into agreements and made the minimum rate of load-outs into a maximum. LME was aware of these limits and complicit in the agreement to use the minimum load-out rule as the maximum rate. Through a web of agreements Metro shared its profits with its co-conspirators, including Burgess-Allen and Glencore. One mechanism used was the illusory cancellation of LME warrants. The Defendants also worked together to shift aluminum among their warehouses in order to concentrate the stock at key warehouse locations.
According to Plaintiffs, LME made increased profits through increased rental revenues. The Goldman Defendants had full knowledge of Metro’s anti-competitive actions and helped facilitate them, especially through using their control of the LME’s rulemaking process to make sure that the minimum rule remained in effect, and lobbying with LME to the same end. The bank defendants made a profit from taking advantage of prevailing market contango, selling short positions on futures and taking advantage of the long positions of the industrial Plaintiffs taken as a hedge against increases in the LME primary aluminum price. The Goldman Defendants also profited through the increased value of aluminum owned by its J. Aron subsidiary. The Goldman, JPMorgan and other Defendants benefited as at the time LME was sold to a Hong-Kong Exchanges & Clearing, and they made a profit off the sale of their shares for a combined $468 million.
Plaintiffs sought damages, injunctions and declaratory relief under Section 1 and 2 of the Sherman Act, 15 U.S.C. § 1, the Michigan Antitrust Reform Act, MCL §§ 445.773, the Donnelly Act of New York General Business Law § 340, et seq., among other state antitrust and unfair trade practices statutes, and claims for unjust enrichment.
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.
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.
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.
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.

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