Sonterra Capital Master Fund Ltd. v. Credit Suisse Group AG
Docket: 1:15-cv-00871 (SHS)
Court: District Court, S.D. New York; September 25, 2017; Federal District Court
The opinion issued by U.S. District Judge Sidney H. Stein outlines the court's ruling on a specific legal matter. The document presents the judge's analysis, legal reasoning, and conclusions based on the evidence and arguments presented by the parties involved in the case. It serves as an official order from the court, detailing the outcome and any directives or implications resulting from the judgment. The opinion may include interpretations of relevant laws, precedents, and the application of legal standards pertinent to the case at hand.
The document outlines multiple legal issues regarding allegations of manipulation of CHF LIBOR and its impact on Swiss Franc derivatives, detailing the relationships between the parties involved, the types of derivatives affected, and specific instances of alleged manipulation. Key points include:
1. **Background**: Overview of CHF LIBOR, its connection to Swiss Franc derivatives, and allegations of manipulation, including intra- and inter-defendant collusion.
2. **Standing**: Analysis of Article III standing, determining plaintiffs lack standing for bid-ask spread claims but have standing for CHF LIBOR manipulation claims related to certain derivatives.
3. **Motion to Dismiss**: Standards for reviewing motions to dismiss for failure to state a claim.
4. **Antitrust Claims**: Examination of alleged antitrust violations, including a plausible conspiracy against RBS, standing issues, and statute of limitations concerns.
5. **Commodity Exchange Act (CEA) Claims**: Discussion on the applicability of the CEA to CHF FX forwards, standing issues, and allegations of manipulation and liability against major banks, noting timeliness of claims against most defendants.
6. **RICO Claims**: RICO standing analysis, specific conduct allegations against RBS, including sufficient predicate acts and patterns of racketeering, while dismissing claims as extraterritorial.
7. **Supplemental Jurisdiction**: Court's decision not to exercise supplemental jurisdiction over state law claims.
8. **Personal Jurisdiction**: Evaluation of defendants' connections to the U.S., jurisdiction standards, and specific findings regarding which defendants are subject to the court's jurisdiction due to manipulation activities.
9. **Leave to Replead and Conclusion**: The court's stance on allowing repleading and a summary conclusion of findings.
Overall, the document presents a structured legal analysis of claims related to CHF LIBOR manipulation, assessing standing, jurisdiction, and the viability of various legal theories against different defendants.
Allegations in this putative class action center on the unlawful manipulation of the Swiss franc London InterBank Offered Rate (CHF LIBOR) by eight large financial institutions from January 1, 2001, to December 31, 2011. The plaintiffs assert that this manipulation adversely affected the pricing of Swiss franc currency derivatives, including CHF FX forwards and CHF futures contracts, resulting in unfavorable transaction terms for them. Claims are brought under the Sherman Antitrust Act, the Commodities Exchange Act, and the Racketeer Influenced and Corrupt Organizations Act, along with state law claims for unjust enrichment and breach of good faith against Credit Suisse AG, Credit Suisse Group AG, and UBS AG. The allegations are supported by facts from settlements exceeding $7 billion with regulators related to LIBOR manipulation.
While motions to dismiss the Complaint are pending, JPMorgan has reached a class-wide settlement, leading to the withdrawal of its motion to dismiss. The remaining defendants contest the Complaint on various grounds, including subject matter and personal jurisdiction, standing, and failure to state a claim. The Court finds that the Complaint does not adequately state a claim for relief; specifically, plaintiffs lack standing regarding bid-ask spread manipulation and fail to sufficiently allege an antitrust conspiracy involving any defendant other than RBS. The allegations regarding independent manipulation by certain defendants do not establish a conspiracy among them.
Plaintiffs' antitrust claim against RBS is dismissed for lack of standing, as they did not engage in transactions involving CHF LIBOR-based derivatives with RBS, rendering them ineffective enforcers of antitrust laws. Their Commodity Exchange Act (CEA) claims are also dismissed due to insufficient details about their transactions to support allegations of injury from defendants' manipulation of CHF LIBOR. The RICO claims are rejected as impermissibly extraterritorial, given that the manipulation scheme primarily took place in Europe, with minimal connection to the U.S. Consequently, the court declines to exercise supplemental jurisdiction over state law claims. The defendants' motions to dismiss are granted, and plaintiffs are allowed to replead their claims.
The background provided outlines that CHF LIBOR is established by the British Bankers Association in London, where twelve contributor banks submit borrowing rates. Thomson Reuters, acting on behalf of the BBA, calculates the official CHF LIBOR by averaging the middle 50% of the submitted quotes. The integrity of this process is maintained by BBA guidelines requiring banks to submit quotes based solely on their borrowing costs. The complaint argues that CHF LIBOR influences the pricing of various Swiss franc derivatives, asserting that manipulation of the LIBOR rate affects the value of these derivatives. The complaint presents a statistical analysis indicating a significant discrepancy between CHF LIBOR and actual borrowing costs during the class period. Five of the defendants are identified as contributor banks involved in setting CHF LIBOR.
Defendants include Credit Suisse AG and DB Group Services UK Limited, subsidiaries of Credit Suisse Group and Deutsche Bank AG, respectively, as well as BlueCrest Capital Management LLP, an investment advisory firm accused of requesting Deutsche Bank AG to submit a manipulated CHF LIBOR quote. JPMorgan, a Delaware financial holding company based in New York, is also involved. Other defendants, headquartered in Europe, are alleged to have significant operations or affiliates in the U.S. Plaintiffs, consisting of investment funds and one individual, claim to have suffered injuries during the Class Period from U.S.-based transactions involving Swiss franc LIBOR-based derivatives, specifically Swiss franc currency futures contracts and FX forwards, at artificially manipulated prices.
While plaintiffs only engaged in these two derivatives, they seek to represent a broader class of those involved in any Swiss franc LIBOR-based derivatives, which includes various over-the-counter instruments and exchange-traded contracts. Plaintiff Frank Divitto, an Ohio resident, specifically traded Swiss franc currency futures on the CME but provided limited details about these transactions. The Complaint defines Swiss franc futures contracts as standardized agreements for the purchase or sale of a specified amount of Swiss francs on a future date, with the CME serving as the intermediary. Other plaintiffs primarily engaged in Swiss franc FX forwards, which are customized agreements allowing for flexibility in terms such as amount and settlement date, directly with defendants UBS and Credit Suisse. The Direct Transaction Plaintiffs allege significant trading activity, detailing over 400 forwards with Credit Suisse and over 1,300 with UBS, and provide specific transaction dates and amounts, unlike Divitto's allegations.
Plaintiffs assert that they engaged in Swiss franc FX forwards transactions at artificially manipulated prices due to defendants' actions. During the Class Period, trillions of dollars in Swiss franc LIBOR-based derivatives were traded in the U.S. The allegations center on defendants exploiting their control over CHF LIBOR to influence the pricing of these derivatives to their advantage or that of co-conspirators. Specifically, the Contributor Bank Defendants allegedly submitted false LIBOR rates in response to requests from their derivatives traders, which included U.S.-based traders and other co-conspirators like banks and hedge funds.
Two main forms of manipulation are highlighted: "daily fixes," where traders requested specific submissions on days when their derivatives positions were set to be priced, and "longer-term bias," where manipulative submissions were made repeatedly over time to affect specific LIBOR tenors. These manipulations were intended to adjust CHF LIBOR rates higher or lower based on the defendants' trading positions, contrasting with previous LIBOR manipulation claims that focused on persistent suppression of rates.
The Complaint provides detailed instances of manipulation, distinguishing between "intra-defendant manipulation," where a bank manipulated its own submissions, and "inter-defendant collusion," where different banks colluded in their submissions. Specific examples include UBS, RBS, and Deutsche Bank AG traders requesting manipulated rates on various occasions, reflecting a systematic pattern of misconduct from at least 2001 to September 1, 2009, where LIBOR submissions were rounded to benefit their trading positions.
Deutsche Bank AG implemented a policy aimed at manipulating the spread between different tenors of LIBOR, notably Swiss franc LIBOR. Its submitters would routinely incorporate a "bias" into LIBOR submissions to widen this spread, independent of direct requests from traders. The Complaint asserts that RBS traders consistently sought false CHF LIBOR submissions during the Class Period, sometimes multiple times weekly.
Allegations of inter-defendant collusion are less detailed, with only a few instances cited from government settlements. BlueCrest, not a contributor bank, allegedly requested a low one-month CHF LIBOR submission from Deutsche Bank AG in February 2005, but the Complaint does not indicate that Deutsche Bank acted on this request.
The strongest claims of collusion involve RBS, which purportedly communicated with an unidentified "Bank E" about manipulating CHF LIBOR. The European Commission identified a cartel between RBS and JPMorgan aimed at manipulating Swiss franc LIBOR. Further documentation from JPMorgan suggests conspiratorial actions with RBS traders. The Complaint describes a "hub and spoke" conspiracy where inter-dealer brokers coordinated false LIBOR submissions among panel banks, with RBS allegedly participating in at least five documented requests for false submissions.
While the Complaint mentions a general involvement of other defendants in this conspiracy, it lacks specific allegations against UBS or the Credit Suisse defendants regarding manipulation of CHF LIBOR. Plaintiffs argue that these manipulative actions were systemic rather than isolated, claiming they were supported by structural decisions within the banks that fostered an environment conducive to LIBOR manipulation.
Implementing lax compliance standards resulted in the failure to detect misconduct related to CHF LIBOR manipulation. The Complaint alleges that Deutsche Bank AG and UBS permitted CHF LIBOR derivative traders with financial interests to submit quotes, while RBS restructured its trading desk to facilitate communication between CHF derivative traders and LIBOR submitters. Investigations into misconduct were reportedly not conducted by RBS, UBS, and Deutsche Bank AG, or were improperly managed. In contrast, no allegations were made against BlueCrest, DB Group Services, or the Credit Suisse Defendants regarding similar facilitation of manipulation.
The Complaint also asserts that defendants colluded to artificially widen the bid-ask spread in the over-the-counter LIBOR-based derivatives market. This spread, the difference between the buying (bid) and selling (ask) prices, was allegedly expanded for non-member transactions while maintaining narrower spreads for trades among themselves, thereby increasing profits on these transactions. Specific allegations of this conspiracy primarily relate to a settlement involving RBS, UBS, JPMorgan, and Credit Suisse, designated as the "EC Cartel Defendants," who were found by the European Commission to have manipulated bid-ask spreads for certain Swiss franc currency derivatives between May and September 2007.
Regulatory investigations and settlements stemming from the alleged manipulation led to significant enforcement actions against the defendants. UBS settled with the DOJ, CFTC, and FSA in December 2012 for extensive manipulation of CHF LIBOR. RBS followed with similar settlements in February 2013. Additionally, both RBS and JPMorgan settled with the European Commission in October 2014 for colluding to distort pricing of Swiss franc interest rate derivatives, alongside a settlement for bid-ask spread manipulation among the EC Cartel Defendants. Finally, Deutsche Bank AG reached settlements in April 2015 with multiple regulatory bodies, including the DOJ and CFTC.
From at least 2003 to 2010, Deutsche Bank (DB) derivatives traders obtained benchmark interest rate submissions to benefit their trading positions, leading to a settlement with the Department of Justice (DOJ) on April 23, 2015, partially due to false CHF LIBOR quotes requested by traders in London. On February 5, 2015, plaintiffs filed a complaint against multiple financial institutions, including Credit Suisse Group AG and JPMorgan Chase & Co., and later amended it to include additional defendants and allegations. They seek to represent all entities engaged in U.S.-based transactions related to Swiss franc LIBOR from January 1, 2001, to December 31, 2011 (the "Class").
The plaintiffs assert nine causes of action, including two antitrust claims against all defendants for collusion to manipulate Swiss franc derivative bid-ask spreads and CHF LIBOR, three claims under the Commodity Exchange Act (CEA) related to CHF LIBOR manipulation, RICO violations based on manipulation through U.S. wires, and state law claims of unjust enrichment and breach of the implied covenant of good faith and fair dealing against specific defendants.
Defendants have moved to dismiss the Complaint under Rule 12(b)(1) for lack of subject matter jurisdiction, arguing that plaintiffs have not sufficiently alleged an injury-in-fact. For the Bid-Ask Spread Claims, defendants claim plaintiffs did not transact in the affected derivatives. For the CHF LIBOR Manipulation Claims, they argue that manipulation does not affect prices of derivatives not transacted by the plaintiffs. The Court finds that plaintiffs have standing for their CHF LIBOR Manipulation Claims, with some exceptions, but not for their Bid-Ask Spread Claims.
Establishing standing is critical for federal jurisdiction, requiring plaintiffs to demonstrate an injury-in-fact that is traceable to the defendant's actions, with potential for redress through the requested relief.
Allegations of injury in fact must meet the criteria of being concrete, particularized, actual or imminent, and traceable to the challenged action, although this standard is relatively low. A valid cause of action is not necessary for establishing standing, provided the injury is likely to be redressed by a favorable ruling. In assessing standing based on pleadings, factual allegations in the complaint are accepted as true. Typically, a plaintiff must demonstrate personal injury from the challenged conduct; however, in class actions, a plaintiff can have class standing if they show they personally suffered an actual injury related to the defendant's conduct that also affects other class members.
In the case concerning the "bid-ask spread" conspiracy, defendants argue that the plaintiffs lack standing because they have not alleged transactions in the specific types of derivatives identified in a European Commission decision, such as forward rate agreements and swaps. Plaintiffs only claim to have transacted in Swiss franc FX forwards and currency futures contracts, failing to connect their injuries to the specific derivatives covered by the settlement. Instead of providing specific allegations of manipulation regarding the derivatives they traded, plaintiffs attempt to generalize their claims under the broader term "Swiss franc LIBOR-based derivatives" without substantiating how their specific transactions were affected.
Defendants highlight that plaintiffs do not refute the claim that the complaint lacks specific allegations of manipulation for their types of derivatives. Plaintiffs’ vague assertions regarding the broader implications of defendants' conduct fall short of providing the necessary specifics to establish standing. Consequently, without clear allegations linking their injury to the defendants’ actions, plaintiffs cannot demonstrate injury in fact and thus lack standing to sue on behalf of the proposed class regarding manipulation of other derivative types.
Plaintiffs face dismissal for lack of standing regarding their claims of bid-ask spread manipulation, as no supporting allegations exist. The defendants argue that plaintiffs lack Article III standing for their CHF LIBOR manipulation claims, asserting a failure to establish a plausible connection between CHF LIBOR and the pricing of the derivatives involved. They contend that without this connection, there can be no injury traceable to the defendants’ alleged manipulation, which also undermines claims under the Sherman Act, the CEA, or RICO.
The plaintiffs claim that the cost of future Swiss franc transactions is determined by an industry-standard formula incorporating CHF LIBOR, applicable to both CME Swiss franc futures and OTC FX forwards. This formula involves adjusting the spot price of Swiss francs by accounting for the cost of carry, with CHF LIBOR serving as a key input. Thus, any manipulation of CHF LIBOR would affect the pricing of the derivatives. Defendants, however, challenge the reliance on this formula, noting that the CME tutorial does not mention LIBOR, and the complaint fails to show that defendants used this formula or that plaintiffs relied on it in their transactions. They highlight discrepancies in the maturity of specific transactions compared to LIBOR tenors, arguing that CHF LIBOR cannot be mechanically applied. Lastly, they reference CME publications indicating that FX futures prices are determined through an auction process, questioning the assumption that plaintiffs utilized the industry-standard formula for their trades. The court expresses skepticism about using Article III standing as the basis for evaluating the defendants' argument.
At the pleading stage, the Court presumes the truth of the factual allegations in the Complaint when evaluating standing challenges. The plaintiffs allege that CHF LIBOR influences the pricing of Swiss franc currency derivatives, which the defendants allegedly manipulated to the plaintiffs' detriment. The defendants do not dispute the existence of an injury but contest the plausibility of the allegations. This conflation of standing with the plausibility standard under Twombly is inappropriate, as an injury need not support a valid cause of action to establish standing. The plaintiffs have sufficiently linked CHF LIBOR to Swiss franc futures and FX forwards, supported by a CFTC order indicating that derivatives were priced based on CHF LIBOR. The Complaint outlines a detailed theory and statistical analysis demonstrating the alleged manipulation's impact on derivative prices. Defendants' challenges to this theory are not appropriate at the pleading stage, where detailed allegations are not required. Evidence from conversations among traders further suggests that defendants recognized CHF LIBOR's influence on derivative values. While these allegations do not conclusively prove the connection, they create a plausible link necessary to survive a standing challenge. The possibility of resolving disputes over the accuracy of the allegations may arise at a later stage, such as during summary judgment.
Plaintiffs have sufficiently alleged injury from the manipulation of CHF LIBOR concerning CHF futures and FX forwards at the pleading stage. They have established class standing for claims related to various Swiss franc LIBOR-based derivatives, including interest rate swaps and NYSE LIFFE Exchange futures contracts, even if they did not personally transact in these derivatives. Under legal precedent, plaintiffs can represent a class if they have suffered actual injury linked to the same conduct that impacted others in the proposed class. Plaintiffs argue that there is a mathematical relationship between CHF LIBOR and the prices of the derivatives they transacted, which suggests that manipulation affected other types of derivatives similarly. However, the complaint lacks clarity on how CHF LIBOR influences the pricing of all identified derivatives. It must provide a minimal description of these derivatives and their pricing mechanisms. Plaintiffs have met this requirement for interest rate swaps and NYSE LIFFE Exchange futures contracts by making specific allegations that these derivatives are similarly impacted by CHF LIBOR manipulation, supporting their claims with relevant descriptions.
Plaintiffs have established Article III standing to pursue CHF LIBOR Manipulation Claims regarding Swiss franc futures, FX forwards, interest rate swaps, and NYSE LIFFE Exchange futures contracts, but not for forward rate agreements, cross-currency swaps, overnight index swaps, and tenor basis swaps due to a lack of sufficient definition and explanation in the complaint. Defendants have filed a motion to dismiss these claims under Fed. R. Civ. P. 12(b)(6), asserting that the court must accept the facts in the complaint as true while disregarding conclusory allegations. To survive dismissal, plaintiffs must present enough factual content to render their claims plausible, allowing for reasonable inferences of defendant liability. The standard requires that claims must cross the threshold from conceivable to plausible; otherwise, they will be dismissed. The court is limited to reviewing only the facts within the complaint and relevant documents. Additionally, the antitrust claim alleges that defendants conspired to manipulate CHF LIBOR, violating Section One of the Sherman Act, which prohibits contracts or conspiracies in restraint of trade.
Section 4 of the Clayton Act allows individuals injured in business or property due to violations of antitrust laws, including Section 1 of the Sherman Act, to seek private action and recover treble damages. To survive a motion to dismiss, plaintiffs must demonstrate (1) anti-competitive conduct by defendants that violates Section 1, and (2) antitrust standing, which requires evidence of antitrust injury and that plaintiffs are "efficient enforcers" of antitrust laws. Defendants argue that the plaintiffs failed on both counts, asserting that the complaint does not adequately allege anti-competitive conduct since the process of setting CHF LIBOR was cooperative rather than competitive, and there is no plausible conspiracy among defendants. They also claim that plaintiffs have not established a link between CHF LIBOR and their derivatives pricing, rendering any alleged injury too remote. Additionally, the defendants contend that the plaintiffs are not efficient enforcers due to speculative and hard-to-calculate damages, and that the claims are barred by the Foreign Trade Antitrust Improvements Act and the statute of limitations. Count Two is dismissed against all defendants because the complaint only plausibly alleges antitrust conspiracy against RBS, while antitrust standing exists only against UBS and Credit Suisse, with whom the plaintiffs directly transacted. The defendants initially asserted that manipulation of LIBOR-setting did not constitute a restraint of trade; however, this argument has been largely retracted following recent legal developments. The Second Circuit's ruling in Gelboim v. Bank of America clarified that collusion in benchmark manipulation, such as LIBOR, is considered per se illegal horizontal price fixing, which applies to the current case and supports the claim of anti-competitive conduct regarding CHF LIBOR manipulation.
Plaintiffs allege an antitrust conspiracy against RBS, but defendants argue that the complaint fails to establish a plausible conspiracy. To prove such a conspiracy under antitrust law, plaintiffs must demonstrate joint action rather than unilateral conduct, as per established case law. A viable claim can arise from either direct evidence of an agreement or circumstantial facts suggesting a conspiracy exists. Circumstantial evidence may include interdependent conduct, a common motive to conspire, actions counter to individual economic interests, and evidence of significant interfirm communication. However, collusion among banks or between a parent and its wholly-owned subsidiary does not support a claim under the Sherman Act.
At the pleading stage, plaintiffs are not required to prove their allegations are more likely true than false, unlike later stages of litigation. Instead, they need to show plausibility, allowing for multiple interpretations of the facts. Each defendant must be informed of specific allegations against them; vague assertions are inadequate. Defendants contest the sufficiency of the complaint, noting that the evidence primarily consists of instant messages from regulatory settlements and does not indicate a broad conspiracy. They assert that many allegations of manipulation reflect unilateral actions within a single bank, while specific claims of collusion are limited to communications with an unidentified bank and an isolated request from BlueCrest to Deutsche Bank that lacked further action.
Plaintiffs assert that a limited number of communications among defendants is sufficient to establish an antitrust claim, arguing that each instance could individually represent a violation and that they are not obligated to detail the full extent of alleged market manipulation at this stage. They suggest that these communications may indicate broader misconduct, supported by structural actions taken by defendants. The relevance of prior rulings by Gelboim and Judge Buchwald is emphasized, particularly concerning conspiracy allegations.
In LIBOR I, plaintiffs claimed that several banks colluded to suppress LIBOR from 2007 to 2010 to present an inflated economic status and reduce interest payments on LIBOR-based instruments. The district court, while dismissing the antitrust claims for lack of injury, indicated that the plaintiffs failed to plausibly allege a conspiracy since each bank could independently submit false quotes.
In LIBOR IV, similar allegations were examined. While a conspiracy was adequately alleged against Barclays due to specific instances of manipulation benefiting its traders, the broader allegations against other banks did not demonstrate a collective conspiracy. The court noted that parallel conduct alone does not imply conspiracy, particularly when each bank had independent motives for engaging in similar misconduct.
The Second Circuit's Gelboim ruling found that sufficient evidence of a common motive and significant interfirm communications supported a plausible inference of conspiracy, despite the possibility of alternative interpretations of the facts. The circuit noted that while banks acted as both borrowers and lenders referencing LIBOR, this complexity necessitated further factual development rather than dismissal at this stage.
In LIBOR VI, the district court, on remand from Gelboim, clarified that the Second Circuit's finding of an antitrust conspiracy was limited to one focused on suppressing LIBOR rates to project financial soundness, with any profits seen as incidental. Judge Buchwald expressed skepticism about whether plaintiffs had adequately shown that profit maximization was a separate goal, stating that the premise of conspiracy aimed primarily at increasing profits by lowering banks' borrowing costs was implausible, given that banks act as both borrowers and lenders in LIBOR transactions. The court interpreted the Circuit's language to suggest that "increased profits" and "projection of financial soundness" represented a unified motive related to reputation rather than independent aims.
The plaintiffs alleged a theory of "trader-based" manipulation rather than "financial soundness" suppression. The court noted that inferring a conspiracy from individual trader actions is challenging because large banks operate as both buyers and sellers, potentially offsetting any market changes. For a profit-motivated conspiracy to exist, all banks would need to be net borrowers during the suppression period, which implies a shared motive that is not evident. The lack of a consistent direction in the alleged manipulation of CHF LIBOR further weakened the plaintiffs' claims, as it is unlikely that conspirators would simultaneously benefit from varying LIBOR adjustments. In contrast to past cases involving consistent downward manipulation, the current allegations do not support a plausible shared motive among the banks.
The Complaint fails to establish a plausible conspiracy among all defendants regarding manipulation of the CHF LIBOR submissions, as it does not demonstrate a consistent alignment of interests among the banks involved in the Eurodollar futures market. The argument suggests that if defendants held different positions, their motives would not uniformly align, making independent manipulation more likely than collusion. A specific instance cited, where a BlueCrest trader sought a low LIBOR submission from a Deutsche Bank trader, highlights this flaw; the counterparty, UBS, would suffer from any manipulation, contradicting the notion of a shared conspiracy. The Complaint lacks sufficient evidence of coordinated efforts between defendants, particularly noting that allegations against UBS and Credit Suisse are unsupported by any communications indicating collusion. Antitrust claims can only be substantiated against defendants where specific evidence of manipulation through collusion with third parties is provided. Notably, RBS stands out as it is accused of colluding with an unidentified bank on multiple occasions to lower LIBOR submissions, which parallels findings in previous cases where such collusion was deemed sufficient to establish liability.
RBS and JPMorgan reached a settlement with the European Commission regarding their involvement in an illegal cartel that influenced the Swiss franc LIBOR benchmark interest rate from March 2008 to July 2009. Plaintiffs' claims of collusion are supported by communications from JPMorgan related to their settlement with the plaintiffs. A specific allegation involving BlueCrest's request to Deutsche Bank for a manipulation of CHF LIBOR is deemed insufficient, lacking evidence of Deutsche Bank's response or any impact on LIBOR for that day. Consequently, a plausible antitrust conspiracy has only been alleged against RBS.
For antitrust standing under the Sherman Act, plaintiffs must demonstrate both an antitrust injury and that they are efficient enforcers of antitrust laws. Defendants argue that plaintiffs have not shown a connection between CHF LIBOR and the prices of the derivatives they traded, thus failing to establish injury. This argument is countered by referencing prior case law, asserting that plaintiffs adequately allege that LIBOR manipulation led to transactions in LIBOR-based derivatives at unfavorable terms due to distorted market factors, thus satisfying the antitrust injury requirement.
Plaintiffs allege antitrust injury from defendants' manipulation of CHF LIBOR, claiming they received worse prices for CHF LIBOR-based derivatives. Despite other factors affecting these prices, this does not dismiss the validity of their claims at the pleading stage. The efficient enforcer test requires consideration of four factors: 1) the directness of the injury, 2) the existence of an identifiable class of potential plaintiffs, 3) the speculative nature of the injury, and 4) the risk of duplicative damages and difficulty in apportioning damages. Defendants argue that plaintiffs do not meet this test, asserting that their damages are indirect and speculative due to multiple influencing factors. They also contend that calculating damages would be complex, involving reconstruction of multiple LIBOR submissions over an extensive period. Plaintiffs counter that the directness of their injuries and the complexity of quantifying damages are inappropriate for resolution at this stage. The appellate case Gelboim highlighted the efficient enforcer analysis but left unresolved issues for the district court. Ultimately, the Court determines that the Direct Transaction Plaintiffs are efficient enforcers, while the remaining plaintiffs do not meet this criterion.
Granting antitrust standing to plaintiffs who did not engage in direct transactions with defendants risks allowing for speculative and excessively high damages claims, which would surpass the actual wrongful profits or harm caused by the defendants. The Direct Transaction Plaintiffs have only claimed to have transacted with Credit Suisse Defendants and UBS, while alleging a conspiracy specifically against RBS. Consequently, Count Two lacks merit as plaintiffs have not established an antitrust violation by any defendant that would grant them standing to sue.
In assessing causation under the first efficient-enforcer factor, the court examines whether the alleged violation directly caused the plaintiffs' injury, requiring a thorough evaluation of the causation chain. Direct transactions with defendants are a significant consideration; plaintiffs typically labeled as 'remote' would be denied standing despite having suffered an injury. Although antitrust laws do not strictly require direct purchases from a defendant for standing, the distinction between direct and indirect transactions can lead to disproportionate damages if liability is imposed on defendants for transactions in which they were not involved. This concern is magnified given the potentially vast market implications, as holding banks responsible for such indirect transactions could result in devastating financial liabilities and extend antitrust liability across numerous markets involving derivative instruments. Such extensive potential damages are a critical factor in evaluating causation and the plaintiffs' role as efficient enforcers.
All individuals or entities involved in U.S.-based transactions tied to Swiss franc LIBOR over a ten-year period are considered. The complaint alleges that trillions of dollars in LIBOR-based derivatives were traded over-the-counter in the U.S. during this time, leading to potentially astronomical damages, a significant portion of which may arise from transactions involving parties not connected to the defendants. For each LIBOR-based derivative transaction, one party benefited from an artificially manipulated CHF LIBOR, while the other suffered losses, suggesting that defendants could be liable for damages to all harmed parties without any offset for those who benefited from the manipulation.
Plaintiffs are categorized into three groups: 1) Direct Transaction Plaintiffs, who traded CHF FX forwards directly with UBS and Credit Suisse, representing the most efficient enforcers as their losses directly relate to wrongful profits by defendants; 2) Plaintiffs who transacted with third parties, posing the greatest risk for disproportionate damages as their transactions were beyond defendants' control and awareness; and 3) Divitto, who traded CHF currency futures without a clear counterparty. The complaint fails to present a plausible antitrust conspiracy involving the primary defendants, UBS and Credit Suisse, affecting the claims of Direct Transaction Plaintiffs. The second group risks astronomical damages without clear links to defendants’ wrongful profits, undermining their position as efficient enforcers, as they could be seeking liability on transactions that defendants did not control or may not have even known about. This distinction between direct and indirect transactions is crucial, as established in prior rulings, emphasizing that independent decisions by third parties to incorporate LIBOR into transactions sever the causal link between defendants' actions and the plaintiffs' injuries.
Defendants cannot be held liable for treble damages related to transactions they did not control, input into, or profit from, as this would lead to damages disproportionate to their wrongdoing. When a plaintiff's counterparty is identifiable and not a defendant bank, the plaintiff is not considered an efficient enforcer. This reasoning, adopted from Sullivan, indicates that extending standing to plaintiffs transacting with third parties would exceed the scope intended by the Sherman Act. The court finds that this efficient enforcer factor favors Direct Transaction Plaintiffs while disfavoring those who transacted with identifiable third parties, as any harm to third parties would be offset by corresponding benefits. The sheer volume of transactions, amounting to trillions over eleven years, raises concerns about astronomical damages disproportionate to the actual harm caused.
For plaintiffs involved in exchange transactions without identifiable counterparties, the standing analysis becomes complex, as a clearinghouse acts as the counterparty. This complicates the ability to align recovery with defendants' gains. The dilemma presents a choice between under-enforcement and over-enforcement in private enforcement contexts. Two derivative manipulation cases highlight that the preferred option depends on defendants' market control. In the FOREX case, significant market share (over 90%) by defendant banks justified favoring plaintiffs, as damages were proportionate regardless of transaction type. Judge Buchwald echoed this in LIBOR VI, suggesting that control over the exchange market could indicate direct causation and help ensure proportional damages. However, the argument regarding a collective control of 70-90% by "large traders" in LIBOR VI was unconvincing as over 2,900 entities qualified as "large traders."
The court expressed skepticism regarding whether the Exchange-Based plaintiffs could demonstrate that the defendant banks, among the world's largest financial institutions, controlled the market, noting insufficient evidence at this early litigation stage. The court adheres to the "market control" standard consistent with Gelboim, which serves to determine if granting standing to plaintiffs effectively supports antitrust laws. The Complaint lacks detailed allegations about the defendants' market control, particularly concerning RBS, the only defendant implicated in a plausible antitrust conspiracy. While the Complaint states that the defendants are significant players in foreign exchange and interest rate derivatives markets, it fails to show that RBS alone controls a sufficient market share to hold them liable for broader market harms.
The first efficient enforcer factor indicates that standing is justified only for the Direct Transaction Plaintiffs, not for umbrella plaintiffs (both OTC and exchange-traded). The second efficient enforcer factor assesses whether more direct victims of the alleged conspiracy exist, focusing on whether plaintiffs are consumers or competitors. The plaintiffs claim consumer status, which is deemed superior for enforcement compared to competitors. However, this status does not conclude the inquiry, as efficient enforcer criteria must be met regardless of the plaintiff's classification. Citing Gelboim, the court noted that directness may hold less weight in the LIBOR manipulation context because both direct and remote victims (those acquiring LIBOR-based instruments from non-defendant banks) would suffer similar harm. Thus, distinguishing solely between consumers and competitors could lead to disproportionate liability for the banks. Judge Buchwald, in LIBOR VI, aligned with Gelboim, attributing less significance to this factor.
The excerpt examines the distinctions between plaintiffs who engaged in direct transactions with defendants and those categorized as umbrella plaintiffs, highlighting that the former group is more directly impacted by the defendants' unlawful conduct. Judge Castel's ruling emphasizes that direct transaction plaintiffs occupy the "immediate impact zone," thus favoring them in the analysis of causation. Conversely, umbrella plaintiffs are considered less directly affected, diminishing their standing in this context.
The analysis also addresses the issue of speculative damages, noting that uncertainty inherent in antitrust law can complicate damage calculations. It states that the burden of uncertainty falls on the wrongdoer, according to case law. However, highly speculative damages indicate inefficiency in enforcement. Calculating damages from LIBOR manipulation in derivatives transactions poses particular challenges due to the negotiated nature of the rates and the complexity of global money markets.
Factors contributing to the speculation of damages include conclusory claims, the distance of injury in the causal chain, and external market influences that obscure the relationship between fixed prices and actual prices paid by plaintiffs. The speculative damages inquiry is closely linked to the causation analysis, as establishing a clear causal relationship and reconstructing a hypothetical market devoid of manipulation is particularly complex given the varied and episodic nature of the alleged manipulation.
Damages in antitrust claims related to LIBOR must be adjusted for benefits from defendants’ manipulation in other transactions. Courts have varied on whether this complexity affects the plaintiffs' status as efficient enforcers. In the case of Yen LIBOR derivatives, Judge George Daniels found the claims too speculative, requiring hypothetical reconstruction of LIBOR rates and their market impact, which undermined the plaintiffs' standing. Conversely, Judge Buchwald in LIBOR VI determined that speculative damages do not automatically disqualify plaintiffs from antitrust enforcement, emphasizing that reconstructing the benchmark rates is a task for expert testimony, not a grounds for dismissal.
The court noted that the speculative nature of damages weighs against umbrella plaintiffs but less so for those directly transacting with defendants. For plaintiffs dealing with non-parties, damages calculations become complex and speculative, weakening their claims under efficient enforcer criteria. The incorporation of CHF LIBOR without defendants’ participation complicates causation and damages assessment. Despite challenges in proving market manipulation effects, antitrust claims can proceed if a plausible mathematical relationship between manipulated rates and derivative prices exists. Direct Transaction Plaintiffs should be able to identify specific transactions with defendants, enabling a meaningful response based on available records.
Efficient-enforcer factors are not strictly mechanical, and while the complexity of calculating damages is relevant, it does not automatically disqualify a plaintiff from proceeding. A key factor is the risk of duplicative recovery or difficulty in apportioning damages among potential victims of the antitrust injury. The Second Circuit's decision in Gelboim indicated uncertainty regarding how to assess this factor due to the numerous transactions involved and the existence of government initiatives seeking damages on behalf of victims. Although government fines and penalties aren't indicative of duplicative damages, they are relevant to the efficient-enforcer analysis, as they suggest that government scrutiny could reduce the need for private plaintiffs to act as enforcers of the Sherman Act.
There is no evidence that defendants' settlement payments related to CHF LIBOR manipulation have benefitted the plaintiffs or others involved in CHF LIBOR-based derivatives, mitigating the risk of duplicative recovery. Courts usually do not consider government investigations relevant to the efficiency of private enforcement, but in this instance, the involvement of government regulators in investigating the alleged misconduct, which has resulted in over $7 billion in fines, suggests that regulatory actions may adequately address the violations. The efficient enforcer analysis aims to determine whether a plaintiff is a suitable representative to uphold antitrust laws. Given the potential difficulty in calculating damages and the possibility of excessively large damage awards that exceed the actual harm, it may be more appropriate for the alleged misconduct to be addressed through regulatory means rather than private litigation. This does not eliminate antitrust standing for the Direct Transaction Plaintiffs, but it strengthens the argument that the other plaintiffs lack the capacity to effectively enforce antitrust laws.
Count Two of the plaintiffs' complaint fails because they are not considered efficient enforcers for the alleged antitrust violation, having not transacted directly with RBS. Thus, the Court does not need to address the defendants’ statute of limitations and FTAIA arguments, but does so for thoroughness. The defendants contend that the antitrust claims are untimely, as the four-year statute of limitations for private antitrust actions applies. This statute restarts with each overt act in a continuing violation, such as a price-fixing conspiracy, but does not allow recovery for injuries from overt acts that occurred outside the limitations period.
The plaintiffs filed their lawsuit on February 5, 2015, meaning conduct after February 5, 2011, is within the statute of limitations. The complaint alleges the CHF LIBOR manipulation conspiracy continued until at least December 31, 2011. However, the court finds that the allegations do not plausibly support a continued conspiracy through February 5, 2011, as there is a lack of coherent explanations regarding the defendants’ aligned incentives and insufficient detailed allegations of inter-bank manipulation. The last specific instance of collusion occurred on May 14, 2009, and a cited settlement agreement indicates collusion from March 2008 to July 2009. The complaint fails to justify why the conspiracy would extend to December 31, 2011, over two years after the last detailed allegation of collusion.
The timeliness of the plaintiffs' antitrust claims hinges on their assertion that defendants' fraudulent concealment tolls the statute of limitations. Plaintiffs argue that even if their complaint does not allege an antitrust violation within the four-year limit, their claims are nonetheless valid under the fraudulent concealment doctrine. They contend that, despite following public news and market developments, they were unaware of defendants' manipulations until the regulatory investigations and settlements were disclosed. To establish fraudulent concealment, plaintiffs must show that the defendant concealed the existence of the cause of action, that they remained ignorant of it until within four years of filing, and that their ignorance was not due to a lack of diligence. The Second Circuit has recognized that fraudulent concealment can be demonstrated through either affirmative actions by the defendant to hide the claim or by the inherent self-concealing nature of the wrongdoing. In a precedent case, a bid-rigging conspiracy was deemed inherently self-concealing, allowing proof of the conspiracy itself to establish concealment.
Plaintiffs assert that the alleged conspiracy in their case is similarly self-concealing, as its success depended on secrecy. Defendants argue against the applicability of a discovery rule, focusing instead on when plaintiffs were put on notice. They cite various articles from spring and summer 2008, suggesting that they indicated LIBOR rates may have been manipulated. Specifically, a June 19, 2008, report noted that market participants believed LIBOR did not reflect actual market rates. Defendants also reference a prior ruling where plaintiffs were considered on inquiry notice based on multiple articles suggesting LIBOR manipulation. Although these articles did not definitively prove manipulation, they were found sufficient to alert a reasonable person to the possibility of such conduct.
The notice analysis from LIBOR I is deemed largely irrelevant for antitrust claims under the Sherman Act due to its focus on claims under the Commodity Exchange Act (CEA), where intra-defendant manipulation suffices. The document highlights that reports indicating “inaccurate” LIBOR submissions suggest individual banks submitted false quotes rather than coordinated manipulation. Even if there were notice of manipulated LIBOR rates, this does not imply an antitrust conspiracy if banks acted independently. The referenced article is deemed insufficient for plaintiffs to be on inquiry notice regarding collusion or manipulation. The court cites Lentell v. Merrill Lynch, stating that generic articles do not trigger inquiry notice. The unreliability of CHF LIBOR, based on Contributor Banks' estimates, does not necessarily indicate manipulation. The court questions whether multiple reports of CHF LIBOR inaccuracies would suffice, noting only one report is cited, which is inadequate for notice.
The defendants' argument for notice based on market reports contradicts their assertion that regulatory settlements do not imply conspiracy. The court concludes that plaintiffs were not on inquiry notice until December 18, 2012, when the first regulatory settlement against UBS was announced. The plaintiffs have met the requirements for fraudulent concealment, resulting in the statute of limitations being tolled and making their antitrust claims timely.
Regarding Count Two, defendants claim it is barred by the Foreign Trade Antitrust Improvements Act (FTAIA) due to insufficient connection to U.S. commerce. The FTAIA generally excludes foreign commerce from the Sherman Act unless the conduct has a direct, substantial effect on U.S. commerce and is harmful under antitrust law.
Foreign anti-competitive conduct can impact U.S. commerce if it has a direct, substantial, and reasonably foreseeable effect, even if not immediate, provided there is a proximate causal link. The FTAIA supports the extraterritorial application of the Sherman Act. Defendants argue that the alleged manipulation of CHF LIBOR is primarily foreign, with most defendants based in Europe, and assert that the causal link to U.S. transactions is too indirect to meet FTAIA standards. However, plaintiffs contend that the manipulation was intended to generate profits in the U.S., affecting U.S.-based transactions, which the FTAIA does not bar. While some cases have dismissed LIBOR manipulation claims for foreign trades, no decisions in this district have dismissed claims based on U.S. transactions under the FTAIA. The defendants' argument regarding the causal relationship between their conduct and plaintiffs' harm has been previously rejected in both constitutional and antitrust contexts. Notably, the manipulation of a globally disseminated benchmark like LIBOR, which influences derivatives traded in the U.S., is likely to have foreseeable effects domestically. Count Three claims violations of the CEA due to manipulation of CHF LIBOR and related derivatives.
Plaintiffs assert claims against each defendant for principal-agent liability under section 2(a)(1)(B) of the Commodity Exchange Act (CEA) and for aiding and abetting violations under section 22(a)(1) of the CEA. However, the CEA does not regulate CHF FX forwards, limiting plaintiffs' claims to Divitto's transactions in CHF currency futures. To establish standing under the CEA for commodities manipulation, plaintiffs must demonstrate they suffered actual damages from the alleged manipulation. Divitto fails to meet this requirement, as the Complaint does not provide sufficient details regarding his transactions, such as specific dates or the nature of the trades, nor does it adequately link his losses to the alleged manipulation of CHF LIBOR. The Complaint mentions manipulation on only 32 specific days out of approximately 4,000 during the Class Period, and the earliest manipulation occurred four years after the Class Period began. Additionally, while regulatory settlements suggest broader manipulation periods, they do not encompass the entire Class Period for most defendants, leading to the conclusion that Divitto's claims, particularly against UBS, are also untimely.
Settlement agreements with other defendants pertain to conduct from 2003 onwards, meaning any misconduct related to Divitto’s transaction on January 2, 2001, is not covered. Even if manipulation occurred during Divitto's transactions, the lack of specific details about those transactions makes it equally plausible that he benefited from the alleged misconduct, thus diminishing the likelihood of harm. Previous cases have established that claims under the Commodity Exchange Act (CEA) require plaintiffs to provide specific details demonstrating how manipulation harmed their positions. Divitto’s failure to provide such details results in a lack of standing, leading to the dismissal of Counts Three, Four, and Five against all defendants. However, the court acknowledges that despite Divitto's lack of standing, the plaintiffs have sufficiently alleged manipulation by Deutsche Bank, RBS, and UBS regarding CHF LIBOR, which impacts CHF futures contracts. The complaint includes detailed instances of manipulation, indicating these defendants exploited their ability to influence CHF LIBOR for profit.
Allegations in the Complaint indicate that the Deutsche Bank Defendants, RBS, and UBS may have engaged in manipulation of CHF futures on the CME, suggesting that the detailed instances provided are likely not exhaustive. At the pleading stage, these allegations are sufficient to assert that the defendants acted with specific intent to create an artificial price for CHF futures. Defendants argue that plaintiffs failed to show that manipulation of CHF LIBOR caused artificial prices for CHF futures, referencing a prior dismissal of a similar claim due to causation issues. However, the court has previously addressed this argument under Article III standing and antitrust analyses, asserting that the plaintiffs have plausibly linked CHF LIBOR to CHF futures pricing, a determination that cannot be resolved at this early stage.
Defendants also claim that the Complaint does not adequately allege specific intent to manipulate CHF futures prices. To establish intent, plaintiffs must demonstrate that defendants acted with the purpose of influencing market prices away from legitimate supply and demand forces. Plaintiffs can show intent by providing evidence of motive and opportunity or by presenting strong circumstantial evidence of conscious wrongdoing. The heightened pleading standard under Rule 9(b) is relaxed in manipulation claims, requiring only that plaintiffs specify the manipulative acts, the defendants involved, the timing of these acts, and their market impact.
The Complaint successfully details the manipulative actions taken, the defendants’ motives for benefiting from CHF LIBOR manipulation, and the opportunities afforded by their influence in the rate-setting process. It includes significant allegations of potential profits from manipulating Euroyen TIBOR and Yen-LIBOR. Additionally, structural facilitation by the involved banks—such as the physical arrangement of traders and oversight failures—indicates recklessness or conscious misconduct. Overall, the plaintiffs assert that the defendants manipulated CHF LIBOR intentionally to affect the pricing of CHF LIBOR-based derivatives, further supported by statements from an RBS trader reflecting awareness of the manipulation's financial implications.
Plaintiffs lack standing under the Commodity Exchange Act (CEA) to sue for manipulation but have plausibly alleged principal-agent liability against the Deutsche Bank Defendants, RBS, and UBS for their employees' violations. To establish principal-agent liability, it must be shown that the agents acted within the scope of their employment and that the principal intended to grant authority and maintained control over the actions. Although the claim fails due to plaintiffs' lack of standing for manipulation, sufficient allegations of primary CEA violations by the Deutsche Bank Defendants, RBS, and UBS support principal-agent liability.
Regarding aiding and abetting liability, Count Five alleges that defendants helped facilitate CEA violations by colluding to manipulate CHF LIBOR. To succeed, plaintiffs must prove the defendant's knowledge of the primary violation and intent to further it. However, this claim also fails due to the lack of standing and the insufficiency of evidence against all defendants except RBS, which is the only entity plausibly alleged to have engaged in manipulation.
The defendants argue that the CEA claims are untimely, as the statute mandates that claims be filed within two years after the cause of action arises, which occurs upon inquiry notice of the violation.
A plaintiff is considered to have inquiry notice of potential fraud when circumstances indicate to a reasonably intelligent investor that fraud may have occurred. For Commodity Exchange Act (CEA) claims to be timely, plaintiffs must demonstrate they were on inquiry notice no earlier than February 5, 2013, which is two years prior to the filing of the original complaint. Defendants argue that inquiry notice arose from 2008 news articles suggesting LIBOR rates, including CHF LIBOR, did not reflect actual borrowing costs; however, these articles do not specifically trigger inquiry notice. Defendants further contend that a December 18, 2012, non-prosecution agreement with UBS provided inquiry notice regarding UBS's manipulation of CHF LIBOR dating back to at least 2001. The court agrees that this agreement does establish inquiry notice for claims against UBS, thus rendering those CEA claims time-barred. However, the agreement does not implicate other defendants in similar misconduct, leaving CEA claims against them timely. Lastly, Count Six alleges all defendants violated RICO by engaging in a pattern of racketeering activity linked to an enterprise affecting interstate or foreign commerce, as defined under 18 U.S.C. § 1962(c).
RICO allows a private right of action when a defendant commits an indictable predicate act under specified federal statutes. In this case, the RICO claims are based on alleged violations of the wire fraud statute (18 U.S.C. § 1343), where defendants are accused of forming an association-in-fact enterprise that engaged in racketeering through wire fraud by submitting false CHF LIBOR data and confirming manipulated derivatives transactions in the U.S. Count Seven alleges conspiracy to violate RICO by all defendants based on the same misconduct (18 U.S.C. § 1962(d)).
Defendants seek dismissal of these claims, arguing that the Complaint fails to demonstrate RICO standing, the existence of a RICO enterprise, individual participation in predicate acts, and that the acts constitute a pattern of racketeering. Additionally, they claim the RICO claims are extraterritorial and untimely. The court dismissed the claims as impermissibly extraterritorial due to insufficient connection to the U.S. and determined that only RBS was plausibly alleged to have engaged in a RICO enterprise.
For RICO standing, a private plaintiff must show injury to business or property from a violation of § 1962 (18 U.S.C. § 1964(c)), requiring a direct relationship between the injury and alleged misconduct. Defendants argued that the plaintiffs' injuries were too indirect and speculative, but the court found this argument unpersuasive based on prior antitrust standing analysis.
The Complaint adequately alleges conduct violating RICO only against RBS. To assert a RICO claim under § 1962(c), a plaintiff must show that the defendant committed multiple acts constituting a pattern of racketeering, invested in or maintained an interest in an enterprise, and that the enterprise’s activities affect commerce. These elements must be established for each defendant, and the court concluded they were only satisfied for RBS.
The RICO statute defines an “enterprise” broadly, including groups associated in fact. An association-in-fact enterprise must function with a common purpose over time, even with periods of inactivity. The Complaint alleges that the defendants colluded to manipulate CHF LIBOR for profit, thereby establishing an association-in-fact enterprise only as to RBS.
Allegations against the defendants regarding an antitrust conspiracy lack sufficient detail, as the complaint does not adequately explain how each defendant would benefit from simultaneous manipulation of CHF LIBOR in the same direction. Specific collusion allegations are made only against RBS, making it implausible to infer a shared conspiratorial purpose among the defendants. Consequently, RBS is the only defendant sufficiently alleged to have participated in a conspiracy to manipulate CHF LIBOR.
The complaint also adequately alleges two instances of wire fraud by RBS, essential for claims under section 1962(c). The plaintiffs assert that wire fraud occurred through coordinated manipulation using Bloomberg chat terminals, resulting in false CHF LIBOR fixes transmitted to U.S. markets. The heightened pleading standards under Fed. R. Civ. P. 9(b) require that fraud allegations detail the communications involved, the participants, and the fraudulent nature of those communications. The elements of wire fraud include a scheme to defraud, targeting victims for financial gain, and the use of interstate wire communications in furtherance of the scheme.
Only RBS is alleged to have committed predicate acts related to the wire fraud scheme, as it is the only defendant linked to an association-in-fact enterprise. While UBS and Deutsche Bank are implicated in CHF LIBOR manipulation, their actions are categorized as intra-defendant rather than inter-defendant collusion. The complaint identifies two specific instances of RBS's collusion with an unidentified "Bank E" to manipulate CHF LIBOR on April 15, 2008, and May 14, 2009, which meets the requirement to specify two predicate acts of wire fraud. Defendants argue that the complaint does not sufficiently articulate a fraudulent scheme.
A wire fraud claim requires demonstrating that the defendant had a conscious intent to defraud and aimed to harm the victim's property rights. In this case, the plaintiffs allege that RBS manipulated the CHF LIBOR rate to gain advantages in derivatives markets, thereby depriving others of value through deceit. The complaint suggests that RBS colluded with Bank E via Bloomberg chats, which were transmitted through U.S. servers, fulfilling the wire communication requirement.
The complaint also asserts that RBS engaged in a pattern of racketeering activity, defined by the existence of related predicate acts indicating a threat of ongoing criminal conduct. Defendants argue that the allegations do not establish a continuous pattern, but the plaintiffs assert that the instances of collusion are not isolated, referencing a CFTC order indicating frequent communications between RBS and Bank E, as well as findings from the European Commission regarding manipulation of interest rate derivatives. These collectively support the claim of a pattern of racketeering activity.
Additionally, the complaint alleges a RICO conspiracy against RBS, asserting that the plaintiffs have shown an agreement to violate RICO's provisions by committing two predicate acts in furtherance of the enterprise. This satisfies the requirements under Section 1962(d) for alleging a RICO conspiracy.
The question of a RICO conspiracy is linked to the substantive RICO claim, with both relying on the same allegations. The Complaint adequately pleads a substantive RICO violation solely against RBS, thus the RICO conspiracy claim also stands against RBS. The RICO claims are dismissed in their entirety due to being impermissibly extraterritorial, based on the presumption against extraterritoriality. A statute lacks extraterritorial application unless it clearly indicates otherwise, as established in Morrison v. National Australia Bank Ltd. The incorporation of extraterritorial predicates into RICO suggests it applies to foreign racketeering only if the alleged predicates can be shown to apply extraterritorially.
Plaintiffs’ RICO claims here derive from wire fraud predicate acts. The Second Circuit, in European Community v. RJR Nabisco, determined that Congress did not intend for the wire fraud statute to apply extraterritorially, affirming the presumption against such application. Therefore, to support a RICO claim based on wire fraud, the plaintiffs must demonstrate that the alleged racketeering activity is domestic. The RJR Nabisco case involved allegations of a global money laundering scheme orchestrated from the U.S., with significant domestic ties, which were deemed sufficient for a domestic RICO claim. Conversely, in Petróleos Mexicanos v. SK Engineering, limited U.S. connections were insufficient for a domestic RICO claim, as the primary activities of the bribery scheme occurred outside the U.S. without being directed from or to the U.S.
The Second Circuit ruled that merely alleging domestic conduct is insufficient to support a claim of domestic application in cases with a foreign focus, referencing the precedent set in Norex Petroleum Ltd. v. Access Industries Inc. Three recent cases in the district dismissed RICO claims related to LIBOR manipulation as extraterritorial, emphasizing that the U.S. connections—such as transmitting false quotes and coordinating submissions through U.S. servers—did not establish a significant nexus to the U.S. because the manipulative actions occurred between foreign defendants and foreign entities. This was contrasted with RJR Nabisco, where the scheme was managed and directed at the U.S.
Plaintiffs cited United States v. Hayes to argue their claims were not extraterritorial, asserting that the defendants' actions related to LIBOR manipulation had sufficient U.S. connections. However, the court in Hayes rejected the argument that a foreign national could claim insufficient nexus to the U.S. based solely on their foreign status, noting that the manipulated LIBOR affected U.S. transactions. The distinction was made that the criminal context presents different considerations compared to civil RICO cases, where overcoming the presumption against extraterritoriality is more stringent. The court clarified that the application of the wire fraud statute does not equate to overcoming these extraterritoriality challenges in civil RICO claims.
Plaintiffs argue that the global broadcasting of manipulated LIBOR rates, including via U.S. wires from abroad, negates the presumption against extraterritoriality. However, this contradicts the Second Circuit's ruling that mere domestic conduct allegations do not substantiate a claim for domestic application of RICO, as seen in Petroleos Mexicanos. Consequently, the court dismisses the plaintiffs' RICO claims as extraterritorial. The defendants, based abroad, submitted manipulated quotes to a foreign banking association, and the LIBOR in question pertains to a foreign currency. The aim to enhance worldwide profits does not localize an otherwise foreign scheme. Additionally, the alleged wire fraud, involving Bloomberg chat messages between parties outside the U.S. routed through U.S. servers, does not suffice to establish a domestic claim. Drawing on Morrison, the Supreme Court emphasized that minimal domestic contacts do not meet the requirement for domestic RICO claims. While recent allegations regarding RBS's potential involvement in manipulating CHF LIBOR with a New York-based trader introduce complexities concerning personal jurisdiction, these claims were not included in the original complaint. The court decides to withhold judgment on the implications of these new allegations on RICO extraterritoriality until they are formally incorporated into an amended complaint. The court also notes that plaintiffs' RICO claims are timely, adhering to the four-year statute of limitations applicable to civil RICO claims, which may be tolled due to fraudulent concealment by the defendants.
Concealment by the defendants prevented the plaintiffs from discovering the nature of their claims within the statute of limitations, and the plaintiffs exercised due diligence in seeking this discovery. Therefore, the plaintiffs' RICO claims are considered timely as the statute of limitations was tolled due to fraudulent concealment until within four years of filing the lawsuit. The alleged collusion regarding CHF LIBOR was concealed, delaying the plaintiffs' awareness of their claims until at least December 2012.
The Court has declined to exercise supplemental jurisdiction over the state law claims in Counts Eight and Nine, which involve common-law claims for unjust enrichment and breach of the implied covenant of good faith and fair dealing against UBS and Credit Suisse Defendants. The Direct Transaction Plaintiffs engaged in over 1,700 Swiss franc currency forwards with these defendants, asserting that they reasonably expected LIBOR to be set according to BBA guidelines. The Complaint lacks essential contract details and does not specify which state law governs these claims, although both parties reference New York law in their analyses.
District courts have jurisdiction over state-law claims closely related to federal claims but may decline supplemental jurisdiction if all original jurisdiction claims are dismissed. The Complaint failed to adequately state a federal claim, leading to the Court's decision to dismiss the state law claims without prejudice.
The Court has dismissed Counts Eight and Nine without prejudice, opting not to exercise supplemental jurisdiction over them. The defendants have moved to dismiss the Complaint based on a lack of personal jurisdiction, arguing that they are based in Europe and that the alleged manipulation of CHF LIBOR occurred there, with no U.S.-based actions by their traders. They assert that any U.S. transactions related to CHF LIBOR derivatives do not establish sufficient jurisdiction in the Southern District of New York.
In contrast, plaintiffs argue for jurisdiction, stating that the defendants manipulated CHF LIBOR to profit from U.S. transactions and conspired with JPMorgan in the United States. They also claim that the defendants utilized U.S. communication channels for their scheme and that certain defendants consented to U.S. jurisdiction by registering under banking laws.
The Court found personal jurisdiction over Deutsche Bank AG, RBS, UBS, and the Credit Suisse defendants due to their manipulation of CHF LIBOR for transactions within the U.S., qualifying as purposeful availment. However, it ruled that personal jurisdiction is absent for DB Group Services and BlueCrest, as there were no allegations of their involvement in U.S. CHF LIBOR-based derivatives transactions.
Further details reveal that BlueCrest is a UK-based investment advisory partnership with some U.S. operations through sub-entities, but the Complaint does not specify operations by BlueCrest itself in the U.S. Credit Suisse Group, a Swiss entity with significant operations in the U.S., including a New York office, is alleged to have engaged in substantial trading activities related to Swiss franc LIBOR-based derivatives with U.S. counterparties during the Class Period.
Deutsche Bank AG, a German financial services company, is headquartered in Frankfurt with a significant presence in New York, where it employs over 1,700 people and is regulated by the New York State Department of Financial Services (NYSDFS). Between 2006 and 2011, it operated its Global Finance and Foreign Exchange (GFFX) desk from various global offices, including New York. DB Group Services, a wholly owned subsidiary, is based in the UK and has no alleged operations in the U.S.
RBS, a British banking entity, also has a New York branch licensed by NYSDFS, engaging in over-the-counter foreign exchange and interest rate derivatives, including Swiss franc LIBOR-based derivatives with U.S. counterparties during the specified class period.
UBS, a Swiss financial services firm with U.S. branches, operates out of New York and Stamford, Connecticut. During the class period, UBS traders managed interest rate risk and cash positions through derivative transactions and directly engaged in Swiss franc LIBOR-based derivatives with U.S. counterparties.
In addressing personal jurisdiction under Rule 12(b)(2), plaintiffs must present facts supporting a prima facie case, which includes proper service, a statutory basis for jurisdiction, and adherence to constitutional due process. The court must favorably construe pleadings for the plaintiffs and differentiate between general and specific personal jurisdiction. General jurisdiction is based on overall business contacts, while specific jurisdiction is tied to claims related to the defendant's forum contacts. Each claim requires independent jurisdictional establishment.
No defendant has consented to the court's general jurisdiction. Plaintiffs do not argue that defendants have sufficient contacts to be "essentially at home" in the forum, as defined by Daimler AG v. Bauman. Instead, they assert that Credit Suisse AG, Deutsche Bank AG, RBS, and UBS consented to general personal jurisdiction by registering under banking laws. They claim that Credit Suisse AG, Deutsche Bank AG, and RBS consented to personal jurisdiction in New York for "any action" by registering with the New York State Department of Financial Services, which requires foreign banks to appoint the superintendent as their attorney for service of process on causes of action arising from transactions with their New York branches. However, similar arguments have been rejected by several courts in this district regarding LIBOR claims against foreign banks, emphasizing that the statute only provides for service of process on claims connected to specific transactions with the banks' New York branches, not general jurisdiction.
Additionally, plaintiffs argue that UBS consented to general personal jurisdiction in New York by registering under the International Banking Act of 1978. This act allows foreign banks operating federal branches to have the same rights and responsibilities as national banks but does not imply general jurisdiction. The relevant regulations indicate that while foreign banks are subject to service of process at their federal branches, this only pertains to the location for serving process, not the scope of suits they may face.
The statute aims to ensure foreign banks are treated equally to domestic banks regarding jurisdiction, indicating that granting general jurisdiction based solely on a foreign bank's operations in the U.S. would not align with this goal, as national banks do not face such broad jurisdiction. No case has been cited that supports the idea that a foreign bank consents to general personal jurisdiction in the U.S. by registering under the International Banking Act (IBA). Additionally, adopting the plaintiffs' interpretation of the IBA may raise significant due process issues, as established in the Second Circuit case Gucci Am. Inc. v. Bank of China, which asserts that merely operating a branch and meeting licensing requirements does not suffice for establishing general jurisdiction.
Having failed to establish general jurisdiction, the plaintiffs must demonstrate specific jurisdiction, which is limited to issues connected to the controversy establishing jurisdiction. Plaintiffs claim specific jurisdiction due to defendants' manipulation of CHF LIBOR using U.S. wires, targeting the U.S. market, engaging in transactions involving CHF LIBOR-based derivatives within the U.S., and conspiring with JPMorgan in the U.S. The Court finds personal jurisdiction over RBS, UBS, Deutsche Bank AG, and Credit Suisse based on allegations of manipulating CHF LIBOR for profit from U.S. transactions. However, it lacks jurisdiction over BlueCrest and DB Group Services, as the complaint does not allege any relevant transactions by these entities.
The determination of personal jurisdiction over foreign defendants involves a two-step inquiry: first, assessing jurisdiction under the forum state's law, and second, evaluating if this exercise of jurisdiction meets constitutional due process standards. New York's long-arm statute permits jurisdiction over non-domiciliaries conducting business or contracting to supply services within the state. The defendants do not dispute jurisdiction under New York law but argue that it contradicts due process, prompting the Court to focus solely on the constitutional challenge. The specific jurisdiction analysis includes evaluating the nature and quality of the defendants' contacts with the forum state through a comprehensive assessment.
The exercise of specific jurisdiction requires that a defendant's in-state activities give rise to the legal episode in question, necessitating a substantial connection with the forum state consistent with due process. There are two methods to demonstrate minimum contacts: "purposeful availment," where a defendant engages in business in the forum and can foresee being sued there, and "purposeful direction," where a defendant intentionally targets the forum, often resulting in harmful effects to a plaintiff. The latter method, known as the “effects test,” is relevant when the conduct occurs outside the forum but has significant in-forum repercussions. Once minimum contacts are established, other factors are considered to assess the fairness of exercising jurisdiction, including the burden on the defendant, the forum state's interest in the case, the plaintiff's need for relief, the efficiency of judicial resolution, and the states' shared social policy interests.
For federal claims under the Clayton Act, CEA, and RICO, the relevant forum is the United States as a whole, not a specific state. These statutes allow for nationwide service of process, and courts have supported the "national contacts" test for determining personal jurisdiction based on the defendant's connections to the nation when federal law applies. This approach is grounded in the principle that national law requires consideration of the defendant's relationship with the entire nation rather than just individual states.
Electronic communications related to the manipulation of CHF LIBOR transmitted through New York servers do not establish sufficient contacts with the U.S. for personal jurisdiction. The mere routing of these communications through a U.S. server is deemed random and insufficient to demonstrate purposeful availment or express aiming at the United States. Additionally, allegations that defendants submitted false CHF LIBOR quotes to Thomson Reuters, knowing they would be disseminated globally, including to the U.S., do not suffice to establish specific jurisdiction. Foreseeability of harm in the forum does not meet the Due Process Clause requirements for personal jurisdiction, as it does not indicate purposeful conduct directed at the forum. The significance of LIBOR lies in its global relevance, not its distribution in specific states. Consequently, the plaintiffs must provide specific allegations linking the defendants to transactions involving U.S. counterparties and demonstrating a direct connection to the alleged manipulation of CHF LIBOR rates.
The Court establishes personal jurisdiction over RBS, UBS, Credit Suisse Defendants, and Deutsche Bank AG based on their manipulation of CHF LIBOR, aimed at profiting from CHF LIBOR-based derivatives transactions within the United States. Plaintiffs assert that the defendants' actions were not merely foreseeable consequences of their manipulation but were intentionally directed towards generating profits in the U.S. market. The Court emphasizes that the jurisdictional analysis must encompass both the manipulation itself, which occurred primarily outside the U.S., and the resultant transactions in CHF LIBOR-based derivatives conducted domestically.
It distinguishes previous case law, particularly LIBOR VI, where the conspiracy aimed at projecting financial soundness did not establish jurisdiction due to its non-specific targeting of the U.S. Conversely, the current allegations focus on wrongful profit maximization through transactions that directly involve U.S. markets, making those transactions jurisdictionally relevant. In summary, the Court finds that the intentional profit-driven manipulation of CHF LIBOR, culminating in U.S.-based transactions, constitutes "purposeful availment" of the forum, justifying personal jurisdiction.
Plaintiffs assert that Credit Suisse, RBS, UBS, and Deutsche Bank AG engaged in CHF LIBOR-based derivative transactions from within the U.S., including direct dealings with the Direct Transaction Plaintiffs, which they argue are relevant to their claims. The defendants contend that these transactions are not connected to the plaintiffs' allegations; however, the plaintiffs counter that these transactions motivated the alleged misconduct. They claim the defendants systematically manipulated CHF LIBOR to benefit their derivative positions globally, including in the U.S. Specifically, UBS is accused of rounding its LIBOR submissions to advantage its positions on trading days when it held Swiss franc positions. The document emphasizes that if a defendant manipulates prices for transactions in the U.S. to profit, it has purposefully availed itself of U.S. jurisdiction, even if the manipulation occurred outside the country.
Two district court cases illustrate this point. In *In re Foreign Exchange Benchmark Rates Antitrust Litigation*, the court found personal jurisdiction over foreign defendants with extensive U.S. operations, as their actions had effects aimed at the U.S. market. Conversely, jurisdiction was denied for a foreign defendant lacking U.S. operations. In *In re North Sea Brent Crude Oil Futures Litigation*, jurisdiction was established for a foreign defendant involved in manipulative practices benefiting its U.S. trades, while another foreign defendant without U.S. trading connections was found to lack personal jurisdiction. These cases support the notion that jurisdiction may exist if the alleged misconduct has significant ties to the U.S. market.
Defendants in this case are accused of manipulating financial benchmarks to benefit their substantial derivatives trading operations in the United States, establishing a significant connection to the forum for specific personal jurisdiction. The defendants argue against this connection, citing the Supreme Court's ruling in Walden v. Fiore, which emphasized that jurisdiction must stem from the defendant's own contacts with the forum state rather than mere foreseeability of harm to the plaintiffs. In Walden, the defendant's actions did not occur in the forum, leading to a lack of jurisdiction despite the plaintiff’s injury being foreseeable. Contrastingly, the current case alleges that certain defendants actively engaged in manipulation of CHF LIBOR through business activities within the forum, directly causing harm to plaintiffs who transacted with them there. Additionally, defendants reference the Second Circuit’s decision in Waldman v. Palestinian Liberation Organization, which determined that insufficient suit-related conduct in the U.S. did not establish jurisdiction, as the relevant actions occurred outside the country. The current situation differs significantly since the alleged manipulative conduct is directly tied to the defendants' operations within the forum, which is critical for establishing personal jurisdiction.
Plaintiffs assert that their claims are tied to defendants' activities within the forum, specifically transactions in CHF LIBOR-based derivatives, which allegedly motivated the defendants' misconduct abroad. Unlike the case of Waldman, where no substantial connection to the forum was established, plaintiffs contend that defendants engaged in wrongful conduct to profit from their activities in the forum, thus creating minimum contacts necessary for personal jurisdiction. Defendants argue that mere presence or business activities in the U.S. do not suffice for jurisdiction; however, plaintiffs claim that the defendants' manipulation of CHF LIBOR directly affected U.S.-based transactions, which constitutes suit-related conduct. They emphasize that the U.S. is the "nucleus of the harm" alleged. The excerpt contrasts recent decisions regarding personal jurisdiction, noting that prior cases involved different circumstances where the defendants' U.S. transactions were not relevant to the alleged manipulations. In contrast, the plaintiffs' allegations indicate that the defendants aimed to benefit from both foreign and domestic transactions, establishing a substantial connection to the forum. The excerpt concludes by referencing a recent ruling where lack of jurisdiction was affirmed due to insufficient U.S. transaction allegations, reinforcing the need for clear connections to domestic conduct for establishing personal jurisdiction.
Plaintiffs must present specific facts indicating that the Foreign Defendants engaged in SIBOR-based transactions with U.S. counterparties, linking those transactions to the benchmark interest rate manipulation relevant to this case. The plaintiffs have sufficiently alleged this against defendants RBS, UBS, Deutsche Bank AG, and Credit Suisse, asserting they manipulated CHF LIBOR to profit from derivatives transactions within the forum. However, the court finds it lacks personal jurisdiction over DB Group Services and BlueCrest, as the plaintiffs have not plausibly alleged that these defendants transacted in CHF LIBOR-based derivatives in the United States. The complaint fails to provide details about DB Group Services’ U.S. activities, and it is characterized as a UK-based service company without banking operations or financial trading in the U.S. Although BlueCrest is alleged to operate within the U.S. through various entities, none of these entities are named as defendants, nor is there a clear connection to any alleged manipulation. The plaintiffs' failure to establish a nexus between these defendants and U.S. transactions means personal jurisdiction cannot be asserted under a purposeful availment theory.
RBS is alleged to be subject to the court's jurisdiction due to its conspiracy with JPMorgan, which is based in New York. While allegations against Credit Suisse Group and UBS regarding manipulation of bid-ask spreads were insufficient to establish jurisdiction, RBS is specifically accused of conspiring with a JPMorgan trader in New York to manipulate CHF LIBOR. This claim is supported by a European Commission finding and subsequent documents indicating collusion between RBS and JPMorgan. The plaintiffs argue that this collusion constitutes sufficient contact with the forum, as the effects of the manipulation were directed there. The rationale for attributing jurisdiction based on conspiracy is that co-conspirators’ actions can be imputed to one another. However, the defendants highlighted recent judicial reluctance to apply this theory broadly, noting that several similar cases have dismissed conspiracy-jurisdiction claims where no actions in furtherance of the conspiracy were reported from within the forum.
Plaintiffs failed to demonstrate that any defendant engaged in acts furthering the conspiracy within or directed at the United States, undermining their conspiracy jurisdiction claim. Previous cases, such as In re Platinum and Laydon, established that for conspiracy jurisdiction, a plaintiff must show that a co-conspirator committed a tort within the forum. Here, RBS is alleged to have conspired with a co-conspirator who committed a tort in the forum with RBS’s knowledge and participation.
Defendants argue, citing Walden, that personal jurisdiction requires direct contacts by the defendant with the forum, not merely contacts through others residing there. However, Walden involved a defendant who acted entirely outside the forum and did not address whether jurisdiction could arise from a defendant's contacts with a co-conspirator within the forum. Unlike the scenario in Walden, plaintiffs assert that RBS actively conspired with a JPMorgan trader located in the forum, impacting its own business transactions there.
The court emphasizes that it evaluates the quality and nature of a defendant’s contacts with the forum using a totality of the circumstances test. RBS’s alleged actions, including conspiring to manipulate product prices for profit from transactions within the forum, suggest purposeful availment of the privilege of conducting business there. Consequently, the court finds that RBS's collusion with a co-conspirator within the forum further bolsters this assertion.
Lastly, having established that the Credit Suisse Defendants, Deutsche Bank AG, RBS, and UBS maintained sufficient minimum contacts with the forum, the court concludes that asserting personal jurisdiction aligns with fair play and substantial justice, though further deliberation on this point is deemed unnecessary.
Defendants are identified as major financial institutions with a significant presence in the forum, accused of manipulating CHF LIBOR to gain wrongful profits from related derivatives. The court finds that holding defendants accountable for this alleged conduct aligns with principles of fair play and substantial justice. Although plaintiffs request jurisdictional discovery to support their claims of personal jurisdiction, the court previously denied this request, stating that jurisdictional issues would be decided without pre-discovery. The plaintiffs failed to establish a prima facie case for jurisdiction, and their request for broad discovery, seeking information on collusion and knowledge of false LIBOR quotes, is deemed inappropriate for jurisdictional purposes.
Regarding the request to replead following a motion to dismiss, plaintiffs are permitted to amend their complaint despite having previously amended it once. The court typically allows leave to replead when claims are found inadequate, as per Rule 15(a)(2) of the Federal Rules of Civil Procedure. The court identifies that deficiencies in the complaint can likely be remedied through additional pleading and finds no grounds to deny the opportunity to amend based on factors like bad faith or undue prejudice. Thus, the plaintiffs are granted leave to amend their complaint.
Defendants' motions to dismiss all counts in the Complaint are granted. Count One is dismissed due to plaintiffs' failure to demonstrate constitutional standing, as they did not show injury from the defendants' bid-ask spread manipulation. Count Two is dismissed against all defendants for lack of antitrust standing, particularly as RBS is the only defendant plausibly alleged to have violated antitrust laws. Counts Three, Four, and Five are dismissed because the Complaint does not adequately allege that Divitto experienced actual injury from the alleged manipulation. Counts Six and Seven are dismissed as impermissibly extraterritorial. Counts Eight and Nine are dismissed since the Court declines to exercise supplemental jurisdiction over these state law claims.
In addition, the motion to dismiss for lack of personal jurisdiction is granted for DB Group Services and BlueCrest, but denied for Credit Suisse Defendants, Deutsche Bank AG, RBS, and UBS. If plaintiffs wish to file a second amended complaint, it must be done by October 16, 2017; otherwise, claims will be dismissed with prejudice. Defendants are required to respond to any amended complaint by October 30, 2017. The document also references specific legal standards and previous cases regarding LIBOR manipulation, clarifying the roles of various financial entities involved.
In Benefit Fund of the City of Chicago v. Bank of New York Mellon, the court addresses the plaintiffs' claim regarding bid-ask spread manipulation of derivatives, asserting that these derivatives are distinct products sold separately, unlike CHF LIBOR, which is a price input for all derivatives. The plaintiffs' suggestion that manipulation of one derivative's spread impacts others lacks evidentiary support, as the complaint does not establish a plausible connection between the two types of alleged manipulations. The court finds that plaintiffs cannot use alleged harm from CHF LIBOR manipulation to justify standing for claims related to bid-ask spread manipulation, as these manipulations appear to be separate conspiracies rather than interconnected misconduct. Consequently, the plaintiffs lack Article III standing for bid-ask spread manipulation, affecting the court's personal jurisdiction over the defendants. The court emphasizes the necessity for plaintiffs to clearly establish jurisdiction for each claim and notes that while a theory linking LIBOR to derivative pricing was not included in the complaint, the relationship regarding the plaintiffs’ derivatives was sufficiently alleged without it, rendering the theory unnecessary for consideration.
Plaintiffs' claims regarding the impact of CHF LIBOR on the pricing of CHF derivatives are inadequately supported, raising questions about whether these derivatives are similarly affected, which could challenge the validity of their concerns. The Foreign Defendants have filed a motion to dismiss based on lack of personal jurisdiction under Fed. R. Civ. P. 12(b)(2), emphasizing that jurisdiction should be addressed before the merits. However, this is not a strict limitation, and courts can address legal issues more flexibly. The analysis of personal jurisdiction is intertwined with the merits of the antitrust and RICO claims, particularly concerning allegations of conspiracy within the U.S. The Court has received extensive briefing on both the personal jurisdiction and failure to state a claim issues, noting that many deficiencies may be rectified through amendments. It would be inefficient to address personal jurisdiction without considering the substantive claims. Thus, the Court opts to analyze the failure to state a claim arguments first. Previous cases illustrate differing outcomes based on competitive injury claims related to LIBOR. Questions regarding the scope of the alleged conspiracy may be revisited later in litigation, without necessitating dismissal at this stage. Allegations against Deutsche Bank regarding collusion between parent and subsidiary lack merit under antitrust law. Plaintiffs may only recover net injuries, with any benefits from prior LIBOR suppression needing to be deducted from total damages claimed, as established in relevant precedents.
Plaintiffs aim to sue on behalf of all entities that purchased Swiss franc derivatives over a decade, but they fail to provide a source for the necessary information to analyze the impact of the alleged manipulation. The Court notes that the Complaint relies heavily on existing regulatory settlements rather than uncovering new misconduct. The DOJ's Statement of Facts indicates that UBS manipulated Swiss Franc LIBOR submissions from 2001 to 2009 to benefit its trading positions. Under Section 22 of the Commodity Exchange Act (CEA), a plaintiff has standing to sue for manipulation if they bought or sold futures contracts. Defendants argue that the plaintiff, Divitto, lacks standing because CHF LIBOR is not the commodity underlying the CME futures contracts; rather, the contracts involve exchanging Swiss francs for U.S. dollars. However, standing can be based on manipulation of either the commodity or the contract itself. The plaintiffs assert a CEA claim for commodities manipulation regarding Eurodollars futures contracts but fail to adequately allege manipulation against Credit Suisse Defendants or BlueCrest, as they do not link these defendants to any manipulated CHF LIBOR submissions. Defendants also claim that specific intent has not been adequately alleged, noting that the plaintiffs do not assert direct transactions with them. The plaintiffs counter that derivatives are traded on exchanges, not directly, and CEA claims can arise from manipulation of exchange-traded derivatives. The defendants have not provided evidence to support their position.
Plaintiffs argued that the UBS non-prosecution agreement did not place them on inquiry notice for Commodity Exchange Act (CEA) violations occurring after September 1, 2009, the agreement's termination date. However, the agreement's history of misconduct over an eight-year period should alert an investor to the possibility of ongoing violations. The statement within the agreement asserting that misconduct continued at least until September 1, 2009, strengthens this position. Notably, the first regulatory settlement regarding CHF LIBOR manipulation by a party other than UBS was not announced until February 6, 2013, which is within the two-year statute of limitations under the CEA.
The complaint alleges collusion among the Deutsche Bank Defendants to manipulate CHF LIBOR; however, a RICO association cannot consist solely of a parent and subsidiary. Allegations against other defendants for manipulating CHF LIBOR to benefit their transactions could support a scheme to defraud, provided other elements of a RICO claim are adequately pled. Defendants highlighted that many of the complaint's allegations parallel those deemed insufficient in the Laydon case.
Regarding the involvement of RBS, new documents only affect the analysis for RBS, as it was the only defendant alleged to have colluded with JPMorgan in New York concerning CHF LIBOR manipulation. The complaint fails to plausibly allege that other defendants participated in this conspiracy.
Plaintiffs cited the case Matter of B. M. Kingstone, where a New York bank branch was compelled to produce information related to its activities; however, B. M. Kingstone clarified that New York does not have general jurisdiction over a foreign bank’s global operations. The decision underscored that jurisdiction exists only for information obtainable through the New York branch. Defendants referenced Waldman, which ruled that the PLO was not subject to suit in the U.S. under the "effects test" since the alleged misconduct was not centered in the U.S. Here, defendants argue that the focal point of the manipulation was abroad, negating specific jurisdiction.
The Second Circuit's ruling in Waldman indicated that the attacks were "indiscriminate" and "random," meaning they were not specifically directed at the United States. In contrast, the alleged harm in the current case is not random; the defendants are aware of the impact on counterparties involved in CHF LIBOR-based derivatives, suggesting that their actions were deliberately aimed at the U.S. market. Plaintiffs assert that the defendants were motivated by potential profits from transactions in the forum, reinforcing the argument that their conduct was expressly aimed at the U.S. Unlike Waldman, where jurisdiction relied on the "effects test" due to conduct occurring entirely abroad, the present case establishes personal jurisdiction through the "purposeful availment" test, as the defendants engaged in relevant conduct within the forum. This distinction does not contradict the court's finding that the plaintiffs' RICO claims are impermissibly extraterritorial, as the jurisdictional inquiry focuses on the defendants’ intentional engagement with the forum, which is less stringent than the RICO analysis requiring a domestic focus.
