Richard Taffet, Michael Whitlock, Dec 17, 2013
In the aftermath of the 2008 financial crisis, government investigations into how global financial benchmarks are set and influenced by market participants spawned dozens of class action and individual lawsuits. Plaintiffs have alleged that the benchmarks have been manipulated to benefit the banks and other market participants which had a role in how the benchmarks were determined, asserting antitrust claims under federal and state law, manipulation under the Commodities Exchange Act, RICO, and common law claims for fraud and unjust enrichment.
Three benchmarks have been the particular subject of recent litigation: (i) the London Interbank Offered Rate; (ii) a foreign exchange benchmark known as “WM/Reuters” (used in settling FX forwards and other financial contracts); and (iii) the Platts’ North Sea Dated Brent benchmark (used to price crude oil and as a reference rate in a range of over-the-counter and exchange-traded derivatives).
This past March, Judge Naomi Reice Buchwald of the United States District Court for the Southern District of New York, in the first substantive decision in the benchmark cases, granted the defendants’ motion to dismiss the Sherman Act antitrust conspiracy claims. She held that LIBOR was never intended to be a competitive rate-setting process and, therefore, the plaintiffs’ alleged injuries from investing in products tied to LIBOR were not the type of injury the antitrust laws were intended to prevent, leaving the plaintiffs without standing to assert their Sherman Act claims.
Although, as of this writing, it is uncertain whether and when the United States Court of Appeals for the Second Circuit will review Judge Buchwald’s dismissal of the antitrust claims, the reasoning supporting her decision could be instructive to courts considering similar claims in other benchmark litigation, including the FX and Platts cases. Sorting out the similarities and differences among those benchmarks and the antitrust claims asserted with respect to them will most certainly be part of any such considerations.