Spezialfonds provider LBBW Asset Management Investmentgesellschaft will share in a $1.9bn (€1.8bn) payout after a New York judge approved a settlement between the parties in an antitrust lawsuit involving the purchase and sale of credit default swaps (CDS).
The deal is one of the biggest anti-trust class action settlements ever.
A similar claim is now being pursued in the UK for European losses.
The action was brought by a US pension fund and other investors including LBBW against 12 of the world’s biggest banks, including Citigroup, Bank of America, Barclays, Deutsche Bank, UBS and BNP Paribas.
The International Swaps and Derivatives Association (ISDA) and Markit Group, which provides pricing data, were also defendants.
The action covered CDS transactions taking place between 1 January 2008 and 25 September 2015.
The plaintiffs alleged the defendants engaged in anticompetitive acts that affected the price of CDSs in violation of the Sherman Act (an antitrust law), and were “unjustly enriched” under common law by these acts.
Among other things, it was alleged the defendants “conspired to prevent exchange trading of CDS at secret meetings and through telephone and e-mail communications”.
They were claimed to have “agreed with each other not to deal with any central clearing platform that might allow CDS trading, and instead to clear almost all transactions through the one clearinghouse they could control, ICE Clear Credit”.
A further allegation was that the dealer defendants pressured the ISDA and Markit not to grant any licences allowing CDS to trade via central limit order book or on an exchange platform, thus ensuring some dealer defendants are on at least one side of every CDS transaction.
The result, according to the plaintiffs, was to keep the CDS market opaque, preventing competition and maintaining inflated bid-ask spreads on CDS transactions.
According to the court papers, the settlement represents a recovery of 15-23% of the damages that might have been sought based on the class plaintiffs’ preliminary model.
In addition to the monetary award against defendants, the ISDA has agreed to improve the corporate governance on licensing its intellectual property by replacing its existing licensing sub-committee with an independent sub-committee made up of members from an equal number of buy-side and sell-side firms, and setting up a more transparent licensing process.
The plaintiffs in the lawsuit also included Unipension and the three professional pension funds it runs, but these withdrew voluntarily in June because Danish privacy laws conflicted with their discovery obligations (i.e. to disclose information to the defendants) in the US federal court.
Judge Denise Cote said: “Danish privacy laws have proved to be an insurmountable obstacle to the collection and production of documents and foreign trading records necessary to fulfil the Unipension funds’ obligations as named plaintiffs.”
However, Quinn Emanuel Urquhart & Sullivan, co-lead counsel for the plaintiffs and the settlement class, is currently pursuing a similar claim in the UK for European losses and has already secured funding through specialist litigation funder Fideres Capital Management.
Boris Bronfentrinker, a partner at Quinn Emanuel, said: “The anti-competitive conduct of the major investment banks in respect of CDS was global in nature, and, therefore, capital market participants should be able to achieve similar results in an English claim.”
He added: “We are in a unique position to build on the fantastic work that was done in the US to extract compensation for institutional investors and financial institutions that have suffered losses through the anti-competitive conduct of the major banks in Europe.”
Information for potential class members in this case will be available here by mid-January, with claims to be submitted by 27 May 2016.
The court hearing to consider final approval of the settlement is scheduled for April 2016.