Antitrust and Unfair Competition Law

Plaintiffs Unable To Strike Gold – Or Silver – As Southern District Of New York Dismisses Non-Fixing Banks In Gold And Silver Cases

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Elizabeth C. Pritzker
Pritzker Levine LLP

On July 25, 2018, Judge Valerie Caproni issued opinions granting motions to dismiss brought by several “Non-Fixing Banks” in two multi-district cases alleging conspiracies to fix the prices of precious metals and futures. The two cases are: (1) In re Commodity Exchange Inc., Gold Futures and Options Trading Litigation, No. 14-MD-2548, 2018 WL 3585276 (SDNY July 25, 2018) (“Gold”), alleging a conspiracy to fix the price of physical gold and gold-denominated financial securities; and (2) In re London Silver Fixing, LTD., Antitrust Litigation, No. 14 MC-2573, 2018 WL 3585277 (SDNY, July 25, 2018) (“Silver), a benchmark-fixing case alleging a conspiracy to depress the price for physical silver and silver-denominated financial products, including silver futures. Although the complaints in both cases were supported by chat messages between investment traders of the “Fixing Banks” and the “Non-Fixing Banks,” demonstrating that chat participants in fact shared market positions and other proprietary information, Judge Caproni held that the evidence and other factual assertions in both cases failed to plausibly tie the “Non-Fixing Banks” either to the conspiracies or the price movements alleged in the respective complaints. In Silver, Judge Caproni additionally held that plaintiffs were not “efficient enforcers” as to the Non-Fixing Banks, and therefore lacked antitrust standing as required by Associated General Contractors v. California State Council of Carpenters, 459 U.S. 519 (“AGC”), and Second Circuit precedent applying AGC.

The Gold Ruling

Plaintiffs in these consolidated cases allege a conspiracy to fix the prices of physical gold and gold-denominated financial instruments (typically, gold futures or shares or options on gold exchange-traded funds) from 2004 to 2012. Gold, 2018 WL 3855276, at *1. During this period, the price of physical gold was wet daily through a private auction involving some of the largest banks in London. Plaintiffs allege that the afternoon “Gold Fixing” – also known as the “PM Fixing”—was a cover for a price-fixing conspiracy among the entity charged with operating the Gold Fixing, London Gold Market Fixing, Ltd, and the participant banks: The Bank of Nova Scotia, Barclays Bank plc, Deutsche Bank AG, HSBC Bank plc and Société Générale SA (collectively, the “Fixing Banks”). Id.Plaintiffs also named UBS AG and its affiliates which, while not itself a member of the Gold Fixing, alleging conspired with the Fixing Banks to suppress the price of gold as determined by the PM Fixing. Id.

Plaintiffs’ complaint alleges that the Gold Fix auction is conducted during a conference call among the Fixing Banks, with no third party participants, making it an almost perfect forum for collusion among competitors. Id. at *2. The market-clearing price in the auction (the “Fix Price”) is then published as a benchmark price for physical gold. This Fix Price, according to plaintiffs, effectively sets the market price for gold futures, options and forwards. Id.Plaintiffs point to trading data showing that the spot price of gold decreased during the PM Fixing on between 60 to 80 percent of the trading days during the class period even though, it is alleged, an efficient market would equally be likely to move upwards or downwards on a given day. Id. Plaintiffs’ analysis further shows that the downward movement in the price of physical gold consistently began in the minutes before the PM Fixing call began. Plaintiffs allege this points to coordinated trading based on foreknowledge of the Fix Price that would emerge from the auction. Id. Plaintiffs also allege patterns in Defendants’ price quotes which, Plaintiffs contend, link them to anomalous pricing behavior observed around the PM Fixing. Id.

In September 2016, Judge Caproni denied the Fixing Banks’ motion to dismiss, concluding that Plaintiffs plausibly alleged a conspiracy among the Fixing Banks to suppress the PM Fix Price. In re Commodity Exch., Inc., Gold Futures and Options Trading Litig., 213 F.Supp.3d 631, 642, 682 (SDNY 2016). The court granted UBS’s motion to dismiss, however, noting that UBS was not a member of the fixing panel during the class period, and Plaintiffs’ statistical analyses did not sufficiently connect UBS to the suppression of the PM Fixing. Plaintiffs’ barebones allegation that UBS quoted prices that were “lower than market averages,” the court found, were “inadequate to create a plausible inference of a conspiracy” as against UBS. Id at 663. In response to that finding, Plaintiffs filed an amended complaint that included, as additional support for their claims against UBS, 16 chat messages between a precious metals trade at UBS, and a precious metal trader at Deutsche Bank, one of the Fixing Banks. Gold, 2018 WL 3855276, at *3. “The chats describe brazen efforts to manipulate the gold markets through coordinated trading,” Judge Caproni writes in her July 2018 order. Id (setting forth the pertinent text of the chat messages). “Three of the chats reference Gold Fixing, but none references an agreement among UBS and the Fixing Banks to suppress gold prices.” Id. at *4. Plaintiffs’ amended complaint also contains additional statistical analyses allegedly showing that UBS, on average, quoted below-market prices beginning in the ten minutes before the PM Fixing and continued to quote below market prices until immediately before the London market closed, and that “UBS’s prices at the time of the PM Fixing fell in the bottom 5% and 10% for prices of the day far more often than they fell in the top 5% and 10%.” Id (quoting Plaintiff’s Third Amended Complaint).

UBS again moved to dismiss, arguing that the chat messages do not alter the court’s previous finding that Plaintiffs have not plausibly alleged UBS was involved in the alleged conspiracy. Id. at *4. Judge Caproni agreed. The chat messages, the court held, provide no direct evidence that UBS was involved in a scheme to suppress the PM Fix Price. Id. at *6. “Three messages reference ‘fixes,’ but none describe a scheme among UBS and the Fixing Banks persistently to suppress the Fix Price,” the court reasoned. Id. [O]ther references to the ‘fix’ describe proprietary trading that has no obvious connection to the fix-suppression conspiracy….” Id. Similarly, still “other chat messages describe coordinated trading and sharing of order flow information and proprietary pricing information, but they do not discuss manipulation of the PM Fixing.” Id.The messages also were late in the evening London time; therefore, the court held they “do not evidence sharing of information that would have been necessary to a fix-suppression scheme, or the sharing of that information close in time to the fixing itself. Id. at *8.

Judge Caproni also did not find Plaintiffs’ additional statistical analyses supportive of a plausible price-fixing conspiracy as against UBS. These analyses did not distinguish between the conduct of the individual defendants, the court found, but instead attempted to show that UBS and the Fixing Banks were collectively incentivized to suppress gold prices. Id. at *6. However, “[b]ecause the analysis does not specify the coefficient of variation [of gold positions] for any individual bank, the Court cannot determined whether UBS quoted ‘bunched’ prices or whether variance in UBS’s quotes is obscured by the group-wide analysis. Id. Plaintiffs’ attempts to bolster their allegations with UBS-specific statistical analyses – one that showed that UBS’s prices around the time of the PM Fixing were more frequently in the bottom 5% to 10% of the market that day than they were in the top 5% or 10% — also was found to be insufficient. According to the court, “Plaintiffs do not specify why this fact supports their theory that UBS was involved in a fix-suppression conspiracy.” *7.

The court dismiss Plaintiffs’ claims against UBS holding that their Third Amended Complaint “fails to allege a plausible link between UBS and the price fixing scheme alleged against the Fixing Banks.” Id. at *9. In an unusual move, Judge Caproni opted to dismiss the claims against UBS with prejudice. “Plaintiffs are represented by competent, experienced counsel,” the court noted. Id. at *10. “If they had facts necessary to plug the obvious holes that exist in the TAC, the Court is confident those facts would have been included in the pleadings filed to date.” Id.

The Silver Ruling

In Silver, Judge Caproni also dismissed Plaintiffs’ antitrust claims against several Non-Fixing Banks which, as in Gold, were alleged to have participated in online chats with traders and representatives of alleged Fixing Banks.

According to Plaintiffs, the price of silver bullion during the class period was set in part through a daily auction among a group of small dealers (“the Silver Fixing”). Silver, 2017 WL 3585277, at *1. “Based on a sophisticated econometric analysis of thousands of price quotes from silver markets, Plaintiffs alleged that this daily private auction was a cover for a conspiracy among the participating banks, Deutsche Bank, HSBC, and the Bank of Nova Scotia (together, the ‘Fixing Banks.’), to suppress the price for physical silver.” Id.

In September 2016, the court denied motions to dismiss by the Fixing Banks, finding that Plaintiffs stated plausible antitrust claims against these entities. *1. Plaintiffs later settled with Deutsche Bank for $38 million and a cooperation agreement, pursuant to which Deutsche Bank produced to Plaintiffs a trove of preserved electronic chat messages among precious metal traders employed by Deutsche Bank and traders at Bank of America, Barclays, Standard Chartered, BNP Paribas and UBS (the “Non-Fixing Banks”). Id.

Plaintiffs used the text messages received from the Deutsche Bank cooperation agreement to amend their complaint and to allege that the Non-Fixing Banks conspired with the Fixing Banks and among themselves to manipulate the Silver Fixing, and the silver markets more generally. Id. at *1. Separately, the Commodity Futures Trading Commission (“CFTC”) initiated enforcement actions against UBS and Deutsche Bank, alleging that traders at these two Non-Fixing Banks “spoofed” the markets for precious metals and collaborated with traders at another financial institution to trigger stop-loss orders. Id. at *4. UBS and Deutsche Bank later settled their claims with the CFTC for $15 million and $30 million, respectively. Id. The U.S. Department of Justice also has charged two Bank of America / Merrill Lynch traders with commodities fraud (among other things) in connection with the alleged spoofing in the precious metals futures markets, including the Commodities Exchange or COMEX. Id.

Against this backdrop, the Non-Fixing Banks moved to dismiss on the grounds that the chat messages Plaintiffs obtained from Deutsche Bank did not connect them to any alleged conspiracy with the Fixing Banks and did not document any actionable manipulations of the silver markets (among other things). Id. at 1. Judge Caproni’s July 25 decision dismissed Plaintiffs’ claims against these entities, finding Plaintiffs’ allegations fail for three reasons.

First, the court found that Plaintiffs’ allegations of a “comprehensive” conspiracy to fix the price of physical silver and silver-based financial instruments did not meet the plausibility standard of Bell Atl. v. Twombly, 550 U.S. 544, 570 (2007). The court declined to infer the existence of a single, overarching conspiracy, reasoning that Plaintiffs’ allegations instead suggest merely “unrelated, internally inconsistent efforts to manipulate the sliver markets episodically.” Id. at *6. “Even though the TAC plausibly alleges that the Fixing Banks conspired to depress the Fix Price,” the court reasoned, “it does not explain why the Non-Fixing Banks, which are competitors and counterparties, would be in agreement.” Id. “The coordinated trading alleged in the TAC lacks a connection to suppression of the Fix Prices and, in fact, could have made it more difficult to profit from foreknowledge of the Fix Price,” the court held. Id.

Second, as in Gold, the court did not find the chat messages produced by Deutsche Bank provided a basis to link the Non-Fixing Banks to the alleged conspiracy. These messages took several forms. “Numerous chats between a trader at UBS and a trader at Deutsche Bank describe efforts to coordinate describe efforts to coordinate positions” (id. at *3), with one such chat also including traders at HSBC and Barclays. Id. Traders as Barclays also shared information with Deutsche Bank regarding “bid-ask spreads” and attempts to “spoof” the silver markets. Id.Id. Chats between Deutsche Bank and UBS referenced “collusion with traders at Barclays.” Id. The Deutsche Bank cooperation materials included “[s]everal chats describe[ing] real-time sharing of market positions and conditions, including bid-ask spreads quoted by BNP Paribas and Deutsche Bank’s positon heading into the Silver Fixing.” Id. “Two of the chats between Deutsche Bank and BNP Paribas reference collusive trading techniques” – including taking the “bulldozer” out on a prior occasion, a possible reference to triggering stop-loss orders. Id. Three chat messages reveal a trader at Standard Chartered (and formerly of HSBC) sharing current trading positions as well as Deutsche Bank’s position in the Silver Fixing. Id.“Finally, the TAC alleges conversations between Deutsche Bank and [Bank of America / Merrill Lynch]” that include “exchanges of information regarding bid-spreads”, “the price-level of stop-loss orders in the market,” and “their current positions in silver denominated derivatives.” Id.

Lacking econometric or statistical analyses linking these chat messages to specific trading times or trading behavior, however, the court held that Plaintiffs had not met their burden to plausibly plead a single, overarching conspiracy among the Fixing and Non-Fixing Banks, taken together. “The Court does not find Plaintiffs’ allegations of a single conspiracy among the Fixing Banks and Non-Fixing Banks to manipulate the Silver Fixing to be plausible.” Id. at *12. Instead, the court held, “the TAC plausibly alleges two conspiracies. Plaintiffs have plausibly alleged a conspiracy involving the Fixing Banks to suppress the Fix Price through the dialing fixing call. Plaintiffs have also plausibly alleged a conspiracy among the Non-Fixing banks to collude in the silver markets through market manipulation and information-sharing.” Id (emphasis added).

Having determined that Plaintiffs stated a separate, plausible conspiracy against the Non-Fixing Banks, Judge Caproni then faced the question of whether Plaintiffs had antitrust standing to assert such a claim under AGC. “The Second Circuit has identified four factors to consider whether a particular plaintiff has standing as an ‘efficient enforcer’ to seek damages under the antitrust laws: (1) whether the violation was a direct or remote cause of the injury; (2) whether there is an identifiable class of other persons whose self-interest would normally lead them to sue for the violation; (3) whether the injury was speculative; and (4) whether there is a risk that other plaintiffs would be entitled to recover duplicative damages or that damages would be difficult to apportion among possible victims of the antitrust injury…. Built into the analysis is an assessment of the ‘chain of causation’ between the violation and the injury.” Id. at * 12 (citing Gelboim v. Bank of Am. Corp., 823 F.3d 759, 772 (2d Cir. 2016) (citations omitted)).

The court found that Plaintiffs lacked antitrust standing as “efficient enforcers” against the Non-Fixing Banks for several reasons. The first reason has to do with the remoteness of the alleged injury. Id. at *12. Because Plaintiffs did not deal directly with any of the Non-Fixing Banks in their market purchases, and because Plaintiffs’ claims against these Non-Fixing Banks do not precisely depend on benchmark manipulation but, rather, “a comprehensive scheme of market manipulation, involving rigged bid-ask spreads and coordinated trading in unspecified silver markets,” the court held that Plaintiffs failed to plead facts or provide an econometric analysis that to plausibly show how the Non-Fixing Banks’ alleged coordinated trading impacted the markets for physical silver or silver-denominated instruments. Id. at *13. For similar reasons, the court also found “Plaintiffs’ injuries and the Non-Fixing Banks’ conduct is attenuated and inadequately alleged in the TAC.” Id.

The court found the other elements required for antitrust standing under AGCwere lacking as well. “Class members who traded directly with the Non-Fixing Banks were more directly injured than Plaintiffs,” Judge Caproni held. Id. at *15. The duplicative recovery and apportionment of damages factor, in the court’s view, “also weights against Plaintiffs’ claims against the Non-Fixing Banks.” *16. Specifically, the court held that because “the CFTC and the Department of Justice have instituted enforcement actions and criminal cases against several of the defendants and their traders for the manipulative trading alleged in the TAC” there is a lessened “need for plaintiffs to function as private attorneys general and vindicators of the public interest.”

As in Gold, the court granted the Non-Fixing Banks’ motion to dismiss with prejudice. Id. at *28.


Judge Caproni’s motion to dismiss opinions in Gold and Silver demonstrate the difficulty of pleading antitrust and commodities fraud claims as against entities alleged to have engaged in market manipulation or other anticompetitive conduct but with whom no plaintiff has a contractual or direct purchase relationship. While the court appears to have required more specificity than other courts have to satisfy Twombly, the larger problem for plaintiffs asserting benchmarking or similar market-based claims, in the Second Circuit at least, may be pleading antitrust standing sufficiently to satisfy Circuit precedent interpreting AGC.

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