Big banks face suits for alleged US bonds rigging

GMT 18:40 2015 Friday ,02 October

Arab Today, arab today Big banks face suits for alleged US bonds rigging

The logo of the US Treasury Department
New York - AFP

More than 20 lawsuits have been filed in the United States accusing large banks of rigging the US Treasury bond market in a similar fashion to other recent collusion cases.

Plaintiffs charge that large banks collaborated to depress the price of bonds in the $12.7 trillion US Treasury market when they were offered by the US government and then sold the bonds at a higher price in the secondary market.  

The alleged conspiracy by the banks, who are designated by the US Treasury Department as "primary dealers" in bond auctions, lifted the government's cost of issuing bonds by increasing yields.

In a suit filed in August, the Cleveland Bakers and Teamsters Pension Fund and other plaintiffs that bought bonds point to quantitative analysis of bond transactions between 2007 and 2015 in the primary and secondary bond market.

"Instead of competing with each other at arms' length, the Defendants... conspired artificially to drive up the yield of Treasuries (and correspondingly to drive down the prices of those Treasuries)," the complaint said.

"Defendants then turned around and sold the Treasuries at higher prices (and correspondingly lower yields) in the secondary market, reaping substantial profits."

The data showed yields in the primary market were "inflated" in 69 percent of auctions, according to the complaint.

"This repeated bias cannot be explained as a result of random chance; instead the only plausible explanation is that Defendants coordinated artificially."

The Cleveland Bakers case lists about two dozen defendants, including units of JPMorgan Chase, Goldman Sachs and Citigroup and foreign banks BNP Paribas, Barclays, Credit Suisse, Deutsche Bank and UBS.

The type of quantitative analysis is similar to earlier statistical studies used to show banks colluded on the London Interbank Offered Rate (LIBOR) and the foreign exchange market.

Daniel Brockett, a partner at Quinn Emanuel who is working on the Cleveland Bakers suit, said his case and others filed are likely to be consolidated into a multi-district lawsuit in the coming months. Most of the cases have been filed in a New York federal court.

The lawsuits come as US regulators step up scrutiny of the bond market following multi-billion dollar settlements with banks over LIBOR and foreign exchange collusion.

The New York Department of Financial Services has demanded information from nine big banks in a probe of potential collusion on treasuries, a person familiar with the matter told AFP last month.

The US media has reported that the Justice Department is investigating the issue.

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