In re SSA Bonds Antitrust Litigation

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

OPINION AND ORDER

IN RE SSA BONDS ANTITRUST LITIGATION

16 Civ. 3711 (ER)

Ramos, D.J.:

This class action arises from twenty-five consolidated complaints filed against a number

of banks and certain of their employees who allegedly conspired to fix the price of supranational,

sovereign, and agency (“SSA”) bonds. These actions were consolidated sabe the caption Jn re

SSA Bonds Antitrust Litigation, No. 16 Civ. 3711. See Does. 36, 314. On August 28, 2018, the

Court issued an Order dismissing the consolidated amended class action complaint (“CAC”) for

failure to state a claim and failure to plausibly allege an injury-in-fact sufficient to establish

antitrust standing. Doc. 495. Specifically, the Court dismissed the Plaintiffs’ CAC because

Plaintiffs had not plausibly alleged any harm to them. /d. at 18.

The Court gave Plaintiffs leave to amend and Plaintiffs filed a second consolidated class

action complaint (“SAC”) on November 13, 2018. Doc. 506. The SAC included two new

Plaintiffs, new factual allegations including chatroom messages (e.g. messages sent through

social media apps like WhatsApp) and additional economic analyses. Pending before the Court

is the domestic dealer defendants’ motion to dismiss the SAC for failure to state a claim. Doc.

520. For the reasons set forth below, the motion is GRANTED.

I. Background

A. The SSA Bond Market

As set forth in the Court’s October 4, 2019 Order, SSA bonds are debt securities issued

by governmental and quasi-governmental entities to fund a range of public-policy mandates.

Doc. 627. SSA bonds are generally regarded as secure investments because they often enjoy

special legal status or government backing. Doc. 506 □□□ 2,49. SSA bonds can be U.S. dollar

denominated (“USD”) and sold in the U.S. bond market. Jd. § 122. SSA bonds are typically

issued through syndication. /d. 4 125. Ifan institution were seeking to issue SSA bonds, it

would retain a bank or group of banks to underwrite the bond issue and then sell those bonds to

investors. Jd. The syndicate banks would serve as lead managers on the deal and be responsible

for finding investors to purchase the issued bonds and for pricing the bonds. Jd

After being issued, SSA bonds can be resold and traded by dealers and investors. Jd.

4] 129. Investors trade SSA bonds in an over-the-counter market, meaning that rather than using

an open, anonymous exchange that matches buyers and sellers, investors transact individually

and privately with dealers. Jd. {| 129, 553. An investor typically contacts one or more dealers

by telephone, electronic chat messaging, or electronic trading platform to request a quote, which

the dealer relays to the investor, who can then place the order. Jd. 130-31. Because it is time-

consuming to contact dealers and because their quotes usually expire in a short amount of time,

investors generally do not “shop around” with more than a few dealers at a time. /d. {J 133.

Investors also do not have access to real-time market data and have limited ability to purchase

secondary market trading information, so they rely on dealers for pricing information for the

bonds. Jd. § 132.

Dealers typically quote prices for SSA bonds in basis points (one basis point is 1/100th of

a percentage point) as a spread above the yield of the relevant benchmark U.S. Treasury bonds

with a similar maturity.’ Jd. § 139. SSA bond yields are inversely related to bond prices, thus,

investors seek to buy SSA bonds at the highest available offer in basis points (i.e., the highest

yield, and thus the cheapest price) and to sell them at the lowest available bid in basis points (i.e.,

the lowest yield, and thus the most expensive price). /d. | 141.

B. The Alleged Conspiracy

Plaintiffs’* theory is that “Defendants agreed that they would not compete against each

other for the sale of USD SSA bonds to customers.” /d. { 159. Purportedly, Defendants’

overarching objective was to ensure that cartel members could transact with investor clients at

prices that were more favorable for the conspiring dealers than would have been achieved absent

collusion. /d. { 143. Specifically, that when an investor contacted one or more dealers to

purchase a bond, the Defendants would communicate with each other via chat rooms and phone

calls to achieve more favorable prices and terms for themselves. Id. 4] 130.

C. Procedural History

On December 21, 2018, twenty-two Dealer Defendants—including nine Domestic Dealer

Defendants? and thirteen Foreign Dealer Defendants‘—and four Individual Defendants,° filed

' The Court will simply refer to “basis points” as a shorthand for this method of pricing.

2 The named plaintiffs are the Alaska Department of Revenue, Treasury Division, the Alaska Permanent Fund

Corporation, and Iron Workers Pension Plan of Western Pennsylvania (“Iron Workers”) (collectively, “Plaintiffs”).

Doc. 506.

3 Barclays Capital Inc., BNP Paribas Securities Corp., Citigroup Inc., Citibank N.A., Citigroup Global Markets Inc.,

Credit Suisse Securities (USA) LLC, Nomura Securities International, Inc., RBC Capital Markets, LLC, and TD

Securities (USA) LLC (together, the “Domestic Dealer Defendants”). Jd.

‘ Barclays Bank PLC, Barclays Services Limited, Barclays Capital Securities Limited, BNP Paribas, Citigroup

Global Markets Limited, Crédit Agricole Corporate & Investment Bank, Credit Suisse AG, Credit Suisse

International, Credit Suisse Securities (Europe) Ltd., Nomura International plc, Royal Bank of Canada, RBC Europe

Limited, and The Toronto Dominion Bank (together, the “Foreign Dealer Defendants”). Doc. 521, 1 n.1, 5.

> Gary McDonald (Doc. 533), Amandeep Singh Manku (Doc. 537), Shailen Pau (Doc, 540), and Bhardeep Singh

Heer (Doc. 542) (together, the “Individual Defendants”).

motions to dismiss the SAC for failure to state a claim, lack of personal jurisdiction, and

improper venue. Doc. 520.

Given the complex and fact-intensive nature of the claims, the Court addressed the

Foreign Dealer Defendants’ and Individual Defendants’ arguments in a separate opinion filed on

October 4, 2019, Doc. 627. The Court analyzed the Plaintiffs’ factual allegations against the

Individual Defendants and the Foreign Dealer Defendants and found them insufficient to

establish an antitrust conspiracy claim, an antitrust injury claim, personal jurisdiction, or venue.

Id. at 23-27. The Court presumes familiarity with the remaining facts and legal analyses set out

in the October 4, 2019 Order and incorporates them in this Order. The Court now addresses the

Domestic Dealer Defendants’ motion to dismiss for failure to state a claim.

II. Legal Standard

A, Failure to State a Claim

“To survive a motion to dismiss, a complaint must contain sufficient factual matter,

accepted as true, to ‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678

(quoting Twombly, 550 U.S. at 570). A claim is facially plausible “when the plaintiff pleads

factual content that allows the court to draw the reasonable inference that the defendant is liable

for the misconduct alleged.” /d. (citing Twombly, 550 U.S. at 556). The plaintiff must allege

sufficient facts to show “more than a sheer possibility that a defendant has acted unlawfully.” Jd.

(citing Twombly, 550 U.S. at 556). However, this “flexible ‘plausibility standard’” is not a

heightened pleading standard, Jn re Elevator Antitrust Litig., 502 F.3d 47, 50, 50 n.3 (2d Cir.

2007) (quoting ATS] Comme’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 n.2 (2d Cir. 2007)),

and “a complaint... does not need detailed factual allegations” to survive a motion to dismiss,

Twombly, 550 U.S. at 555.

The question on a motion to dismiss “is not whether a plaintiff will ultimately prevail but

whether the claimant is entitled to offer evidence to support the claims.” Sikhs for Justice v.

Nath, 893 F. Supp. 2d 598, 615 (S.D.N.Y. 2012) (quoting Villager Pond, Inc. v. Town of Darien,

56 F.3d 375, 378 (2d Cir. 1995)). “[T]he purpose of Federal Rule of Civil Procedure 12(b)(6) ‘is

to test, in a streamlined fashion, the formal sufficiency of the plaintiff's statement of a claim for

relief without resolving a contest regarding its substantive merits’” or “weigh[ing] the evidence

that might be offered to support it.” Halebian v. Berv, 644 F.3d 122, 130 (2d Cir. 2011) (quoting

Global Network Comme’ns, Inc. v. City of New York, 458 F.3d 150, 155 (2d Cir. 2006)), The

Court therefore must ordinarily confine itself to the four corners of the complaint and look only

to the allegations contained therein. Jd. When ruling on a motion to dismiss pursuant to Rule

12(b)(6), the Court accepts all factual allegations in the complaint as true and draws all

reasonable inferences in the plaintiff's favor. Nielsen v. Rabin, 746 F.3d 58, 62 (2d Cir. 2014);

see also Twombly, 550 U.S. at 556 (“[A] well-pleaded complaint may proceed even if it strikes a

savvy judge that actual proof of those facts is improbable . . . .”).

Likewise, “[t]here is no heightened pleading requirement in antitrust cases.” In re Crude

Oil Commodity Futures Litig., 913 F. Supp. 2d 41, 54 (S.D.N.Y. 2012). However, “a plaintiff

must do more than cite relevant antitrust language to state a claim for relief.” Wolf Concept

SARL. v. Eber Bros. Wine & Liquor Corp., 736 F. Supp. 2d 661, 667 (W.D.N.Y. 2010) (citing

Todd v. Exxon Corp., 275 F.3d 191, 198 (2d Cir. 2001)). “A plaintiff must allege sufficient facts

to support a cause of action under the antitrust laws. Conclusory allegations that the defendant

violated those laws are insufficient.” /d. at 667-68 (quoting Kasada, Inc. v. Access Capital, Inc.,

No. 01 Civ. 8893 (GBD), 2004 WL 2903776, at *3 (S.D.N.Y. Dec. 14, 2004)). “[A] bare bones

statement of conspiracy or of injury under the antitrust laws without any supporting facts permits

dismissal.” /d. at 668 (quoting Heart Disease Research Found. v. Gen. Motors Corp., 463 F.2d

98, 100 (2d Cir. 1972)).

B. Antitrust Standing

“Section 4 of the Clayton Act establishes a private right of action for violations of the

federal antitrust laws,” such as section 1 of the Sherman Act, and grants that right to “[a]ny

person who [is] injured in his business or property by reason of anything forbidden in the

antitrust laws.” Gatt Comme’ns, Inc. v. PMC Assoces., L.L.C., 711 F.3d 68, 75 (2d Cir. 2013)

(alterations in original) (quoting 15 U.S.C. § 15). The right to pursue private actions is limited

by the concept of “antitrust standing.” Jd. “[A]ntitrust standing is a threshold, pleading-stage

inquiry and when a complaint by its terms fails to establish this requirement [the Court] must

dismiss it as a matter of law.” /d. (first alteration in original) (quoting NicSand, Inc. vy. 3M Co.,

507 F.3d 442, 450 (6th Cir. 2007) (en banc)). “In determining antitrust standing, [the Court]

‘assume|[s] the existence’ of an antitrust violation.” Tofal Gas, 889 F.3d at 115 (quoting Gelboim

v. Bank of Am. Corp., 823 F.3d 759, 770 (2d Cir. 2016)).

“To satisfy the antitrust standing requirement, a private antitrust plaintiff must plausibly

allege that (i) it suffered an antitrust injury and (ii) it is an acceptable plaintiff to pursue the

alleged antitrust violations.”° Jn re Aluminum Warehousing Antitrust Litig., 833 F.3d 151, 157

(2d Cir. 2016). “To demonstrate antitrust injury, ‘a plaintiff must show (1) an injury-in-fact; (2)

that has been caused by the violation; and (3) that is the type of injury contemplated by the

statute.””’ Arista Records LLC v. Lime Grp. LLC, 532 F. Supp. 2d 556, 568 (S.D.N.Y. 2007)

The suitability of the plaintiff is often described as whether the plaintiff is an “efficient enforcer” of the antitrust

laws. Aluminum, 833 F.3d at 157-58.

“While some courts speak of ‘antitrust injury’ comprehensively to include” all three of these elements, the third

element specifically is sometimes referred to as “antitrust injury.” 2A Phillip E. Areeda, Herbert Hovenkamp, et al.,

Antitrust Law: An Analysis of Antitrust Principles and Their Application § 337a, at 99—100 (4th ed. 2014).

(quoting Blue Tree Hotels Inv. (Can.), Ltd. v. Starwood Hotels & Resorts Worldwide, Inc., 369

F.3d 212, 220 (2d Cir. 2004)). “[T]o suffer antitrust injury, the putative plaintiff must be a

participant in the very market that is directly restrained.” Aluminum, 833 F.3d at 161. “[U]nlike

[government] agencies, [private] [p]laintiffs do not have the right to bring suit against any person

they reasonably suspect has committed a certain sort of wrong. ... Plaintiffs can only recover in

a civil action if they can establish that they themselves have been harmed by [d]efendants’

activities.” Total Gas, 889 F.3d at 109-10 (emphasis added).

III. Discussion

A. Plaintiffs Lack Antitrust Standing

Defendants brought this motion to dismiss for failure to state a claim, which in antitrust

actions, involves an inquiry into whether plaintiffs have the right to pursue this private action.

Doc. 520; see also Gatt Comme’ns, 711 F.3d at 75 (holding antitrust standing is threshold

inquiry and if complaint fails to establish this requirement, courts must dismiss it as matter of

law). The law is clear that in antitrust conspiracy cases, plaintiffs must show that they have

antitrust standing by plausibly alleging that they were a participant in the market defendants

sought to restrain and suffered an antitrust injury as a result of the defendants’ alleged violations.

See 15 U.S.C. § 12; Aluminum, 833 F.3d at 157.

Here, Plaintiffs allege that they bought and sold USD SSA bonds from the Dealer

Defendants, however they do not plausibly plead that they suffered antitrust harm. Doc. 506 □□

36-41. Fatally, Plaintiffs have not plead to a single transaction that leads to a plausible inference

that they suffered antitrust harm. Rather they make conclusory allegations that Defendants, like

Barclays Capital Inc., “executed collusive USD SSA bond trades with Plaintiffs Alaska

Department of Revenue, Alaska Department Fund Corporation, and Iron Workers during the

Class Period.” See, e.g., id. [9 54, 68 77, 88, 99. Plaintiffs can only bring a civil action for

injuries that they establish they themselves suffered and Plaintiffs have not met that burden here.

See Total Gas, 889 F.3d at 109-10.

The closest that Plaintiffs come to making such an allegation is when they highlight a

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Plaintiffs identify the harm suffered as the fact that the transaction was priced at an

artificially high level because of the reduced market competition among dealers. a

| While the exchange of price information among competitors is not a Sherman Act

violation per se—a number of factors are involved in determining whether the exchange had

anticompetitive effects, i.e. the industry structure and nature of the information exchanged—

exchanges of current price information have the greatest potential of creating anticompetitive

effects and have consistently been held to violate the Sherman Act. See, e.g., United States v.

U.S. Gypsum Co., 438 U.S. 422, 441 n.16 (1978) (citations omitted).

Generally, when a consumer, because of a conspiracy, pays prices that do not reflect

ordinary market conditions, they suffer injury of the type the antitrust laws intended to prevent

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and that flows from that which makes defendants’ acts unlawful. Sonterra Capital Master Fund

Ltd. v. Credit Suisse Grp. AG, 277 F. Supp. 3d 521, 557-58 (S.D.N.Y. 2017) (citing Gelboim v.

Bank of Am. Corp., 823 F.3d 759, 772 (2d Cir. 2016)), In one case, plaintiffs were found to have

sufficiently alleged a legally cognizable injury where several department stores agreed among

themselves to price products, as opposed to letting market competition determine prices,

resulting in excessive pricing of the product. In re Nine W. Shoes Antitrust Litig., 80 F. Supp. 2d

181, 190 (S.D.N.Y. 2000).

The Court accepts as true the allegation that I

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The Court does not have sufficient facts to plausibly infer that any of the Domestic

Dealer Defendants involved nnn □□□□

conspiring to fix prices and distort the USD SSA bond market. It is “harder to infer a conspiracy

from individual acts of trader-based manipulation because large financial institutions are both

buyers and sellers of derivative products, and thus any changes may well offset each other.”

Sonterra, 277 F. Supp. 3d at 555. Furthermore, the pleading is insufficient because Plaintiffs do

not identify which of the J entities was involved in the trade

Allegations in the form of group pleadings are insufficient, even for affiliated corporate entities.

See In re Zinc Antitrust Litig., 155 F. Supp. 3d 337, 384 (S.D.N.Y. 2016). In sum, Plaintiffs

have not sufficiently plead they have antitrust standing.

i. Supplemental Authority

On October 18, 2019, Plaintiffs urged the Court to consider a supplemental authority in

further opposition to the remaining Domestic Defendants’ motion to dismiss for failure to state a

claim: Jn re GSE Bonds Antitrust Litigation, No. 1:19-cv-01704, Doc. 288 (S.D.N.Y. Oct. 15,

2019) (“GSE IP’). Doc. 629, 1. Plaintiffs asked the Court to consider the plausibility of the

overarching conspiracy they allege in connection to Defendants’ argument that Plaintiffs lack

antitrust standing. Jd. at 3. However, as the ruling in GSE J had nothing to do with antitrust

standing, the Court is unable to do so. The Court notes that the first GSH case does discuss

antitrust standing. See In re GSE Bonds Antitrust Litigation, 396 F. Supp. 3d 354, 366 (S.D.N_Y.

Aug. 29, 2019) (“GSE I’) (holding plaintiffs proved antitrust standing after they plausibly

alleged conspiracy and traded bonds directly with several defendants during class period). But

as will be discussed in more detail infra in Part III(B), Plaintiffs have not plausibly alleged a

conspiracy as to the Domestic Dealer Defendants.

The GSE JT Court’s ruling is also inapposite because it was based on distinctive features

of the alleged market for government-sponsored entity (“GSE”) bonds that are easily

distinguishable from the SSA bonds market that Plaintiffs allege here. Doc. 632, 1. First, GSE

bonds have a benchmark rate that the defendants allegedly manipulated but SSA bonds do not.

See GSE I, 396 F. Supp. 3d at 369. Here, the pleadings do not point to a mechanism by which

traders could control the SSA bond price benchmark: U.S. Treasury bonds. Doc. 506 4 125. In

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a prior briefing, Plaintiffs explicitly stated that they “do not allege that Defendants specifically

manipulated the price of every USD SSA bond traded in the market, whether through a financial

benchmark or otherwise,” but rather that there was an agreement among Defendants to not

compete against each other in the market for USD SSA bonds. Doc, 407, 37-38.

Also, as the Court noted in its October 4, 2019 Order, “[t]he nature of the SSA bond

market differs from that of the GSE bond market in one crucial way: SSA bonds are quoted on

an individual and not systemic basis.” Doc. 627,25. SSA bond quotes were exchanged over-

the-counter based on highly customized market information about specific investors, such as

which bonds the investors held and in what quantity, whether the investor was an ongoing seller

or buyer of certain bonds, and price levels at which the investor had traded or was seeking to

trade. Doc. 506 § 135.

Lastly, the extent to which the GSE defendants were alleged to have controlled the

relevant market is markedly different than in this case. Doc. 632, 2. The GSE defendants were

alleged to have traded about 77% of all GSE bonds issued during the class period, pointing to a

market-wide conspiracy. GSE J, 396 F. Supp. 3d at 357-58, 362. Here, Plaintiffs estimated that

the Dealer Defendants controlled as much as 60% of the SSA bond market, but this percentage

only relates to the Defendants’ underwriting of SSA bonds in the primary market. Doc. 506

505. Without supporting facts, the Court cannot assess what percentage of the secondary USD

SSA bond market the Dealer Defendants traded. Accordingly, the supplemental authority is not

persuasive in this case.

B. The Alleged Conspiracy Is Not Plausible

Plaintiffs have not adequately plead sufficient facts in the SAC to plausibly allege a

conspiracy that includes any of the Domestic Dealer Defendants. Where an antitrust complaint

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names multiple defendants, plaintiffs must “make allegations that plausibly suggest that each

defendant participated in the alleged conspiracy.” Hinds Cty., Miss. v. Wachovia Bank N.A., 620

F. Supp. 2d 499, 513 (S.D.N.Y. 2009) (quotation marks and citation omitted); see also Concord

Assoces., L.P. v. Entm’t Props. Tr., No. 12 Civ. 1667 (ER), 2014 WL 1396524, at *23 (S.D.N.Y.

Apr. 9, 2014), aff'd, 817 F.3d 46 (2d Cir. 2016) (same). In antitrust conspiracy cases, defendants

are entitled to know how they are alleged to have conspired, with whom, and for what purpose.

Id. (citing Zinc, 155 F. Supp. 3d at 384). Plaintiffs have not met that burden here.

As the Domestic Dealer Defendants allege, Plaintiffs failed to cure their improper group

pleading when they amended the CAC—they continue to make undifferentiated allegations

against all defendants and tie together corporate affiliates without justification. Doc. 525. See

Zine Antitrust Litig., 155 F. Supp. 3d at 38 (holding allegations in form of a group pleading are

insufficient, even for affiliated corporate entities), For example, Plaintiffs allege that Barclays

Capital Inc. was the “Barclays Defendants’ U.S.-based broker-dealer” and took directions from

its overseas counterparts, served as their counterparty in most transactions, and knowingly

executed collusive USD SSA bond transactions with Plaintiffs during the Class Period. Doc.

578, 80 (citing Doc. 506 4] 54). Allegedly, Barclays Capital Inc. also employed U.S.-based

salespeople and traders who engaged in collusive trades with U.S. customers. Jd. However,

Plaintiffs do not allege any facts that show a single instance of Barclays Capital Inc. coordinating

bidding, engaging in price-fixing, agreeing not to compete, etc. Doc. 603, 1.

Plaintiffs make nearly identical conclusory allegations of taking directions from their

overseas counterparts to manipulate SSA bond trades with U.S. counterparties against all of the

Domestic Dealer Defendants: BNP Paribas Securities Corp., Doc. 578, 84-85 (citing SAC);

Citigroup, Inc., id. at 87; Citibank N.A., id.; Citigroup Global Markets Inc., id.; RBC Capital

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Markets, LLC, id. at 98; Credit Suisse Securities (USA) LLC, id. at 99; Nomura Securities

International, Inc., id. at 103; and TD Securities (USA) LLC, id. at 117. Plaintiffs argue that

they need not show that a particular Defendant knew all of the details of the conspiracy or even

prove that they knew the identities of all the other conspirators. /d. at 78. Rather, a single act

may be sufficient for an inference of a Defendant’s involvement in a conspiracy. /d. (citing

United States v. Huezo, 546 F.3d 174, 180 (2d Cir. 2008)).

However, the closest Plaintiffs come to making specific allegations against any Domestic

Dealer Defendant is when they allege that Citigroup, Inc. and Citibank N.A. participated in the

conspiracy through the same Individual Defendant, Gary McDonald (“McDonald”), within the

Class Period. Doc. 578, 86. Plaintiffs assert that McDonald EEE

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While these transactions hint at anticompetitive conduct between □□

they do not involve any specific Plaintiff, which is required in antitrust cases, or point to a wider

conspiracy that extends beyond these traders to the Domestic Dealer Defendants. A barebones

statement of conspiracy without supporting facts is not enough to survive a motion to dismiss.

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See Wolf Concept, 736 F. Supp. 2d at 668. Accordingly, the Court finds that Plaintiffs have not

sufficiently plead that they have antitrust standing or facts that support a plausible conspiracy.

IV. Conclusion

The Domestic Dealer Defendants’ motion to dismiss for failure to state a claim is

GRANTED with prejudice. For the reasons set forth in the October 4, 2019 Order, Doc. 627,

and the instant Order, the Clerk of Court is respectfully directed to terminate the Domestic

Dealer Defendants, Foreign Dealer Defendants, and Individual Defendants as parties. '° See

supra notes 3—5.

It is SO ORDERED.

Dated: March 18, 2020

New York, New York

Edgardo Ramos, U.S.D.J.

'0 The Court notes that some Defendants, such as Bank of America, Deutsche Bank, and HSBC Defendants, are

currently in settlement negotiations with Plaintiffs and thus the case remains active. See, e.g., Doc, 636 (letter from

Plaintiffs advising Court that settlement negotiations are ongoing).

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