Claim Based on Illegal Manipulation of Securities Pricing Benchmark Allegedly Performed by Non-US Parties Outside the US May Proceed Where Limited to US Transactions in Derivatives

The World in U.S. Courts: Fall 2017 - Antitrust/Competition/Foreign Trade Antitrust Improvements Act (FTAIA)

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Sonterra Capital Master Fund Ltd. v. Credit Suisse Group AG, US District Court for the Southern District of New York, September 25, 2017

The plaintiffs in this wide-ranging class-action lawsuit allege that the defendant global banks illegally manipulated CHF LIBOR—a daily benchmark designed to reflect the cost at which large banks are able to borrow Swiss francs. The plaintiffs allege they were injured in connection with transactions with the defendants and third parties in Swiss franc derivative instruments tied to the CHF LIBOR rate.

Among other claims under federal law, the plaintiffs alleged the defendants’ conduct was price-fixing under the Sherman Antitrust Act, and they were entitled to treble the damages they suffered as a result. As relevant here, the defendants argued that any injury allegedly suffered by the plaintiffs in the US was not within the scope of the antitrust laws under the FTIA because it was not the “reasonably proximate” result of the conduct alleged, which occurred almost exclusively between and among European entities in Europe. The Court disagreed, noting that the complaint was limited to transactions occurring in the US. The defendants also argued that the complaint failed to satisfy the FTAIA requirement that injuries in this context were actionable only if they resulted from conduct that had a “direct, substantial, and reasonably foreseeable” effect on US commerce. Most notably, the defendants argued that the alleged injury, rather than being “direct,” was the product of many factors, including that the allegedly manipulated benchmark was just the starting point for price negotiations. The Court again disagreed, ruling that, at the pleading stage, it was sufficient for the plaintiffs to allege that the “starting point” for negotiations was a benchmark whose value had been illegally manipulated. The Court also found that alleged manipulation of a globally-disseminated benchmark used as a component in pricing derivatives would have a “foreseeable” effect in the US.

[Editor’s note: The Sonterra Capital Master Fund case is also discussed in the Racketeer Influenced and Corrupt Organizations Act (RICO) section of this report.]

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