Tuesday, July 30, 2013

MF Global Files Lawsuit Against 11 Banks

An affiliate of MF Global Holdings Ltd. filed a lawsuit alleging 11 banks engaged in anticompetive practices in the $25 trillion credit-default swaps market, including preventing the company from becoming a clearing broker for swaps.
MF Global Capital LLC, an arm of the collapsed broker managed by a board liquidating the company, filed a lawsuit in U.S. District Court for the Northern District of Illinois late Thursday alleging the banks "restrained competition" in the lucrative CDS market.
MF Global's move is the third lawsuit filed in the U.S. claiming banks controlled the swaps market inappropriately. It is also the latest sign that companies who say they were hamstrung by banks dominating the market are growing into a credible threat for Wall Street firms still reeling from litigation on everything from mortgage bonds to manipulation of a key interest rate benchmark, Libor, or the London Interbank Offered Rate.
The banks named in the suit were: Bank of America Corp. BAC +0.17% (BAC), Barclays BARC.LN -5.74% PLC (BARC.LN, BCS), BNP Paribas SA BNP.FR -0.76% (BNP.FR, BNPQY), Citigroup Inc. C +0.35% (C), Credit Suisse Group AG CSGN.VX -0.18% (CS, CSGN.VX), Deutsche Bank AG DBK.XE -3.91% (DBK.XE, DB), Goldman Sachs Group Inc. GS +0.31% (GS), HSBC Holdings HSBA.LN +1.07% Plc (HBC, HSBA.LN), Morgan Stanley MS -0.16% (MS), Royal Bank of Scotland Group RBS.LN -2.52% PLC (RBS.LN, RBS) and UBS AG UBSN.VX +2.31% (UBS, UBSN.VX).
J.P. Morgan Chase JPM -0.30% & Co. (JPM) was named as a "co-conspirator" in the complaint. The lawsuit separately named as defendants the International Swaps and Derivatives Association, a trade group for swaps, and Markit Group Ltd, a financial data provider for CDS, which is co-owned by several banks.
ISDA has previously said it believes the allegations in CDS lawsuits are "without merit and that ISDA acted properly at all times."
Spokespeople for Citigroup, Morgan Stanley, and RBS declined to comment. The other banks did not immediately return requests for comment.
The failed broker's lawsuit is seeking treble damages and an injunction for what it claims were attempts by banks to prevent it from becoming a clearing broker for CDS. It also says the actions of the banks caused customers to be overcharged in their trades by paying "inflated" prices that "cushion the profits" of the defendants. The complaint says the amount of damage done by dealers to plaintiffs is "in the tens of billions of dollars."
MF Global, which filed for bankruptcy in December 2011, participated in the CDS market both as a derivatives broker and as a customer purchasing CDS, the lawsuit said. The lawsuit is overseen by a panel managing MF Global's liquidation.
The MF Global case may be consolidated with others, where a single judge will hear the various complaints filed, according to a person familiar with the matter.
The suit echoes similar complaint filed in Illinois. In mid-July three Danish pension funds and their investment management company alleged anti-trust violations in the CDS market. In May, the Sheet Metal Workers Local No. 33 Cleveland Pension Plan also alleged anticompetitive practices in CDS. That lawsuit was amended to include additional information earlier this month.

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