The next few years are likely to see a wave of securities litigation cases involving fixed income instruments, specifically government and quasi-government bonds. The EU Commission and the UK Competition Markets Authority have both recently turned their attention to the alleged collusion that occurred in the fixed income departments of the major banks following the financial crisis.

The alleged pattern of behaviour is similar to the allegations in foreign exchange and Libor, with bond traders accused of using electronic chat rooms to collude to fix the prices and bid-offer spreads of bonds in the secondary market to the economic detriment of their clients. Additionally, the allegations are that the bond traders used the chat rooms throughout the day to share real time information about their trading books, the trading strategies of their clients and client requests for quotes.

Regulatory investigations are underway in connection with the following fixed income products:

  1. Sovereign, supranational and agency (SSA) bonds,
  2. Euro denominated European government bonds (EGBs),
  3. UK bond market, and the
  4. Unsecured bonds of United States government sponsored enterprises (GSE) including Fannie Mae and Freddie Mac.

The European Commission is investigating alleged wrongdoing in SSA bonds and EGBs and, as is explained below, has issued “Statements of Objections” against banks. Statement of Objections are often a precursor to a formal finding of infringement and any formal finding of infringement is binding on EU courts. Accordingly, claims which “follow on” from these regulatory findings tend to focus on quantum and also on technical defences, such as jurisdiction and limitation.

US class actions have been filed in relation to SSA bonds, EGBs and GSE bonds.

For cases such as SSA bonds, EGBs and GSE bonds where anti-competitive behaviour has an international effect, claimants often have a choice of where to assert a recovery, as more than one jurisdiction may be available. However, as many clients know from their experience in the foreign exchange litigation, the causes of action available may have territorial restrictions such that the client may not be able to recover all their losses in a single court.

Most financial institutions have foreign exchange trading desks in both New York and London. The trading desks for SSA bonds and EGBs were predominantly located in London making the likelihood of non-US domiciled clients being able to achieve full recovery via US proceedings for their losses in SSA bonds and EGBs even less likely than in foreign exchange. However, non-US domiciled clients should be able to assert recovery for the majority of their GSE transactions in a US class action given that the trading desks for GSE bonds were predominantly located in the United States.

If you require any further information on any of the above potential cases, Stewarts is happy to discuss potential claims with you.


SSA Bonds

In December 2015, it was announced that the US Department of Justice was investigating price-fixing allegations in the US dollar denominated SSA bond market. SSA bonds are fixed income debt instruments issued by political subdivisions within a country, by government-linked organisations or by supranational organisations. Common issuers of SSA Bonds are the European Investment Bank (EIB), Kreditanstalt für Wiederaufbau (KFW), the International Bank for Reconstruction and Development (also known as the World Bank), Caisse d’Amortissement de la Dette Sociale (CADES), African Development Bank (AFDB) and Asian Development Bank (ASIA).

US class actions were filed in the Southern District of New York and ultimately consolidated (16-CV-03711). Partial settlements have been reached in the US class action with three of the defendant banks for a total of $95.5m (Bank of America ($17m), Deutsche Bank ($48.5m) and HSBC ($30m)). As part of the settlement agreements, the settling defendant banks have agreed to provide substantial and meaningful cooperation to the class including agreeing to provide electronic “chats” from among the alleged conspirators. Although the US class action alleged price-fixing of only US dollar denominated SSA bonds, the preliminary settlements with the three banks cover claims for all SSA bonds, including non-US dollar denominated bonds.

The consolidated US class action was dismissed on 28 August 2018 for failure to state a claim because the plaintiffs had failed to allege plausibly an injury-in-fact sufficient to establish antitrust standing. (The lead class plaintiff could not show loss arising from the individual acts of collusion alleged.) The judge gave the plaintiffs permission to file a second consolidated amended complaint and the plaintiffs filed this against the remaining defendant banks on 13 November 2018. The remaining defendant banks filed new motions to dismiss on 21 December 2018 on the grounds of “failure to state a claim” and “lack of personal jurisdiction and improper venue”. All filings with respect to the new motions to dismiss have been made and the subsequent opinion and order from the judge are not expected before the summer of 2019.

Regardless of the outcome of the motions to dismiss, non-US domiciled claimants will likely need to file claims in Europe if they are to recover losses on the majority of their bond transactions. This is due to the territorial restrictions of US anti-trust law under the Foreign Trade Antitrust Improvement Act. This is reflected in the proposed class definition in the Second Consolidated Amended US Class Action Complaint:

“All persons or entities who, from January 1, 2009 to December 31, 2015, directly entered into U.S. dollar denominated SSA bond transactions with Defendants, or their respective subsidiaries or affiliates, in the United States or its territories or otherwise involving U.S. trade or commerce. Excluded from the Class are Defendants, their co-conspirators identified herein, and their officers, directors, management, employees, current subsidiaries or affiliates, and all federal government entities” (emphasis added).

The SSA bond trading desks for the financial institutions are predominantly located in London. Claimants, therefore, may face considerable difficulties in arguing that such trades were “entered into… in the United States or its territories or otherwise [involved] US trade or commerce.” So, even if the US class action survives the motions to dismiss, there is a significant risk that claimants would be unable to assert recovery for the majority of its SSA bond transactions under the US class action.

On 20 December 2018, the European Commission issued a press statement stating they had sent Statement of Objections to four banks. Although there have been exceptions, a Statement of Objections is usually a precursor to a finding of liability and potential fines. The European Commission informed the four banks of its preliminary view that they had breached EU antitrust rules by colluding, in periods from 2009 to 2015, to distort competition in secondary market trading in the EEA of supra-sovereign, sovereign and agency bonds denominated in US Dollars.

The four banks are believed to be Bank of America, Credit Agricole, Credit Suisse and Deutsche Bank.

Shortly after the Commission press release, Deutsche Bank issued its own press release stating it had been pro-actively assisting with the Commission investigation and has been granted immunity. They also stated that they did not expect to receive a financial penalty from the Commission. Deutsche Bank subsequently reiterated that statement in its 20-F SEC filing on 22 March 2019.


European Government Bonds

A European Commission press release dated 31 January 2019 announced that it had issued a Statement of Objections against eight banks. The Commission’s preliminary view is that the banks had breached EU antitrust rules by colluding, in periods from 2007 to 2012, to distort competition when acquiring and trading Euro denominated bonds issued by the central governments of Eurozone Member States.

Following the European Commission statement, a US class action (19-cv-00314) was filed on 4 March 2019 in the District Court of Connecticut, United States, against Bank of America, Royal Bank of Scotland and certain of their subsidiaries in connection with the trading of EGBs based on the allegations in the Commission statement.

MLex reported on 20 March 2019 that Unicredit was one of the eight banks that received a Statement of Objections with respect to the EU probe into a suspected cartel in Eurozone government bonds. Other banks that are suspected to have received the Statement of Objections include Bank of America, Credit Suisse and Deutsche Bank but this has not been confirmed.


UK Bond Market

On 16 November 2018, the UK Competition and Markets Authority (CMA) announced that on 13 November 2018 the CMA had launched an investigation into suspected anti-competitive arrangements in the financial services sector which may infringe Chapter I of the Competition Act 1998 and/or Article 101 of the Treaty of Functioning of the European Union (TFEU).

The CMA’s decision to open an investigation indicates that it has grounds for suspecting a competition law infringement. However, the CMA has not publicly stated the area of concern it is investigating. According to press reports, the CMA’s investigation is focused on the trading of secondary bonds and the CMA has indicated that its initial investigation will run until August 2019.


Government Sponsored Enterprises

On 1 June 2018, Bloomberg reported that the US Department of Justice (DoJ) had launched a criminal investigation into whether traders had manipulated the secondary market for unsecured bonds of Fannie Mae and Freddie Mac.

On 26 February 2019, a US class action complaint was filed in the Southern District of New York (19-Cv-01796) against nine banks including Bank of America and Deutsche Bank alleging that the banks conspired to manipulate the prices and spreads of unsecured bonds issued by government sponsored enterprises. Specifically, the unsecured bonds were issued by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal Farm Credit Banks Funding Corporation (FFCB) and the Federal Home Loan Banks (FHLB). The class action has a class period of 1 January 2012 to 1 June 2018.


Funding Options

There are a number of funding options available to clients to fund litigation costs. Our lawyers have unrivalled experience in putting together innovative costs arrangements. The use of third party funding, after-the-event insurance and risk-sharing fee agreements enables our clients to manage risk and litigate from a position of financial strength. We can discuss these further on request.



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