Forex ‘Cartel’ Class Action Heats Up

MANHATTAN (CN) - In private corner of the Internet, a shadowy group of power people allegedly met in chat rooms called "The Cartel," "The Bandits' Club" and "The Mafia" to plot illicit, lucrative trades.

No, it's not a scene from the ongoing federal trial of Silk Road founder Ross Ulbricht, who is accused of running an underground narcotics empire on the Deepnet.

The allegation comes from an antitrust lawsuit accusing 12 major banks of sending their top-level traders to manipulate a booming foreign-currency exchange trade that nets more than $5 trillion a day.

Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Royal Bank of Scotland and UBS failed to dismiss most of those claims, as alleged in three actions, Thursday.

One of the lawsuits consolidates the claims of a dozen investment funds, pension plans, hedge funds and a municipal board that sued the banks in 2003.

U.S. District Judge Lorna Schofield's ruling summarizes the case as allegedly involving "a long-running conspiracy among the world's largest banks to manipulate the benchmark rates in one of the world's largest markets."

The accused banks controlled 84.25 percent "of all trades in the market in 2013," Schofield wrote.

They are accused of fixing "the fix," a rate estimated as the "median price of actual foreign exchange transactions in the 30 seconds before and after 4 pm London time," the opinion states.

Of all of these estimates, the most widely used is allegedly the WM/Reuters rate.

The complaints accuse the banks of sending their top-level traders "to meet and conspire for over a decade" on chat rooms, instant messages and emails.

"The chat rooms, with evocative names such as "The Cartel," "The Bandits' Club," "The Mafia" and "One Team, One Dream," were the primary sites of conspiracy," Schofield wrote, describing the allegations. "The Cartel, for example, counted traders from at least four defendants among its members, including Citigroup, Barclays, UBS and JPMorgan, whose chief currency dealer in London ran the chat room. The Cartel's members 'exchanged information on customer orders and agreed to trading strategies to manipulate' the fix. After manipulating the fix, members allegedly 'would send written slaps on the back for a job well done.'

"In The Cartel and in other chat rooms, FX traders from the various defendant banks

shared inappropriate 'market-sensitive information with rivals' including 'information about pricing,' their customers' orders and their net trading positions in advance of 4 pm London time. The traders discussed the 'types and volume of trades they planned to place.' Using this nonpublic information, and 'by agreeing in chat rooms and instant messages' to employ collusive trading strategies, defendants moved the fix in the direction they desired and thereby fixed the prices of the FX instruments."

The traders allegedly discussed "front running," "banging the close" and "painting the screen" as their three strategies for "fixing the fix."

U.S. and European regulators fined many of these major banks $4.25 billion for conspiring to manipulate foreign currency markets on Nov. 12, 2014.

"Other investigations remain ongoing," Schofield noted.

"Since the investigations began, all 12 defendants have terminated, suspended or overseen the departure of over 30 long-time and key employees associated with their FX operations," the opinion states.

Schofield gave a green light to the U.S.-based antirust claims, but she dismissed the foreign actions as statutorily barred.

"Fairly read, the U.S. Complaint adequately alleges that defendants engaged in a long-running conspiracy to manipulate the fix to defendants' advantage," she wrote.

Citigroup declined to comment.

Attorneys for the plaintiffs and Barclays did not return calls by press time.

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