Long-running EU derivatives cartel fight reignites over JPMorgan's $380 million fine

(CN) — A sprawling antitrust case over interest-rate derivatives returned to the spotlight Thursday after a legal adviser to the EU’s top court said judges failed to properly justify how they recalculated a massive fine against JPMorgan Chase.

JPMorgan is challenging a 2023 ruling by the EU’s General Court that upheld penalties tied to the bloc’s investigation into a cartel in the market for euro interest rate derivatives. The bank asked the Court of Justice to set aside part of that $388 billion judgment, arguing the lower court did not adequately explain how it arrived at the revised fine after identifying flaws in the European Commission’s methodology.

Advocate General Nicholas Emiliou said the problem goes beyond a technical drafting issue. When judges discard part of the commission’s reasoning but then recalculate the penalty themselves, the judgment must clearly show how the court reached the final figure.

“While the General Court may, but is not required to, take into account elements, arguments and issues that have not been brought expressly to its attention by the parties, it must, in principle, consider all those that have been duly raised before it by the parties,” Emiliou wrote.

In the JPMorgan case, he noted, the General Court criticized the commission’s explanation of how the fine was calculated but ultimately landed on essentially the same amount, a result that required a clearer justification of the court’s own reasoning.

Euro interest rate derivatives may sound like the kind of market most people happily ignore, but the case grew out of a simple claim: That some of the world’s biggest banks were quietly coordinating in a market that helps set the price of borrowing across Europe.

The European Commission said JPMorgan and other banks took part in a single, ongoing scheme between September 2006 and March 2007, exchanging sensitive trading information and coordinating strategies tied to benchmark rates such as Euribor and EONIA. In 2016, Brussels imposed fines on several banks, including a 337.2 million euro (about $388.5 million) penalty on JPMorgan.

Determining those fines proved unusually complicated. Unlike most industries, derivatives trading does not generate straightforward “sales” figures. Instead, the commission relied on a proxy based on the cash flows generated by each bank’s derivatives portfolio with counterparties in the European Economic Area and applied a steep discount factor of 98.849% to reflect the structure of the market.

That discount factor later became the central battleground in court. Several banks challenged the methodology, and the General Court agreed the commission had not sufficiently explained how it arrived at the figure. Yet the judges ended up imposing essentially the same fine.

The dispute is not limited to JPMorgan. A same-day opinion in an appeal brought by French bank Crédit Agricole reached much the same procedural bottom line but suggested the lender may also have a stronger stand-alone challenge to the fine itself.

Thibault Schrepel, associate professor of law and technology at Vrije Universiteit Amsterdam, said the opinion points to a broader weakness in how EU cartel fines are reviewed in court.

Looking at hundreds of rulings reviewing European Commission competition decisions, Schrepel said cases rarely collapse because regulators pursued an unusual theory of harm. Instead, the recurring problem has been explaining how penalties were calculated.

For Schrepel, that reflects a structural tension between economic enforcement and legal review. Complex financial models used to calculate fines are often difficult for courts to independently reconstruct.

Schrepel said the advocate general was likely correct on the procedural point that the commission can amend a decision during litigation, but warned that sending the case back may not resolve the deeper issue. “The EIRD litigation is entering its second decade. That is what the gap between legal review and quantitative enforcement actually costs.”

The European Commission and JPMorgan both declined to comment on the advocate general’s opinion.

The derivatives cartel fight has already dragged on for nearly a decade, and the court’s ruling could determine whether it keeps going. The judges are not bound by the advocate general’s opinion but often follow that advice. If they do here, the case would head back to the General Court, reopening a dispute that has already forced banks and regulators to spend years battling over how cartel fines should be calculated in complex financial markets.

Courthouse News reporter Eunseo Hong is based in the Netherlands.