Goldman Sachs Group Inc., Citigroup Inc. and 10 other banks have restrained market competition for credit default swaps in violation of U.S. antitrust law, an Ohio union pension plan contends in a federal court complaint.
“The CDS market has been starkly divided between those who control and distort the market and those who, in order to participate in the market, must abide their distortions,” according to papers filed May 3 in Chicago.
Sheet Metal Workers Local No. 33 Cleveland District Pension Plan, based in Parma, Ohio, seeks damages for what it says are “substantial injuries” it and people and entities on the “buy side” sustained in buying or selling CDS contracts to the “sell side” dealer-defendants between 2008 and 2011.
Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. The contracts, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decline as investor confidence improves and rise as it deteriorates.
Bloomberg LP, the parent of Bloomberg News, has filed an application at the Commodity Futures Trading Commission to become a swap data repository.
Other banks named as defendants in the case include Bank of America Corp., Deutsche Bank AG, and UBS AG.
The union pension plan seeks a jury trial and class-action status on behalf of other dissatisfied swaps investors “to recover damages for the substantial injuries” sustained, and prevent restraint of competition in the swaps market by “the proverbial too-big-to-fail banks,” court papers show.
Spokesmen for New York-based Goldman Sachs and Citigroup, Charlotte, North Carolina-based Bank of America and Frankfurt-based Deutsche Bank declined to comment on the complaint.
“We believe that the allegations against us are without merit and that ISDA acted properly at all times,” said Lauren Dobbs, a spokeswoman in New York for the International Swaps & Derivatives Association, said in an e-mailed statement.
The European Union has been investigating potentially anticompetitive activity relating to the $24.3 trillion market since 2011.
That probe expanded in March to include whether the ISDA, a trade association, has been involved in an effort to delay or prevent exchanges from entering the credit derivatives business.
In 2011, the EU began investigating whether Deutsche Bank, Citigroup and 14 other lenders had engaged in collusion by giving pricing information to Markit Group Ltd., a London-based financial information business owned in part by 16 banks.
All of the banks sued by the sheet metal workers’ pension plan are part owners in Markit Group, which is named with ISDA as a co-defendant.
“Markit has not been served with the complaint filed by this class action law firm but we have seen a copy of it,” said Alex Paidas, a spokesman for Markit. “The allegations are wholly without merit and we will defend ourselves vigorously.”
While not a party to the case, ICE Clear Credit, an IntercontinentalExchange Inc. unit that clears swaps trades, is identified in the complaint as a co-conspirator.
Chicago-based CME Group Inc. is seeking regulator approval to have swaps information routed to its own database. The sheet metal lawsuit defendants allegedly blocked CME’s efforts to obtain ISDA and Markit permissions necessary to enter the market, according to their complaint.
The pension plan is seeking unspecified “treble damages” for claims including conspiracy to “fix” swap spreads and monopolize the market, and for illegal “group boycott of potential market entrants,” according to court papers.
The case is Sheet Metal Workers Local No. 33 Cleveland District Pension Plan v. Bank of America Corp., 13-cv-03357, U.S. District Court, Northern District of Illinois (Chicago).