- Suit follows probes of SSA bond market in U.S. and U.K.
- Traders are alleged to have colluded to fix bond prices
Bank of America Corp. and Deutsche Bank AG were among five banks sued over claims that traders conspired to manipulate trading agency bonds issued by government entities and institutions like the World Bank, harming investors who bought and sold the securities.
The suit by Boston Retirement System, a pension fund representing city workers, follows inquiries by U.S. and U.K. authorities into the market for the debt, known as supranational, sub-sovereign and agency bonds, or SSAs. The probes target alleged illegal collusion in international trading and follow billions of dollars in settlements over claims that banks rigged interest-rate benchmarks and currency markets.
"Defendants’ scheme was driven by greed and opportunity," the fund said in the complaint filed Wednesday in Manhattan federal court.
The lawsuit, which also names Credit Agricole SA, Credit Suisse Group AG and Nomura Holdings Inc. or their units as defendants, resembles claims made against banks over misconduct in currency markets. It accuses traders of colluding with one another to fix prices at which they bought and sold SSA bonds in the secondary market. It adds the threat of possible triple damages available under U.S. antitrust law for investors harmed by any illegal price-fixing.
The SSA market is generally defined to include international development organizations, government-sponsored entities and some sovereign debt. Depending on the securities that are included, the market could range from $9 trillion to $15 trillion, according to data compiled by Bloomberg. The bonds generally have high credit ratings because of explicit or implicit guarantees they carry.
Among those being probed by U.S. and U.K. authorities are London traders Hiren Gudka, formerly at Bank of America and Deutsche Bank, Amandeep Singh Manku, formerly of Credit Agricole, Bhardeep Singh Heer of Nomura and Shailen Pau, formerly of Credit Suisse, people familiar with the matter have said. All four are named as defendants in the complaint. They couldn’t immediately be reached for comment on the lawsuit and didn’t respond to earlier requests for comment on the U.S. and U.K. investigations.
Spokespersons for Credit Suisse, Deutsche Bank, Bank of America and Nomura declined to comment on the suit. Credit Agricole didn’t immediately respond to a message left after normal business hours.
The traders allegedly communicated with one another about their customers’ SSA bond purchase and sell orders, which allowed them to coordinate the bid and ask prices they offered clients, according to the complaint. The traders’ influence in the secondary market for SSA bonds gave their customers "little choice but to accept the artificially widened bid-ask spreads" on the transactions, according to the complaint.
The lawyers who filed the suit -- Labaton Sucharow LLP and Hausfeld LLP -- said in the complaint that the experts they hired to review market data found the bid-ask spreads for SSA bonds were significantly higher than those of similarly rated sovereign bonds -- seven basis points higher on some securities. The experts found "anomalous" intraday movement in the spreads that lawyers said "support the inference of conspiracy" among the banks, according to the complaint. Under competitive conditions, SSA bond traders wouldn’t be able to sustain bid-ask spreads over 1.5 basis points, according to the filing.
The case is Boston Retirement System v. Bank of America NA, 1:16-cv-03711, U.S. District Court, Southern District of New York (Manhattan).