Trader Talk in Currency-Rigging Suit Draws Scrutiny From U.S.by and
Investor suit against 16 banks reveals new details of conduct
Prosecutors censor online chats that could harm criminal case
Investors’ pursuit of the world’s biggest banks in a civil lawsuit over currency trading reveals details about trader conduct that has also drawn the scrutiny of U.S. prosecutors, according to documents and people with knowledge of the matter.
Portions of the complaint that had been blacked out at the request of federal prosecutors were made public late last year. In the newly released material, investors claim that traders for 16 banks -- including the largest market participant still under U.S. scrutiny, Deutsche Bank AG -- conspired to manipulate exchange rates in more than a dozen online chatrooms involving at least 15 currencies. The chat messages themselves are still under wraps.
The secrecy was requested by the Justice Department, which has said little about its investigation since wringing guilty pleas and almost $3 billion in penalties from five banks in May. Prosecutors are concerned that disclosure of the chats could compromise the government’s own investigation of firms and individuals, according to a letter filed in the case by lawyers for the plaintiffs explaining the Justice Department’s reasons for the redactions.
Prosecutors are operating under a mandate to build cases against individuals in corporate investigations rather than only bringing charges against companies, according to a memo circulated by the Justice Department’s No. 2 official in September.
All 16 banks have denied wrongdoing in the civil action, a group suit filed in Manhattan in November 2013 by investors including pension funds for Oklahoma firefighters, Boston public employees and others.
Nine banks have proposed payments of about $2 billion between them to settle with investors. The remaining seven countered in court filings that that there isn’t "a single specific factual allegation" that they conspired to manipulate benchmark currency rates. The banks continuing to fight the civil case are Deutsche Bank, Credit Suisse Group AG, Bank of Tokyo-Mitsubishi UFJ, Morgan Stanley, Royal Bank of Canada, Societe Generale SA and Standard Chartered Plc.
It’s “implausible that traders working for different banks and scattered all over the world joined together in a single conspiracy targeting spot and benchmark rates on dozens of currency pairs,” according to the banks, which are awaiting rulings on motions to dismiss the suit.
Although the Justice Department has said its investigation is continuing, the civil suit provides the first clues about what investigators may focus on as they decide whether to charge additional banks and any traders in the two-year probe.
The Justice Department reviewed chat transcripts related to the banks that pleaded guilty in May and has the power to subpoena similar documents from the other banks. It has reviewed transcripts of the chats that are cited in the civil suit, according to two people with knowledge of the criminal investigation. The Justice Department declined to comment.
Deutsche Bank, Goldman Sachs Group Inc., Morgan Stanley and HSBC Holdings Plc have disclosed in regulatory filings that they’re being investigated for currency-market trades. Banks with smaller shares of the market may face only regulatory penalties, if any enforcement action at all, said the people familiar with the matter.
HSBC said it’s cooperating with the Justice Department. Bank of Tokyo-Mitsubishi, Royal Bank of Canada and Credit Suisse didn’t return requests for comments. The other banks declined to comment.
For the five banks that pleaded guilty last year in connection with the currency-trading probe -- Citigroup Inc., JPMorgan Chase & Co., Barclays Plc, Royal Bank of Scotland Group Plc, and UBS Group AG -- the criminal misconduct cited in plea documents was limited to traders’ discussions about the dollar and the euro in two chat rooms they used, The Cartel and The Mafia.
The newly unredacted information in the class action describes several additional chatrooms including Essex Express, The Swiss Mafia, Barrier Killers and Sllllaaaaggggsssss2. In all, 28 currencies were discussed, ranging from the Thai baht to the Polish zloty, according to the new details.
Investigators are also bringing some additional conduct into question: They are asking whether traders from competing banks conspired to fix prices quoted to clients for buying and selling currencies, known as a bid-ask spread, according to one of the people familiar with the matter.
The banks that are fighting the civil case denied in court filings that the chats show any agreement to set the spreads quoted to customers, “much less a global conspiracy involving the spreads quoted to customers all day on every currency pair over the course of more than a decade.”
“Plaintiffs string together several disconnected chats involving discussion of bid/ask spreads in a futile effort to bolster their claim of a global conspiracy,” they said in the filings. “These chats about spreads in no way demonstrate any agreement.”
The nine banks that have offered to settle the civil suit are Bank of America Corp., BNP Paribas SA, Goldman Sachs, HSBC, Citigroup, JPMorgan, Barclays, RBS and UBS. As part of the proposed civil settlement, those banks agreed to turn over chats and other information to the plaintiffs.
The plaintiffs in the class action say traders at Deutsche Bank, the second-biggest foreign-exchange dealer, participated in chat rooms discussing 22 currencies.
In one chat room, which was open from early 2008 until late 2012, Deutsche Bank traders discussed the Canadian dollar and New Zealand dollar with traders from six other banks, according to the civil suit. The Justice Department is requiring details of those exchanges to remain confidential, according to a Jan. 4 filing by plaintiffs explaining the government’s continued request for redactions.
A Deutsche Bank spokeswoman declined to comment. The bank said in a Nov. 30 filing that the communications don’t reflect “any agreement to do anything, let alone an agreement to manipulate benchmark rates or widen spreads in restraint of trade.”
The chat rooms cited in the civil complaint involved traders from competing banks and were devoted to specific currency pairs -- for example, trading of the U.S. dollar and the Mexican peso, according to the documents, which don’t identify the traders who participated in the discussions. The traders set up chat rooms on several messaging platforms, including one hosted by Bloomberg LP, according to the complaint. Bloomberg LP is the parent of Bloomberg News.
In the Barrier Killers chatroom, traders talked about spreads involving the euro and the Polish zloty, according to the most recent complaint filed in the civil suit. Those traders worked for Bank of America, Credit Suisse, RBC and UBS. In that same chat room, traders from Bank of America, Credit Suisse and RBC discussed what spread to quote to a customer for the U.S. dollar-South African rand pair, the complaint said.
The Essex Express chat room focused on the yen, the euro and the U.S. dollar, according to the complaint, and included traders from UBS, Barclays, RBS and Bank of Tokyo-Mitsubishi. The Swiss Mafia brought together traders from Citigroup, Credit Suisse, UBS, and other banks who discussed euros, British pounds, Swiss francs and Swedish krona, according to the filings.