Rate Manipulation and Antitrust Liability

Economists Ink: A Brief Analysis of Policy and Litigation


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EI Vice President Stuart D. Gurrea has extensive experience in constructing and assessing economic models. His experience includes calculating damages and performing financial analyses.
EI Principal Jonathan A. Neuberger specializes in financial economics, valuation, and damages analysis in complex commercial litigation. He also has extensive experience in constructing and assessing economic models.

A court recently dismissed plaintiffs’ antitrust claims in Laydon v. Mizuho Bank Ltd., et al. (12-03419, U.S. District Court, Southern District of New York) (Laydon). Claims under the Commodities Exchange Act survived the motion to dismiss. Laydon involves the alleged manipulation of benchmark interest rates and the resulting distortion of the prices of futures contracts. The dismissal of the claim of a violation of Section 1 of the Sherman Act is potentially very significant because other recent instances of alleged manipulation of benchmark (or reference) rates include analogous claims of anticompetitive behavior.

Laydon concerned the alleged manipulation of the European Tokyo Interbank Offered Rate (Euroyen TIBOR), the London Interbank Offered Rate for the Japanese Yen (Yen LIBOR), and the prices of Euroyen TIBOR futures contracts. TIBOR and Yen-LIBOR rates were based on daily rate quotes provided by members of a bank association and were widely referenced by financial contracts. The complaint alleged that defendants made false rate submissions as part of a conspiracy that violated the Sherman Act.

The court found that plaintiffs failed to allege an antitrust conspiracy. The alleged misconduct involved cooperation in setting reference rates, a process the court concluded did not involve competition among contributor banks. The pooling of information to set a reference price was found to be a cooperative, not a competitive, effort. Plaintiffs had not made the required showing that price manipulation has anticompetitive effects, such as a reduction in competition among banks.

The court also found that plaintiffs failed to allege antitrust injury. Plaintiffs took short positions in derivative futures contracts referencing the Euroyen TIBOR. The court found that the losses plaintiffs claimed resulted from defendants’ alleged manipulation of TIBOR rates, not from a reduction in competition.

Moreover, the court found plaintiffs lacked antitrust standing because of the weak causal link between the alleged conspiracy and the alleged injury. Damage claims were based on the effect of reference prices on a contracted price. The court found the effect of the reference rates on the contracted prices to be remote and uncertain. That uncertainty would make it difficult to calculate damages, as it would be difficult to separate the influence of the alleged conduct from other effects.

The court’s decision highlights the challenges faced by plaintiffs alleging indirect harm from the manipulation of reference prices. Economic techniques can identify the link between the manipulation of reference rates and the alleged harm to support an antitrust claim and substantiate a damages claim.