MANHATTAN (CN) - Twelve of the world's biggest banks must face antitrust claims that they colluded to prevent an enterprise that would have brought transparency and competition to the credit default swap market, a federal judge ruled Thursday.
Los Angeles retirement fund led more than 10 plaintiffs in a class action accusing about a dozen major banks, the International Swaps and Derivatives Association (ISDA) and its data-service provider Markit of antitrust violations.
The banks include Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Royal Bank of Scotland and UBS.
Filed in July 2013, the lawsuit landed in Federal Court here weeks after the European Commission found that the banks colluded to bar exchanges from the risky credit default swap business.
In 2008, nonparties Citadel LLC and CME Group created a joint venture known as the Credit Market Derivatives Exchange (CMDE), a credit default swap clearinghouse and exchange designed to promote transparency and competition.
Through secret meetings, email exchanges and telephones, the banks conspired to shut it down before it hit the market, and they got Markit and the ISDA to withhold licensing information, according to the lawsuit.
The banks refused to deal with CMDE or similar enterprises in favor of the one clearinghouse it could control: ICE Clear Credit, the plaintiffs say.
In 2010, The New York Times blew the lid on the secret meetings, and the Department of Justice investigated. The European Commission's probe was announced the next year.
The banks, Markit and ISDA tried to dismiss the lawsuit as untimely, unsupported and lacking standing.
But U.S. District Judge Denise Cote allowed the claims to proceed, in a 49-page opinion.
The defendants denied that they were in cahoots, calling the behavior described in the complaint as the "independent, self-interested conduct in reaction to the global financial crisis."
A skeptical Cote wrote: "The financial crisis hardly explains the alleged secret meetings and coordinated actions. Nor does it explain why ISDA and Markit simultaneously reversed course."
The class action "plausibly alleges an antitrust conspiracy in violation of Section 1 of the Sherman Act," Cote concluded.
Cote dismissed a claim under Section 2 of the act, which prohibits attempting to form a monopoly.
"Here, the complaint does not allege that the aim of defendants' conspiracy was to form a single entity to possess monopoly power," she wrote.
The judge also limited damage claims to those after autumn 2008, when the anticompetitive behavior is alleged to have occurred.
Claims for violations of the Clayton Act and Dodd-Frank and a count of unjust enrichment were also allowed to proceed.
Lawyers for the plaintiffs and Markit did not immediately respond to a request for comment.