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, a union pension plan claimed 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 the complaint filed May 3 by a suburban Cleveland union pension plan at the U.S. courthouse 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.
Other banks named as defendants in the case include Bank of America Corp., Deutsche Bank AG, and UBS AG.
Spokesman for Goldman Sachs and Citigroup, both based in New York, and Charlotte, North Carolina-based Bank of America, declined to comment on the complaint. Duncan King, a New York- based spokesman for Frankfurt-based Deutsche Bank AG, also declined to comment.
Representatives of the International Swaps & Derivative Association, Steve Kennedy and Lauren Dobbs in New York, didn’t immediately respond to requests for comment.
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 investigation 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.
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.
Bloomberg LP, the parent of Bloomberg News, has filed an application at the Commodity Futures Trading Commission to become a swap data repository.
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).