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Murkier waters ahead for antitrust enforcement in financial services markets

Recent developments have sent mixed messages to financial institutions grappling with the evolving role of antitrust enforcement in policing financial services markets. On the one hand, the Department of Justice's resolution with The Royal Bank of Scotland (RBS) in the ongoing LIBOR probe further evidences the government's commitment to utilize the antitrust laws to police trader-based market manipulation conduct moving forward. On the other hand, a district court in New York dealt a significant blow to the use of the antitrust laws by private plaintiffs to profit from government enforcement efforts in the financial services space, finding that plaintiffs lacked standing to pursue piggy-back antitrust claims relating to the LIBOR rate-setting scheme.

RBS Deferred Prosecution Agreement

On February 5, 2013, the Antitrust Division and the Criminal Division of the Department of Justice announced a deferred prosecution agreement with RBS for its role in the worldwide conspiracy to manipulate LIBOR. In the agreement, RBS acknowledged its commission of wire fraud and antitrust violations. According to the facts stipulated by RBS, the antitrust count was premised entirely on trader-to-trader agreements to submit false rates for use in setting the LIBOR for certain currencies. This deferred prosecution agreement marks the first time the Antitrust Division has held a financial services firm criminally liable under the antitrust laws for a trader-based market manipulation scheme.

The decision to punish RBS through a deferred prosecution agreement, as opposed to a criminal plea agreement or non-prosecution agreement, is also a new development for the Antitrust Division and another sign of the Division's interest in adapting for long-term involvement in policing the financial services markets. Historically, the Antitrust Division has disfavored deferred prosecution agreements. The RBS agreement represents a divergence from the Antitrust Division's standard policy, but brings the Division more in line with other federal prosecuting agencies, which have been reluctant to require financial institutions to plead guilty to felony offenses in light of the potential collateral consequences those convictions may have on the financial markets.

LIBOR Private Actions

On March 29, 2013, a federal judge in New York dismissed private antitrust claims lodged by plaintiffs against financial institutions embroiled in the LIBOR matter. The private antitrust claims, which attempted to piggy-back on the government antitrust probe in the area, were filed by separate classes of plaintiffs back in 2011. The defendant banks moved to dismiss the private actions on the grounds that, inter alia, the plaintiffs lack standing to seek redress because any alleged injuries they suffered could not have resulted from anticompetitive conduct: that is, the defendants argued that the plaintiffs could not show the "antitrust injury" required to pursue a private antitrust claim.

Judge Naomi Reice Buchwald in the Southern District of New York agreed. She found that despite extensive allegations and descriptions of allegedly anticompetitive behavior in the plaintiffs' complaint, the LIBOR rate-setting process was not a competitive one and, therefore, any collusion designed to corrupt that process could not cause a competition injury necessary to sustain an antitrust claim. She explained that even if the plaintiffs could prove that the defendants engaged in unlawful price fixing by colluding to manipulate the LIBOR benchmark, they must also be able to prove they were injured by the anticompetitive scheme in order to have standing to bring their claims. Notably, Judge Buchwald was careful to distinguish her dismissal of the private actions from the ongoing government actions in this matter, concluding that the diverging results were notnecessarily incongruous because the government need not demonstrate antitrust injury to pursue an antitrust violation.

While these recent developments further muddy the waters around the evolving role of antitrust enforcement in the financial services markets, what they do make clear is the need for companies to get out ahead of potential antitrust risks by adding antitrust training and evaluation to existing compliance and audit functions. Early detection of potential antitrust violations will remain critically important to mitigating risks associated with these problems, as well as provide a company with significant strategic advantages in deciding how to best resolve these issues.

Legal and Regulatory Risk Note
United States