Credit Suisse Securities (USA) LLC, Deutsche Bank AG, Morgan Stanley Capital Services LLC, and other international banks defeated an attempt to revive a lawsuit under federal benefits law that sought to hold them liable over the alleged manipulation of the foreign currency market.
The lawsuit, brought on behalf of numerous retirement plans and their participants, didn’t sufficiently allege that the banks exercised the type of control that would make them fiduciaries under the Employee Retirement Income Security Act, the U.S. Court of Appeals for the Second Circuit held July 10.
The decision is the latest installment in a series of lawsuits filed against major financial institutions, including BNP Paribas, Bank of America NA, Barclays PLC, andGoldman Sachs & Co. A number of these institutions reached a settlement in a related antitrust litigation.
In general, the retirement plans alleged the banks colluded to manipulate foreign currency transactions to retain higher profits in violation of ERISA. The foreign currency exchange (FX) market is the largest and most actively traded financial market in the world, with more than $5 trillion traded per day across the globe. The banks sued in this action hold a combined global market share of 84 percent, according to court documents.
ERISA plans often trade currency to settle their purchases and sales of foreign securities, or to repatriate dividends, interest, and redemptions that are paid in foreign currencies, rather than as a mode of investment, according to court documents.
With the ruling, the three-judge panel affirmed two district court decisions that dismissed the lawsuit. The district court held that the banks’ alleged fraudulent acts in conducting the FX transactions for the plans was insufficient to plead the banks’ ERISA fiduciary status. The district court also dismissed an alternative claim because the plans didn’t allege that the investment managers who arranged the transactions with the plans had knowledge of the banks’ alleged fraud.
The Second Circuit rejected the plans’ argument that the banks became fiduciaries because they exercised sufficient control over plan assets by allegedly manipulating benchmark rates to maximize the profit they reaped from each FX transaction.
A factor that weighs against the conclusion that the banks controlled the plans’ assets is that the transactions at issue were initiated not by the banks but at the discretion of the plans’ independent investment managers, the judges said.
Judge Reena Raggi issued the opinion, which was joined by Judges Dennis Jacobs andPierre N. Leval .
The case is Allen v. Credit Suisse Sec. (USA) LLC, 2d Cir., No. 16-3327, order affirming district court decision dismissing lawsuit 7/10/18.
(Updated with additional reporting.)