Second Circuit Affirms Dismissal Of Conspiracy Claims Alleging Section One Violations In The Primary And Secondary Markets For U.S. Treasury Securities
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  • Second Circuit Affirms Dismissal Of Conspiracy Claims Alleging Section One Violations In The Primary And Secondary Markets For U.S. Treasury Securities


    On February 1, 2024, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a class action alleging bid-rigging and boycott conspiracies under Section 1 of the Sherman Act. The Second Circuit found that Plaintiffs—eighteen pension funds and other investors in Treasury securities—failed to plausibly allege that Defendants—“primary dealers” in the market for U.S. Treasury securities—engaged in conspiracies to rig Treasury auctions or that a subset of these defendants participated in a group boycott in the secondary Treasuries market, because Plaintiffs failed to demonstrate the existence of an agreement with regard to either allegation. City of Pontiac Police and Fire Retirement System v. BNP Paribas Securities Corp., No. 22-943, 2024 WL 368105 (2d Cir. Feb. 1, 2024).

    Plaintiffs alleged that defendants, who were among the roughly two dozen “primary dealers” in the multi-trillion dollar United States Treasury securities market, (1) conspired to rig more than 2,000 Treasury auctions over an eight-year period from 2007-2015, by sharing sensitive, proprietary information and placing collusive bids, and (2) that a subset of them conspired to boycott the emergence of direct trading between buy-side investors on the secondary market for Treasuries, all in violation of Section 1 of the Sherman Act. The complaint based these conclusions primarily on three categories of allegations:

    • Electronic chats between or among certain Defendants sharing information about the market;
    • Allegations from former employees about purported information sharing between traders employed by certain Defendants; and
    • Statistical analyses of aggregated data across all primary dealers that purported to show differences between prices of Treasury securities before and after press reports about a Department of Justice investigation into primary dealer activity.

    After plaintiffs’ original complaint was dismissed for failure to state a claim, plaintiffs filed an amended complaint attempting to provide additional purported factual detail to support their allegations. Again, the district court dismissed the complaint, this time with prejudice, for failure to plead facts sufficient to establish that defendants had reached any anticompetitive agreement. On appeal, the Second Circuit affirmed, holding that Plaintiffs had not plausibly pled a conspiracy as to either the primary Treasury auctions or alleged secondary-market boycott because they failed to demonstrate that defendants formed any anticompetitive agreement.

    As to the alleged conspiracy to rig Treasury auctions, the Court explained first that allegations based on an anonymous former executive’s industry observations did not constitute direct evidence of a conspiracy, because they did not allege facts to show the executive knew “whether a conspiracy existed” and did not “demonstrate that this executive relayed anything more than, at best, secondhand information or chatter.” Id. at *7. And while the executive allegedly made one specific statement that various defendants “‘routinely discussed [auction] yields and spreads to When Issued yields and bid quantities’ before Treasury auctions,” the Court found that the “allegation fails [because] it does not demonstrate the existence of an agreement to rig Treasury auctions, as required for Plaintiffs to state an antitrust claim.” Id. at *8. With respect to the handful of electronic chats offered by plaintiffs, the Court found that “not once” did they show an agreement “to coordinate” conduct. Id. at *9.

    Turning to plaintiffs’ data analyses, the court held that they were “fundamentally flawed because they were “not tailored to the banks they are suing,” and “obscure whether any of the [] Defendants--and if so, which--were driving the supposed market irregularities.” Id. The Court emphasized that “conspiracy is characterized by an agreement among its members; it cannot be alleged solely by reference to some (much) broader group of which they are a subset.” Id. at *10. The Court also noted that because the data relied on averages “over an excessively long time” they “flatten or hide trends that might tell a different story, and they can be finessed by shifting the time periods being averaged.” Id. Thus “[e]ven if the data reflected parallelism, they would do so only as to [all] dealers, as opposed to the [] Defendants in particular.” Id. at *11.

    The Court also rejected the alleged claim of boycott, refusing plaintiffs’ request “to connect dots far flung among isolated episodes involving different subsets of defendants over two decades.” Id. at *13. Many of the allegations, the Court found, “long predate and are not plausibly connected to allegations within the class period.” Moreover, much of the alleged parallel conduct by the boycott defendants was consistent with their independent self-interest, explaining that because defendants were “similarly situated participants in the same market,” their objections to new trading platforms and techniques “are ones they would naturally have in common, absent any agreement,” and that “[r]ational economic self-interest provides a ready explanation for the [] Defendants’ supposed failure to patronize or invest in enterprises that could disrupt their business model.” Id. at *13.

    The Second Circuit’s decision is important in emphasizing several key points. First, information sharing is not, in itself, a per se violation of Section 1 of the Sherman Act, and accordingly plaintiffs must provide sufficient alleged evidence of the existence of an agreement in restraint of trade. Second, “parallel conduct” supposedly in furtherance of an antitrust conspiracy “is generally insufficient” to state a claim and accordingly requires showing “plus factors” that provide a basis to infer that a conspiracy arose, “because parallel acts, even if they are consistent with conspiracy, may nevertheless be just as much in line with a wide swath of rational and competitive business strategy unilaterally prompted by common perceptions of the market--or the product of chance, coincidence, independent responses to common stimuli, or mere interdependence unaided by an advance understanding among the parties.” Here, the Second Circuit found that the alleged wrongful information-sharing “largely constitutes innocuous market shop-talk” and that the statistical analyses were insufficient because they were “not focused specifically on the dealer-defendants and rely on averages spread over an excessively long span of time.” As to the boycott claims, allegations based on “scattered, unrelated episodes involving different dealers over the course of roughly two decades” did “not plausibly rebut the available inference that the dealers’ conduct served their respective, individual, legitimate business interests to maintain a profitable and reliable market structure.”

    The Treasuries Securities case was one of several putative class actions alleging antitrust violations in the financial industry that have been brought in recent years using the same basic approach: generalized allegations of “information sharing” between or among competitors (of the sort that the Second Circuit described as “shop talk”) and conclusory statistical analyses purporting to show that prices for the products at issue differed in some way from prices during a purported “clean period”, which analyses that are typically abandoned if the complaint survives a motion to dismiss. The Second Circuit’s precedential opinion in Treasuries Securities is an emphatic holding that this is not enough to state a Sherman Act Section 1 claim.

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