The class action lawsuit filed in the United States against several international banks, including the Mexican subsidiaries of BBVA and Santander, for manipulating the price of Mexican bonds is revived. The Second Circuit Court of Appeals, based in New York, has annulled the dismissal of the case decided by a district court and orders that the proceedings be resumed. The judges consider that the links that these banks had with New York in the sale of the bonds are sufficient for the court to have jurisdiction, according to a sentence handed down on February 9, from which BBVA informed the US supervisor last Friday.
Mexico's Federal Economic Competition Commission (Cofece) launched an antitrust investigation in 2017 in relation to alleged monopolistic practices of certain financial institutions, including subsidiaries of Spanish groups. The investigation concluded with fines of about 35 million pesos (about two million dollars at the current exchange rate) to Barclays Bank, Deutsche Bank, Santander, Banamex (Citi), Bank of America, BBVA Bancomer and JPMorgan. Cofece found evidence that the operators communicated through electronic messages and agreed to 142 illegal agreements to manipulate the prices of certain bonds.
Following that case, a group of American institutional investors, mostly pension funds, who had invested in the bonds, filed a class-action lawsuit in 2018 in the United States District Court for the Southern District of New York. They also alleged that the defendant banks and their subsidiaries participated in collusion with respect to the purchase and sale of Mexican government bonds.
In December 2019, following a decision by the judge assigned to hear the procedure, the plaintiffs withdrew their lawsuits against the BBVA México subsidiaries. In November 2020, the judge granted the rest of the defendants' motion to dismiss for lack of personal jurisdiction. The plaintiffs filed a motion to reconsider that decision in May 2021, which the judge denied in March 2022. In August 2022, the district court ruled dismissing the lawsuit, but the plaintiffs appealed to the United States Court of Appeals. United for the Second Circuit. On February 9, 2024, the United States Court of Appeals for the Second Circuit overturned the decisions of the district court and the case was returned for a new proceeding, as reported by BBVA on Friday in the annual report filed with the United States Securities and Exchange Commission (the SEC).
The defendants are Mexican subsidiaries of BBVA, Santander, HSBC, Barclays, Citi, Bank of America and Deutsche Bank. JPMorgan and Barclays Bank reached an agreement with the plaintiffs to close the case. According to the documents that reflect the agreements, JPMorgan agreed to pay $15 million and Barclays, 5.7 million.
The entities did not sell the bonds directly to the plaintiffs, but through their New York intermediation subsidiaries. The banks argued that the New York court did not have jurisdiction because the alleged illegal price fixing took place in Mexico.
The district judge ruled in favor of the banks, but the court ruled against them: “Given that the complaint plausibly alleges that the defendants actively sold billions of dollars worth of fixed-price bonds through their agents in New York, we hold that personal jurisdiction was properly pleaded,” the ruling says.
Investors claim that banks conspired to fix prices at multiple points. They allege that they first shared price information and submitted fixed bids during auctions by Banxico, the Mexican central bank. They also claim that they sold the bonds they bought at the auction to investors at artificially high prices. Finally, the complaint alleges that the defendants agreed to set bid-ask spreads, the prices quoted to customers, artificially wide.
According to the defendants, the operations were carried out through intermediaries and that isolates them. “But the lawsuit plausibly alleges that the brokers were mere middlemen. And for personal jurisdiction, we look beyond the form to get to the bottom of it,” the ruling says.
The judges reject the banks' theory that jurisdiction can only correspond to where the price fixing occurred: “It doesn't make much sense. Suppose the defendants opened a sales office in New York, staffed by their own employees, and then sold the bonds from that office to U.S. investors at prices set in Mexico. It could hardly be argued that the defendants' contacts in New York would not be sufficiently related to price fixing to confer jurisdiction in New York. Since the acts of the brokers here can be attributed to the defendants, the split nature of the sales cannot change that result, argues the sentence.
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