CHICAGO – Recently, the City of Philadelphia initiated a class action lawsuit in Illinois federal court against a number of world financial institutions, claimed they violated federal antitrust law in colluding to prevent the purchase and sale of interest rate swaps (IRS).

The lawsuit, filed May 23, claims Bank of America Corp, J.P. Morgan Chase & Co., Merrill Lynch, Goldman Sachs and a host of others cooperated to violate the Sherman Act and Clayton Act by blocking exchange-based purchase and sale of IRS through boycotts, threats of boycotts and other unlawful means.

An IRS is a key financial portfolio management device used by “corporations, hospitals, counties, municipalities, pension funds, and other types of institutional investors,” and the suit says they make up more than $1 trillion in daily financial trades.

Since an IRS exchange system currently isn’t in place, municipalities like the City of Philadelphia have to work out those rates with individual banks, who the lawsuit alleges control the lion’s share of IRS-related market activities.

The suit’s proposed class is any individual or entity who purchased an IRS from the defendants since Jan. 1, 2007, and the suit alleges the defendants collaborated on a number of occasions to prevent the establishment of platforms which would facilitate plans for exchange-based IRS purchases and sales.

“The modus operandi is clear. When the Bank Defendants’ OTC profits were threatened by exchange-style platforms – whether for CDS or IRS – the banks used their market power to work together to systematically crush these more efficient rivals,” the suit states.

According to the lawsuit, the presence of an exchange would immediately make the IRS market more competitive and pose a direct threat to the size of the financial institutions’ profits.

“Bloomberg reported in 2014 that the risk of the IRS business ‘stepping into the light’ would cost JP Morgan an estimated ‘$1 billion to $2 billion in revenue a year,” the suit reads.

The suit also explained the lawsuit’s filing in U.S. District Court for the Northern District of Illinois.

“The anti-competitive activities of defendants were directed towards this district and had substantial effect in this district and on its residents. Defendants regularly and intentionally conducted large portions of their business through lines of interstate commerce terminating in the city of Chicago, Illinois,” the suit read.

The suit seeks certification of the lawsuit’s class action status, the alleged unlawful conduct be decreed to have violated the Sherman Act; that the defendants be permanently enjoined from future alleged unlawful conduct; treble damages plus interest for the plaintiff; monetary damages for those plaintiffs under contract with the defendants or their affiliates; attorney’s fees and other relief as deemed appropriate, as well as a demand for a jury trial.

Recently, a multi-district litigation proceeding was established in U.S. District Court for the Southern District of New York, with Judge Paul A. Engelmayer presiding.

Philadelphia is represented by George A. Zelcs, Chad Emerson Bell, John Anton Libra and Randall P. Ewing, Jr. of Korein Tillery in Chicago and Kate Lv of Scott & Scott, in San Diego.

U.S. Judicial Panel on Multi-District Litigation case 2704

U.S. District Court for the Northern District of Illinois – Eastern Division case 1:16-cv-05409

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at [email protected]