Cook County Record

Tuesday, April 7, 2020

Interest rate swaps class action vs big banks could draw in 'tens of thousands' of public bodies with billions at stake

By Scott Holland | Feb 20, 2016


Two Mississippi and Alabama hospitals and the county that includes the cities of Biloxi and Gulfport, Miss., have squared off in Chicago federal court with many of the country’s biggest financial institutions over so-called interest rate swaps — an issue now impacting governments and other public bodies throughout the country, including Chicago’s public schools system.

In the class action complaint filed Feb. 18, Harrison County, Miss., the Magnolia Regional Health Center, of Corinth, Miss., and Cullman Regional Medical Center, of Cullman, Ala., targeted 33 defendant financial institutions and subsidiaries involved with “interest rate swaps transactions” dating as far back as 2007.

The complaint alleged the transactions, under which one party agrees to pay a fixed interest rate for a fixed amount of principal and time in exchange for a “floating, market-based rate” from the lender, violate federal antitrust law.

“Buy-side customers” - institutional investors such as hospitals, governments, pension funds and corporations - can “use these instruments … to exchange their floating rate obligations or risks for fixed market rates, or vice versa,” the complaint said.

Per the complaint, the global market for such deals has grown to include hundreds of trillions of dollars in principal and more than $1 trillion traded daily.

The complaint detailed how the practice evolved with technology, with electronic transactions enabling larger profits for banks and other lenders, and accused the defendants of using their collective market power, boycotts and collusion “to exclude rivals and new entrants from the marketplace.”

In addition to stifling competition, the strategy put “buy side” customers — the putative class members — at a significant disadvantage, with the market manipulation resulting in the plaintiff class spending “billions of dollars” above what might have been expected had there been equivalent access to electronic trading platforms.

The named bank defendants are Bank of America, Barclays, BNPP, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, RBS and UBS, along with 23 subsidiaries. The Mississippi and Alabama entities request class certification, a jury trial, damages and reimbursement of legal fees and money lost on account of the alleged acts.

While the plaintiffs said they don’t know how large the class actually is, they said it could potentially involve tens of thousands of similar organizations that have engaged in interest rate swap transactions with the defendant banks since 2007.

Attorneys for the plaintiffs include W. Percy Badham III and Sam David Knight, of Badham & Buck, of Birmingham, Ala.; Michael J. Boni and Joshua D Snyder, of Boni & Zack, of Bala Cynywd, Pa.; Michael W. Fuller and S. Wayne Fuller, of Fuller, Willingham, Fuller & Carter, of Cullman, Ala.; Jeffrey S. Istvan, Matthew Duncan and Adam J. Pessin, of Fine, Kaplan and Black, of Philadelphia; Tim C. Holleman, of Boyce Holleman & Associates, of Gulfport, Miss.; and Jonathan Compretta, of Mike Moore Law Firm, of Flowood, Miss.

This lawsuit arrived about two weeks after the Chicago Teachers Union closed a $726,000 Bank of America account because of the rate swaps deals the bank has with Chicago Public Schools. In statements made Feb. 3, union representatives said BOA earned $77 million in profits from its contract with the school system.

“What we hope is that our withdrawal of funds will spark people all over this city, all over this state and all over the country to start withdrawing funds from Bank of America until they give back some of the ill-gotten gains they’ve made off the backs of our students,” CTU Vice President Jesse Sharkey said in a report published online by Progress Illinois.

Want to get notified whenever we write about any of these organizations ?

Sign-up Next time we write about any of these organizations, we'll email you a link to the story. You may edit your settings or unsubscribe at any time.

Organizations in this Story

Goldman, Sachs & CoUBSDeutsche BankChicago Teachers UnionBadham & Buck LLCBoni & Zack LLCFuller, Willingham, Fuller & Carter LLCFine Kaplan & Black RPCBoyce Holleman & AssociatesMike Moore Law FirmBank of AmericaJ.P. Morgan Chase