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In re Commodity Exchange, Inc., Gold Futures and Options Trading Litigation

United States District Court, S.D. New York

July 25, 2018




         Plaintiffs in these consolidated cases allege a conspiracy to fix the price of physical gold and gold-denominated financial instruments from 2004 to 2012. Until November 2014, the price of physical gold was set twice daily through a private auction involving some of the largest bullion banks in London. Plaintiffs allege that the afternoon “Gold Fixing”-also known as the “PM Fixing”-was a cover for a price-fixing conspiracy among the entity charged with operating the Gold Fixing, defendant London Gold Market Fixing Ltd. (“LGMF”), and the participant banks: The Bank of Nova Scotia (“BNS”), Barclays Bank plc (“Barclays”), Deutsche Bank AG (“DB”), HSBC Bank plc (“HSBC”), and Société Générale SA (“SocGen”) (collectively, the “Fixing Banks”).[1] Plaintiffs have also named as a defendant UBS AG and its affiliates (together “UBS”). Although UBS was not a member of the Gold Fixing at any point during the alleged class period, Plaintiffs contend UBS conspired with the Fixing Banks to suppress the price of gold as determined by the PM Fixing.

         Plaintiffs are individuals and entities that sold physical gold, gold futures traded on the Commodity Exchange, Inc. (“COMEX”) market, shares in gold exchange-traded funds (“ETFs”), [2] or options on gold ETFs during the Class Period. Seeking to recover alleged losses suffered as a result of Defendants' alleged manipulation and suppression of the price of gold through the gold “fixing” process, Plaintiffs bring putative class action claims for (1) unlawful restraint of trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1 et seq.; (2) market manipulation in violation of the Commodity Exchange Act (“CEA”), 7 U.S.C. § 1 et seq. and CFTC Rule 180.2; (3) employment of a manipulative or deceptive device and false reporting in violation of the CEA, 7 U.S.C. § 1 et seq. and CFTC Rule 180.1; (4) principal-agent liability under the CEA, 7 U.S.C. § 1 et seq.; (5) aiding and abetting manipulation in violation of the CEA, 7 U.S.C. § 1 et seq.; and (6) unjust enrichment.

         Before the Court is UBS's motion to dismiss the Third Amended Complaint (Dkt. 266) (the “TAC”). In brief, UBS contends that its participation in a scheme to suppress the PM Fixing is implausible. According to UBS, the Fixing Banks, with their ready-made forum for collusion and substantial market power, had no reason to involve UBS in their alleged conspiracy. UBS also moves to dismiss for lack of personal jurisdiction over a Swiss entity, UBS AG. For the reasons that follow, the Court agrees that Plaintiffs' allegations against UBS are implausible. The motion to dismiss is granted.


         The Court assumes familiarity with the prior proceedings in this case and the Court's prior opinion in In re Commodity Exch., Inc., Gold Futures and Options Trading Litig., 213 F.Supp.3d 631 (S.D.N.Y. 2016) (“Gold I”) and the Court's memorandum order granting leave to amend, Dkt. 258 (“Gold II”). In recent years, the Gold Fix auction (which originated in 1919) has been conducted during a conference call among representatives of the five Fixing Banks. TAC ¶¶ 87-92. No. third parties participated in the call, making it an almost perfect forum for collusion among competitors. The market-clearing price in the auction (the “Fix Price”) was published as a benchmark price for physical gold. TAC ¶¶ 83-84. Because of a near-perfect correlation between prices for physical gold and gold derivatives, Plaintiffs allege that the Fix Price also effectively set the market price for gold futures, options, and forwards. TAC ¶¶ 112-22.

         In support of their claims, Plaintiffs allege that there has been a persistent downward bias in gold prices immediately before and during the PM Fixing call. TAC ¶¶ 9, 27. From 2004 through 2012 (Plaintiffs' proposed class period), the spot price of gold decreased during the PM Fixing on between 60% and 80% of trading days, TAC ¶¶ 27, 123-25, even though, it is alleged, an efficient market would be equally likely to move upwards or downwards on a given day. TAC ¶¶ 128-29. The PM Fixing also registered as one of the most volatile periods in the trading day, TAC ¶¶ 145, 156-60, a phenomenon not seen around the morning or “AM” fixing, TAC ¶ 153. Plaintiffs' analysis further shows that the downward movement in the price of physical gold consistently began in the minutes before the PM Fixing call began, evidence, according to Plaintiffs, of coordinated trading based on foreknowledge of the Fix Price that would emerge from the auction. TAC ¶¶ 125, 145.

         Plaintiffs also identified alleged patterns in the Defendants' price quotes, which, Plaintiffs contend, link them to anomalous pricing behavior observed around the PM Fixing. According to Plaintiffs, Defendants consistently quoted similar (or “bunched”), below market prices around the PM Fixing, a trend that was more pronounced on so-called “down days, ” i.e., on days when the Fix Price was lower than the spot price of gold before the Fix Price was announced. TAC ¶¶ 209, 257-60, 262-65. On certain days identified by Plaintiffs, Defendants quoted prices that appeared to either cause or anticipate downward movement in the PM Fixing. TAC ¶¶ 268-74 & App'x. I. Plaintiffs also allege that Defendants employed manipulative trading tactics, like “spoofing, ” “wash sales, ” and “front-running” client orders, in order to further manipulate the price of physical gold and gold-denominated assets before and during the PM Fixing. TAC ¶ 10 & n.4. Notwithstanding the fact that UBS was not a member of the fixing panel at any point during the class period, Plaintiffs contend that UBS facilitated the conspiracy by using its large trading position to move the market in tandem with suppression of the Fix Price. See TAC ¶ 15 (“A single actor could not and would not have attempted to move the market so consistently. There would not have been enough ‘ammo' to do so, and the risk (and cost) would have been too high.”). Trading to create artificial downward momentum in the price of gold assisted the Fixing Banks by “altering the starting price, . . ., and giving cover to an auction-rate that would otherwise have stood out like a sore thumb.” TAC ¶ 10. Defendants supposedly benefited from this scheme by using their foreknowledge of the PM Fixing to make profitable trades in the physical gold and gold derivatives markets, trigger “stop-loss” orders, and time margin calls to accrue favorable cash flows. TAC ¶¶ 18, 237-39.

         In Gold I, the Court denied the Fixing Banks' motion to dismiss and granted UBS's motion to dismiss. See 213 F.Supp.3d at 642, 682. The Court concluded that Plaintiffs plausibly alleged, “albeit barely, ” a conspiracy among the Fixing Banks to suppress the PM Fix Price, Id. at 659-60, and that Plaintiffs had antitrust standing, Id. at 653, 656-57.[3] UBS, on the other hand, was not a member of the fixing panel during the class period, and Plaintiffs' statistical analyses did not connect UBS to suppression of the PM Fixing. UBS was included in the “bunching” analysis of spot market quotes described above, [4] Second Amended Complaint (“SAC”) (Dkt. 44) ¶¶ 202, 250-53, 255-58; see also SAC ¶¶ 261-67 & App'x I (“Defendants” quotes anticipated downward movement in prices around the PM Fixing, while other market participants quoted higher prices during the same period), but that analysis lumped the Defendants together, and it was unclear what the coefficient of variation was for UBS's quotes in particular. Likewise, while Plaintiffs claimed the Defendants were net short COMEX gold futures during the class period, SAC ¶¶ 171, 209-216, 228, 272-suggesting a motive to suppress gold prices-they did not specify which banks were short and by how much. See also SAC ¶¶ 201-08 (stating UBS had large positions in gold products during the class period, but with no indication whether UBS was long or short, or what percentage of those positions were held on behalf of clients). On certain days, identified in Appendix I to the SAC, UBS and one or more of the Fixing Banks were alleged to have offered spot quotes showing a reversion in prices at the time of the PM Fixing. See SAC 253-58 & App'x I. But it was impossible to tell whether these quotes reflect legal, parallel pricing behavior (e.g., matching a competitor) or something more nefarious. See Gold I, 213 F.Supp.3d at 660. As the Court has previously explained, “the data does not plausibly support an allegation that any particular bank was net short at any particular time.” Gold I, 213 F.Supp.3d at 663. The charts in Appendix I were based on “all available data, ” meaning Plaintiffs cannot say how the quotes offered by UBS during these windows compare to the universe of market participants.[5] See SAC ¶¶ 260, 262. In short, the Court wrote, Plaintiffs allegations that UBS quoted prices that were “lower than market averages” were “simply inadequate to create a plausible inference of conspiracy.” Gold I, 213 F.Supp.3d at 663.

         Plaintiffs filed the TAC to provide additional support for their claims against UBS. The centerpiece of the TAC are fragments of electronic chat messages, sixteen in all, between a precious metals trader at UBS and a precious metals trader at Deutsche Bank.[6] TAC ¶¶ 358-73. Plaintiffs contend that these chat messages are evidence that “UBS understood, participated in and benefited from [] collusive activities” in the gold markets. TAC ¶ 11. At a minimum, according to Plaintiffs, they show a high degree of interfirm communications and are therefore circumstantial evidence of an antitrust conspiracy. See Pls.' Opp'n (Dkt. 301) at 13-14. The chats describe brazen efforts to manipulate the gold markets through coordinated trading. TAC ¶¶ 364 (“[UBS]: okay when gold pops 1430 . . . we whack it . . . u sell your 50k . . . I sell my 20k . . . then we double that up and produce our on [sic] liquidity too . . . that should be enough to cap it on a holiday”), 366 (“[UBS] im gonna sell more silver and gold [Deutsche Bank]: k . . . i really think we are on the right side today, being short”), 372 (“[UBS]: im buying gold [Deutsche Bank]: seems like we buy . . . [UBS]: [we should] try to stay together today”); see also TAC ¶¶ 367, 369. UBS and Deutsche Bank also shared proprietary pricing information and coordinated quotes to customers.[7] See TAC ¶¶ 368 (UBS and Deutsche Bank traders discussed “giv[ing] each other a heads up” when “boc, ” presumably a reference to the Bank of China, was buying gold), 369 (“[UBS]: how much in offers u got from 68-69 in gold? [Deutsche Bank]: 10k 69 . . . 5k 68 [UBS]: just match me up 5k at 68 pls [Deutsche Bank] done”); see also TAC ¶¶ 370-71.

         Three of the chats reference the Gold Fixing, but none references an agreement among UBS and the Fixing Banks to suppress gold prices.[8] In March 2011, the Deutsche Bank trader told his counterpart at UBS that he would be participating in “the fix” when he was “there.” TAC ¶ 360. The UBS trader responded that it was “not rocket science” but cautioned his friend that he had “seen fixings go real wrong before . . . like -300k pnl [personal net loss].” TAC ¶ 360 The Deutsche Bank trader asked, “wrong side?” to which the UBS trader responded “nope basically bad timing . . . push too early . . . run out of ammo at the end.” TAC ¶ 360 One month later, the Deutsche Bank trader said he had been “prop [proprietary] trading on the fix” and characterized “the fix, ” somewhat nonchalantly, as a “free option.” TAC ¶ 361. In response, the UBS trader recounted the same story. Lastly, on May 11, 2011, the UBS trader told the trader at Deutsche Bank that “we smashed it [the fix] good.” TAC ¶ 363.

         The TAC also includes two new statistical analyses, which Plaintiffs contend support an inference UBS participated in a scheme to suppress the PM Fixing. According to Plaintiffs, UBS, on average, quoted below-market prices beginning in the ten minutes before the PM Fixing and continued to quote below market prices until immediately before the London market closed. See TAC ¶¶ 355-56. Plaintiffs also allege that “UBS's prices at the time of the PM Fixing fell in the bottom 5% and 10% for prices of the day far more often than they fell into the top 5% and 10%.” TAC ¶ 357. This is evidence, according to Plaintiffs, that UBS's prices “were not in line with normal market expectations . . . .” TAC ¶ 357.

         UBS has moved to dismiss the TAC on the grounds that the chat messages do not alter this Court's earlier conclusion that Plaintiffs have not plausibly alleged UBS was involved in a conspiracy with the Fixing Banks to suppress the Fix Price. As UBS points out, the Gold Fixing was a self-contained process, involving only the Fixing Banks. Because the Fixing Banks had complete control over the process, UBS's involvement was not necessary to the scheme and would not have been to the conspirators' benefit. UBS Mem. (Dkt. 298) at 12-13. The chat messages, UBS contends, are perhaps evidence of order manipulation or collusive trading-what UBS calls euphemistically “‘episodic' coordination, ” UBS Mem. at 2-but not of an agreement to suppress the fix: time-stamps on the chats, annoyingly omitted by Plaintiffs, show that the communications occurred primarily in the middle of the night London time and never close in time to the PM Fixing. See UBS Mem. at 16-17; see also Declaration of Eric J. Stock (“Stock Declr.”) (Dkt. 299) Ex. 1 (chronological chart of chat messages cited in the TAC including time stamps and locations for the participants). Moreover, none of the chats references an agreement to manipulate the PM Fixing; the only references to a fixing describe incidents during which UBS admitted to “smashing” an unspecified fix and the story described above in which the UBS trader recounted (twice) a failed attempt to “push” an unspecified fix by an unspecified trader at an unidentified bank.[9] See UBS Mem. at 17-18 (citing TAC ¶¶ 360-61). Hedging its bet, UBS also moved to dismiss on the grounds that Plaintiffs lack antitrust standing because UBS was not the proximate cause of their injury and that the Court lacks personal jurisdiction as to the Swiss entity UBS AG because the TAC does not allege any suit-related, in-forum conduct by UBS AG in particular.[10]


         In evaluating a motion to dismiss, the Court must “accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff.” Meyer v. JinkoSolar Holdings Co., 761 F.3d 245, 249 (2d Cir. 2014) (quoting N.J. Carpenters Health Fund v. Royal Bank of Scotland Grp., PLC, 709 F.3d 109, 119 (2d Cir. 2013)) (alterations omitted). Nonetheless, in order to “survive a motion to dismiss, a complaint must contain sufficient factual matter . . . to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “Plausibility” is not certainty; Iqbal does not require the complaint to allege “facts which can have no conceivable other explanation, no matter how improbable that explanation may be.” Cohen v. S.A.C. Trading Corp., 711 F.3d 353, 360 (2d Cir. 2013). But “[f]actual allegations must be enough to raise a right to relief above the speculative level, ” Twombly, 550 U.S. at 555, and “[courts] ‘are not bound to accept as true a legal conclusion couched as a factual allegation, '” Brown v. Daikin Am. Inc., 756 F.3d 219, 225 (2d Cir. 2014) (quoting Twombly, 550 U.S. at 555) (other internal quotations marks and citations omitted).

         I. Sherman Act Claims[11]

         Horizontal price fixing is per se illegal. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223-24 (1940). Claims for bid rigging, on the other hand, typically involve competitors conspiring to raise prices for purchasers-often, but not always, government entities-who acquire products or services by soliciting competing bids. See, e.g., Gatt Commcn's, Inc. v. PMC Assocs., LLC, 711 F.3d 68, 72-74 (2d Cir. 2013); State of N.Y. v. Hendrickson Bros., 840 F.2d 1065, 1068-69 (2d Cir. 1988). With regard to unlawful restraints of trade, “[b]ecause § 1 of the Sherman Act does not prohibit [all] unreasonable restraints of trade . . . but only restraints effected by a contract, combination, or conspiracy, . . . [t]he crucial question is whether the challenged anticompetitive conduct stem[s] from independent decision or from an agreement, tacit or express.” Twombly, 550 U.S. at 553 (alterations in the original) (internal quotations and citations omitted). Regardless of whether Plaintiffs' allegations are evaluated in terms of price fixing, bid rigging or an unlawful restraint of trade, an unlawful agreement must be pleaded with respect to each antitrust claim brought under Section 1. See, e.g., In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007) (“To survive a motion to dismiss . . . a complaint must contain enough factual matter . . . to suggest that an agreement . . . was made.”) (internal citations and quotations omitted).

         To allege an unlawful agreement, Plaintiffs must allege either direct evidence (such as an express agreement among competitors to fix prices) or “circumstantial facts supporting the inference that a conspiracy existed.” Mayor & City Council of Baltimore v. Citigroup, Inc., 709 F.3d 129, 136 (2d Cir. 2013) (emphasis in original). Because conspiracies “nearly always must be proven through inferences that may fairly be drawn from the behavior of the alleged conspirators, ” the fact that Plaintiffs have no direct evidence does not mean there was no conspiracy. In re Foreign Exch. Benchmark Rates Antitrust Litig., 74 F.Supp.3d 581, 591 (S.D.N.Y. 2015) (“FOREX I”) (quoting Anderson News, L.L.C. v. Am. Media, Inc., 680 F.3d 162, 183 (2d Cir. 2012)). A plaintiff may plausibly allege an antitrust conspiracy by alleging facts that evidence “conscious parallelism, when such interdependent conduct is accompanied by circumstantial evidence and plus factors, ” Mayor & City Council of Balt., 709 F.3d at 136, such as “(1) ‘a common motive to conspire'; (2) ‘evidence that shows that the parallel acts were against the apparent individual economic self-interest of the alleged conspirators'; and (3) ‘evidence of a high level of interfirm communications.'” Gelboim v. Bank of Am. Corp., 823 F.3d 759, 781 (2d Cir. 2016) (quoting Mayor & City Council of Balt., 709 F.3d at 136) (internal quotation marks and additional citations omitted). At the pleading stage, Plaintiffs “need not show that [their] allegations suggesting an agreement are more likely than not true or that they rule out the possibility of independent action . . . .” Id. at 781 (quoting Anderson News, 680 F.3d at 184). Instead, “‘a well-pleaded complaint may proceed even if . . . actual proof of those facts is improbable, and . . . a recovery is very remote and unlikely' as long as the complaint presents a plausible interpretation of wrongdoing.” FOREX I, 74 F.Supp.3d at 591 (quoting Twombly, 550 U.S. at 556) (emphasis in original); see also Gelboim, 823 F.3d at 781 (“At the pleading stage, a complaint claiming conspiracy, to be plausible, must plead ‘enough factual matter (taken as true) to suggest that an agreement was made . . . .'” (quoting Anderson News, 680 F.3d at 184)).

         The TAC does not include any direct evidence that UBS was involved in a scheme to suppress the PM Fix Price. Three of the chat messages included in the TAC reference “fixes, ” but none describes a scheme among UBS and the Fixing Banks persistently to suppress the Fix Price. In messages on April 1, 2011, and May 1, 2011, the UBS trader described an occasion on which he observed a fixing “go real wrong” resulting in a personal net loss of “300k”. TAC ¶¶ 360, 361. The Deutsche Bank trader responded by asking if the trader-whose identity is unspecified and whose employer is open to speculation-had been on the “wrong side, ” to which the UBS trader responded “nope, ” he had “push[ed] too early” and “run out of ammo.” TAC ¶ 360. Even assuming the unidentified trader was employed by UBS, a single failed attempt at “pushing” the PM Fix is inconsistent with there being a conspiracy with the Fixing Banks to persistently suppress the PM Fix Price; given the Fixing Banks' complete control over the Fix Price, “pushing” the PM Fixing itself would be unnecessary. Moreover, the context of the discussion was to warn the Deutsche Bank trader that it is possible to lose money on the PM Fixing-it is “not always fun and g[a]mes.” TAC ¶ 360. That warning suggests that the UBS trader did not have inside knowledge that the Fix Price was being controlled by a conspiracy. The other references to the “fix” describe proprietary trading that has no obvious connection to a fix-suppression conspiracy, and a time UBS “smashed” an unspecified “fix.” TAC ¶¶ 361, 363. ...

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