The class action lawsuit filed in the US against several international banks, including the Mexican subsidiaries of BBVA and Santander, for price manipulation of Mexican bonds is being revived. The New York-based Second Circuit Court of Appeals reversed a district court's dismissal of the case and ordered a retrial. The justices believe that the ties these banks had with New York when they sold the bonds were sufficient for the court's jurisdiction, according to a Feb. 9 ruling that BBVA informed the U.S. regulator last Friday .
Mexico's Federal Commission for Economic Competition (Cofece) opened an antitrust investigation in 2017 into alleged monopolistic practices by certain financial institutions, including subsidiaries of Spanish corporations. The investigation resulted in fines of about 35 million pesos (about $2 million at current exchange rates) against Barclays Bank, Deutsche Bank, Santander, Banamex (Citi), Bank of America, BBVA Bancomer and JPMorgan. Cofece found evidence that the operators communicated via electronic messages and agreed to 142 illegal agreements to manipulate the prices of certain bonds.
Following that case, a group of American institutional investors, primarily pension funds, that had invested in the bonds filed a class action lawsuit in 2018 in the U.S. District Court for the Southern District of New York. They also alleged that the defendant banks and their subsidiaries engaged in collusion in the purchase and sale of Mexican government bonds.
In December 2019, following a decision by the judge in charge of the proceedings, the plaintiffs withdrew their lawsuits against the subsidiaries of BBVA México. In November 2020, the judge granted defendants' remaining motions to dismiss for lack of personal jurisdiction. The plaintiffs filed a motion to review that decision in May 2021, which the judge denied in March 2022. In August 2022, the district court decided to dismiss 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 reversed the district court's decisions and the case was remanded for a new trial, BBVA reported Friday in its annual report filed with the Commission on United States Securities and Exchange Commission was (SEC).
The defendants are Mexican subsidiaries of BBVA, Santander, HSBC, Barclays, Citi, Bank of America and Deutsche Bank. JPMorgan and Barclays Bank agreed with the plaintiffs to drop the proceedings. According to documents reflecting the agreements, JPMorgan agreed to pay $15 million and Barclays agreed to pay $5.7 million.
The companies did not sell the bonds directly to the plaintiffs, but rather through their New York brokerage subsidiaries. The banks argued that the New York court had no 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: “In view of the fact that the complaint plausibly alleges that the defendants, through their agents in New York, actively sold billions of dollars' worth of fixed-rate bonds, we hold us to this personal jurisdiction.” was duly asserted,” the ruling states.
Investors claim that banks conspired to fix prices at multiple points. They claim that they exchanged price information and placed fixed bids in auctions organized by the Mexican central bank Banxico for the first time. They also claim that they sold the bonds purchased at the auction to investors at artificially high prices. Finally, the lawsuit alleges that the defendants agreed to set the bid-ask spreads, i.e. the prices offered to customers, artificially wide.
According to the defendants, the operations were carried out through intermediaries, which isolated them. “But the lawsuit plausibly alleges that the brokers were mere middlemen. And when it comes to personal jurisdiction, we look beyond the form to get to the bottom of the matter,” the ruling says.
The judges rejected the banks' theory that jurisdiction could only relate to the place where the price was set: “That makes little sense.” Suppose the defendants opened a sales office in New York with their own employees and then sold the bonds from this office to U.S. investors at prices set in Mexico. It is difficult to argue that the defendant's contacts in New York were not sufficiently related to price fixing to confer jurisdiction in New York. Since the actions of the brokers here are attributable to the defendants, the distribution of the sales cannot change this result, according to the judgment.
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