United States CFTC Fines Bank of America for ISDAfix Manipulation

What happened?

On 20 September 2018, the United States Commodity Futures Trading Commission (CFTC) ordered Bank of America, N.A (Bank of America) to pay a $30 million civil penalty to settle charges of manipulation of the ISDAfix interest rate benchmark. The CFTC’s order also requires Bank of America to continue to implement enhanced compliance mechanisms to prevent the recurrence of such manipulation. In the preceding month, the CFTC had taken similar enforcement actions against BNP Paribas and broker ICAP.

The background to the settlement is similar to that in other financial benchmark cases: the CFTC alleges that between 2007 and 2012, multiple traders and submitters at Bank of America’s swaps and options desks in the United States attempted to influence ISDAfix rates by (i) targeting their trading at or around the time of the fix (11:00 AM EST) or by (ii) making skewed submissions on what they considered the correct fix rate to be, in this case to swaps broker ICAP. The CFTC claims the traders engaged in this conduct, both individually and in coordination with colleagues, in order to benefit derivative trading positions of Bank of America valued against the benchmark.

This is the CFTC’s ninth enforcement action concerning ISDAfix manipulation since the probe was first disclosed in 2013. The CFTC has previously issued penalties in similar settlements against Barclays ($115 million) in 2015, Citi ($250 million) and Goldman Sachs ($120 million) in 2016, RBS ($85 million) in 2017, and Deutsche Bank ($70 million), JPMorgan ($65 million), BNP Paribas ($90 million) and ICAP ($50 million) earlier this year.

Bank of America had previously settled a parallel antitrust class action concerning ISDAfix manipulation (Alaska Electrical Pension Fund v Bank of America et al.) in May 2016. With additional banks and broker ICAP agreeing to settle the case earlier this year in June, total settlements now exceed $500 million.

Why does this matter?

Benchmark and other market manipulation remains an on-going and costly concern for financial institutions, both from a financial regulatory as well as antitrust perspective.

Enforcement in alleged manipulation cases from around and following the financial crisis continues apace. Aside from its five ISDAfix fines, the CFTC earlier this year in January also brought enforcement actions against Deutsche Bank ($30 million), UBS ($15 million) and HSBC ($1.6 million) involving allegations of ‘spoofing’ manipulation of precious metals futures. Meanwhile, in Europe, the Commission is moving forward its antitrust investigation into foreign exchange manipulation, having issued a charge sheet against Credit Suisse, which refused to settle the probe. Settlements and fines in that case are likely to add hundreds of millions of euros to financial institutions’ enforcement tab.

Furthermore, the additional settlements of the ISDAfix antitrust class action earlier this year act as a reminder that the spectre of antitrust liability looms where misconduct, notably manipulation, is found at multiple financial institutions. Unlike other government investigations into benchmark manipulation (e.g. Libor, FX), the CFTC’s enforcement actions in relation to ISDAfix did not include evidence of collusion between financial institutions. Nonetheless, plaintiffs were able to allege an antitrust conspiracy with sufficient specificity to survive a motion to dismiss in March 2016. The complaint sought to evidence collusion based on, inter alia, parallel conduct of the defendants as well as their history of collusion in relation to other benchmarks. Since then, all defendants have agreed to settle, emphasizing the costly nature of such antitrust claims even where antitrust misconduct is not the focus of related investigations by financial regulators.

What happens next?

The CFTC order against Bank of America requires the bank report to the CFTC on its remediation efforts within three months and again after one year.

Settlements of the last remaining defendants with the class action plaintiffs received preliminary approval on 28 June 2018. Class members now have the opportunity to opt out of the settlement prior to a fairness hearing and final approval later this year.

How can Cadwalader help?

Cadwalader’s antitrust team is one of only a few to focus on the financial services sector. We regularly represent companies before the EU, UK and US antitrust authorities, and are specialists in offering ‘end-to-end’ advice on antitrust investigations and related litigation in this sector, working closely with our financial regulatory and white collar colleagues. 

If you would like to discuss the issues arising in this alert, or how we can help you more generally, please contact Tom Bainbridge.



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