Big banks sued for manipulating Treasury prices

A class-action lawsuit was filed Thursday in U.S. District Court accusing 22 financial institutions, which act as “primary dealers” of Treasury securities, of colluding to manipulate the price of government-issued bills, notes, and bonds.

The State-Boston Retirement System, a pension fund for the city’s public employees, brought the suit. Bank of America, Citigroup, Credit Suisse, Goldman Sachs, JPMorgan Chase, and Barclays are just some of the banks that were named in the court filings.

Plaintiffs claim that these primary dealers violated antitrust laws specifically by sharing “customer information . . . trading strategies” to artificially inflate securities prices during the pre-auction ‘when issued’ market period (when investors buy the debt). Then, to cover their pre-auction sales dealers buy the left over securities, the prices of which they are accused of manipulating to lower levels – resulting in higher yields or interest payments.

The scheme harmed private investors who paid too much for Treasuries, and it harmed municipalities and corporations because the rates they paid on their own debt were also inflated by the manipulation,” said Michael Stocker, an attorney representing the plaintiffs.

The suit seeks compensation for financial damages caused by the discrepancy in Treasury prices (known as ‘spread’ – resulting in larger profits) which dealers are accused of benefiting from for a six year period between 2007 and 2012.

All authorized dealers of Treasury debt (the only firms allowed to buy and sell directly from the Federal Reserve) were named as defendants in the case. No public comments from any of the 22 banks were made as of Thursday night.