In In re Commodity Exchange, Inc., Gold Futures and Options Trading Litigation, the Hon. Valerie E. Caproni recently recognized that “in the era of supercomputers, big data, and sophisticated statistical analyses, it may be very difficult to hide illegal conduct that might otherwise escaped detection.”2016 WL 5794776, at *1 (S.D.N.Y. Oct. 3, 2016). This was in response to a class-action complaint filed by Quinn Emanuel with co-lead counsel Berger & Montague, which contained dozens of statistical analyses demonstrating that prices for gold were consistently behaving in suspicious ways at a particular time of day. It just so happened that, at the same time prices were acting suspiciously, a certain group of dealer banks were meeting, in secret, to purportedly perform an “auction” for gold in a process known as the “London Gold Fixing.” The Court held that plaintiffs had persuasively pled that defendants, large banks and the entity that nominally handled the “auction” process, had corrupted the “auction” process and instead were using it as a forum to fix prices in their collective interests instead.
The Court’s October 4, 2016 decision, spanning 73 pages, rejected many arguments the defense bar has often tried to use to combat the growing trend of data-driven complaints such as that in Gold. For instance, the Court rejected the attempt to have the factual allegations about the anomalous price movements discarded under a Daubert-like level of scrutiny. The mere fact that counsel consulted with “experts” to help them analyze the huge amount of data that exists in the world with regard to the “price of gold” did not transform allegations of fact (i.e., that prices moved in a certain way, only at a certain time) into allegations of opinion that should be discarded. The Court also upheld the complaint despite a slew of potentially inculpatory counter- explanations for the price movements, such as that they were the natural result of a surge in liquidity and hedging activity in advance of the important Fixing price announcement, or perhaps an unnatural result of non-conspiratorial efforts by each bank to get out ahead of their customers. Given the expanding role of data analyses in uncovering and pleading huge cases—from RMBS, to LIBOR, to ISDAfix, and now Gold and others—the holding is an important re- affirmance that the rules of pleading apply to all plaintiffs equally. Plaintiffs who serve the public interest by ferreting out wrongdoing through the close study of the mountains of data available in the world today are not to be given extra scrutiny merely because it took complex math to come up with the allegations in their complaints.
Another common theme from the defense bar in the recent string of complex, high-stakes financial cases is that the named plaintiffs do not have standing (antitrust or otherwise) to pursue the claims against their clients. In rejecting those arguments here, the Court reaffirmed that plaintiffs in these cases should also not face extra scrutiny in this area. Plaintiffs needed only allege that they were harmed when they sold gold in a market tainted by Defendants’ wrongdoing. It was not their burden to detail, at the pleading stage, exactly when the effects of Defendants’ wrongdoing “wore off,” versus when Plaintiffs’ sold their gold, versus whether they bought their gold at a bargain price to begin with due to prior acts of manipulation. That Plaintiffs alleged they were harmed directly because the Fixing process immediately impacted prices for gold throughout the market, moreover, mooted Defendants’ attempts to argue there was no “antitrust standing” merely because the Plaintiffs did not sell their gold to Defendants. This is another in a string of plaintiff-friendly rulings refusing to extend purported “privity” requirements referred to in chain-of-distribution cases (like Illinois Brick) to situations where it would make no sense to do so because the plaintiffs’ theory of harm has nothing to do with having manipulated prices “passed on” through a chain of distribution to itself. Indeed, Defendants’ arguments, if accepted, would have effectively placed all transactions done over an exchange outside the reach of the antitrust laws.
The complaint brings claims for violations of the Sherman Act, the Commodity Exchange Act, and unjust enrichment, on behalf of those who transacted in certain gold-related investments. Defendant Deutsche Bank settled prior to the Court’s opinion. Remaining Defendants are The Bank of Nova Scotia, Barclays, HSBC, Société Générale, UBS and The London Gold Market Fixing Limited.