Oklahoma Police Pension & Retirement System, Oklahoma City, filed a class-action lawsuit against Bank of America, Citigroup, J.P. Morgan Chase and other banks, alleging they manipulated the price of unsecured bonds issued by Fannie Mae and Freddie Mac.
The lawsuit, filed April 5 in the U.S. District Court in New York, alleges the banks were the largest players in the unsecured bond market from Jan. 1, 2009, to April 27, 2014, and as a result, "defendants had control over the (unsecured bond) supply ultimately available to investors" and "exploited that control to establish an opaque secondary market to facilitate collusion and reap supracompetitive profits at the expense of investors, including plaintiff and the class," the filing said.
Among the specific charges are that the banks agreed to charge artificially inflated prices for newly issued bonds during the week following that issuance, along with agreeing to raise the prices of older bonds in the days prior to each issuance to establish inflated benchmarks.
According to the filing, the lawsuit stems from a report in June 2018 from Bloomberg that the Justice Department had launched a criminal investigation into whether traders had inflated prices in the $550 billion secondary market for those bonds.
Ginger Sigler, executive director of the $2.4 billion pension fund, said in a telephone interview that the lawsuit is pending final approval by its board of trustees at its April 17 meeting.
Gregory Asciolla, partner at the law firm of Labaton Sucharow and the pension fund's attorney, said in an email that the allegations follow a pattern of "similar wrongdoing" by the defendants and cited the price-fixing scheme involving LIBOR, the predominant derivatives and fixed-income valuation benchmark, as an example.
"As we alleged," Mr. Asciolla said, "the methods employed to fix prices in those markets — communications between competing traders through telephone, electronic chatrooms, and instant messaging — are strikingly similar to those used by defendants' traders in this case."
Bank of America spokesman Andrew Aldridge and J.P. Morgan Chase spokeswoman Jessica Francisco declined to comment. A spokesman at Citigroup could not be immediately reached to provide comment.