Federal Court Decision Allows ‘Smoking Gun’ Investors to Sue Banks for Fannie, Freddie Bond Rigging


Bonds can often play a major role when it comes to raising money. Government entities and corporations often issue bonds when they want to raise a certain amount of funding. When purchasing a bond, the issuer of the bond will receive a loan and agree to pay back the face value of that loan by a specific time. Unfortunately, however, bond rigging can become an issue when bond prices become fixed. Recently, a federal judge ruled investors can sue banks for such practices.

Recently in Manhattan, U.S. District Judge Jed Rakoff of the Southern District of New York held investors can pursue antitrust claims against Bank of America Corp, BNP Paribas SA, Deutsche Bank AG DBGKn.DE, Goldman Sachs Group Inc., and Morgan Stanley. Judge Rakoff cited a rare “smoking gun” in which investors would be able to sue the five banks for conspiring to rig prices on hundreds of billions of dollars of bonds issued by mortgage financiers Fannie Mae and Freddie Mac for over seven years.

Chat room transcripts between these banks’ traders illustrated “direct evidence of a conspiracy to fix prices,” which resulted in investors overpaying for newly issued bonds between January 2009 and January 2016.

Defendants underwrote $3.97 trillion of 77.2% of Fannie Mae and Freddie Mac bonds over the seven-year period. This resulted in the banks exploiting their dominance by overcharging in order to secure more profit for themselves.

The evidence collected included a chat from July 2012 where a Deutsche Bank trader told Bank of America, BNP Paribas, and Goldman traders that “anyone can hit any bit,” but it would be better that “we at least try to stay on the same page…less volatile.”

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