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You are here Banking & Finance United States Banks settle for $2bn in forex rigging suit

Banks settle for $2bn in forex rigging suit

Nine of the world’s biggest banks agreed to a settlement yesterday with US investors tied to the currency-rigging scandal, in what could be the start of a new wave of throbbing litigation. Britain’s Barclays, HSBC and Royal Bank of Scotland joined Goldman Sachs Group, BNP Paribas SA, JP Morgan, Bank of America, UBS and Citigroup to pay more than $2bn to investors in a civil case in New York. The decision binds the latest payout by global lenders which have already been hit by billions of dollars in fines by the regulators over foreign exchange scandal, as disgruntled investors are going after the banks through the civil courts. The $2bn includes earlier settlements of $800 million with JP Morgan, Bank of America, UBS and Citigroup.

Legal firm Hausfeld said in a statement after the hearing that the banks had agreed to “co-operate with investors in their continuing litigation” against other 12 banks, including arms of Credit Suisse, Deutsche Bank Morgan Stanley, RBC Capital Markets, Societe Generale, Standard Chartered and Bank of Tokyo-Mitsubishi. Hausefeld, which represented investors, gave no indication how the sum would be divided between the banks though, and said that the agreements were preliminary and must still be approved by US District Judge Lorna Schofield. The firm added that there would also need to be “concerted action” in London to pursue compensation for investors outside the US.

Michael Hausfeld, head of the law firm, said it was the result of “lengthy, hard fought negotiations”. He added, “While the recoveries here are tremendous, they are just the beginning. Investors around the world should take note of the significant recoveries secured in the United States and recognize that these settlements cover a fraction of the world’s largest financial market. ”

Regulators in Britain, America and Switzerland have already summed up billions in fines and settlements over currency-fix scandal. In November 2014, the UK’s Financial Conduct Authority (FCA) slapped penalties totaling $1.7bn on five banks for failing to control unfair business practices in their G10 spot foreign exchange trading operations, specifically Citibank $358 million, HSBC $343 million, JP Morgan $352 million and UBS $371 million. The FCA found that traders shared confidential client information, including with workers at other banks which they used to manipulate the G10 foreign exchange currency rates and profit at the expense of the market.

On the same day, the United States Commodity Futures Trading Commission (CFTC) imposed fines of over $1.4bn on the same banks for attempted manipulation, and for aiding and abetting other banks’ attempts to tamper with global foreign exchange benchmark rates to benefit the positions of certain traders. The CFTC specifically fined $310 million each for Citibank and JP Morgan, another $290 million for RBS and UBS, and $275 million for HSBC. The CFTC found that the currency traders at the five banks communicated via secret online chat rooms, where they carefully organized themselves in different groups under nicknames such as ‘One Dream, One Team’, ‘The Three Musketeers’, the ‘A-Team’, and ‘The Bandits’ Club’, specifically focusing on one exclusive chatroom named ‘The Cartel’ or ‘The Mafia’.

In May 2015, five major banks pleaded guilty to felony charges by the US Department of Justice and agreed to pay over $5.7bn in penalties. Four of the banks including Goldman Sachs, HSBC, Barclays and BNP Paribas have reached separate agreements to settle a class-action lawsuit by US investors over alleged forex rigging in deals totaling nearly $1bn, while others had already been fined from the November 2014 investigation. UBS also pleaded guilty to committing wire fraud and agreed to pay $203 million in fines, while a sixth bank, Bank of America, not found guilty, agreed to a $204 million fine for unsafe practices in foreign markets.

This kind of manipulation undermines the ethical beliefs in the financial system, which has already been stained by a series of scandals. The settlement is just the latest in an ongoing saga that could drag on for years. The companies found guilty of manipulation seem to be the biggest losers here. $2bn is a lot of money, even for big banks like Barclays, HSBC and RBS. The banks may be out of danger, for now, but they’re clearly not off the watchdogs’ radars yet.