Citibank, N.A. and two affiliates settled two separate enforcement actions brought by the Commodity Futures Trading Commission related to the entities’ alleged attempted manipulation of benchmarks. In one action, solely against Citibank, the CFTC alleged that, beginning in January 2007 through January 2012, the bank attempted to manipulate the US Dollar International Swaps and Derivatives Association Fix (commonly known as “ISDAFIX”) when some of its traders, on multiple occasions, made submissions that were used to set the day’s ISDAFIX rates that were for the benefit of the bank’s existing derivatives trading positions, rather than reflecting the midpoint where it would itself offer and bid a relevant swap based on the relevant rates. In another action, against Citibank, Citibank Japan Ltd., and Citigroup Global Markets Japan Inc., the CFTC charged that, from spring 2008 through August 2010, the respondents similarly attempted to manipulate two other benchmarks – the London Interbank Offered Rate (commonly known as LIBOR) for Yen and the Euroyen Tokyo Interbank Offered Rate – to likewise benefit the respondents’ derivatives trading positions. The CFTC also alleged in this second lawsuit that Citibank made submissions in connection with US Dollar LIBOR that did not accurately reflect the bank’s assessment of the cost of borrowing funds in the London interbank market in order to avoid “negative scrutiny” during the 2008-2009 financial crisis. The CFTC alleged that, during this time, the bank, on occasion, purposely made US Dollar LIBOR submissions below its actual costs “to shield the institution fro negative market perception regarding its liquidity, strength and creditworthiness.” Citibank and its affiliates agreed to pay an aggregate fine of US $425 million and implement certain remedial measures to resolve these matters.
Legal Weeds: In connection with the CFTC’s action singularly naming Citibank, NA, in addition to charging the bank with attempted manipulation and making false reports, the CFTC charged Citibank with using or attempting to use a manipulative device in connection with its allegedly problematic conduct that occurred on or after August 15, 2011, in violation of applicable law and CFTC regulation. (Click here to access 7 USC §§ 9(1) and here for CFTC Regulation 180.1(a).) The CFTC continues to use its newly gotten anti-manipulative, deceptive device and contrivance authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act to prosecute a wide range of conduct from its first use in the JP Morgan “London Whale” episode to allegations of illegal off-exchange metals transactions, insider trading, claims of more traditional manipulation and attempted manipulation (without endeavoring to show an artificial price) and allegations of spoofing. The CFTC has made clear it sees its new Dodd-Frank authority “as a broad, catch-all provision reaching fraud in all its forms – that is, intentional or reckless conduct that deceives or defrauds market participants” and will use it whenever possible. Market participant beware this new junkyard dog of the CFTC’s enforcement arsenal! (Click here and here to access two prior articles with commentary in Bridging the Week that discuss these provisions – “CFTC Brings First Insider Trading-Type Enforcement Action Based on New Anti-Manipulation Authority” (December 6, 2015) and “Manipulation Is Not Hedging Says CFTC in Federal Court Lawsuit Against Kraft Foods Group and Mondelez Global” (April 5, 2015).)