A federal judge in New York on Wednesday allowed a consolidated class action by U.S.-based investors concerning the rigging of the foreign exchange (FX) market to move forward. In denying a motion to dismiss, U.S. District Judge Lorna G. Schofield ruled that the allegations in the complaint were sufficient to warrant discovery and, possibly, trial.

In her decision, Judge Schofield described the allegations as involving “a long-running conspiracy among the world’s largest banks to manipulate the benchmark rates in one of the world’s largest markets.”  Plaintiffs are investors (including a municipal board,  investment funds, pension plans and hedge funds) who claim their returns were diminished as a result of manipulation by various  banks. They allege that certain employees at the banks primarily conspired in chat rooms with names like “The Cartel,” “The Bandits’ Club,” “The  Mafia,” and “One Team, One Dream.” There, the complaint maintains, certain FX traders shared inappropriate information about pricing, orders, and trading positions. The participants allegedly used this information to coordinate their actions and fix the prices of FX instruments.

Judge Schofield distinguished this action from the LIBOR I case, in which bondholders brought antitrust claims for alleged manipulation of the London InterBank Offered Rate (LIBOR). The court in LIBOR I dismissed the claims because plaintiffs had not plausibly alleged an antitrust injury. Judge Schofield pointed out that, unlike the FX market, the LIBOR-setting process is a “cooperative endeavor” involving communication between banks. The rates in the FX market, by contrast, are meant to be set by competitive transactions based on independently determined bid-ask spreads (i.e., differences between asking prices and bids).

Judge Schofield also disagreed with LIBOR I’s suggestion that no antitrust injury may be found at the pleading stage if the harm alleged could be the result of “normal competitive conduct.” This conclusion, Judge Schofield said, “blurs the lines between two separate analytic categories”—antitrust injury and the sufficiency of a complaint for dismissal purposes.  In particular, she took issue with the treatment in LIBOR I of two Supreme Court cases, Atlantic Richfield v. USA Petroleum and Brunswick v. Pueblo Bowl-o-Matic, which the judge in LIBOR I relied on in concluding the LIBOR I plaintiffs had not adequately alleged an antitrust injury. Judge Schofield underscored a key reason why those cases did not apply in LIBOR I: Atlantic Richfield andBrunswick had completed discovery. Because the LIBOR I decision came at the motion-to-dismiss stage, Judge Schofield held, the analyses in Atlantic Richfield and Brunswick  were inapposite.

In the same order, the judge dismissed complaints alleging similar claims on behalf of foreign plaintiffs as barred by the Foreign Trade Antitrust Improvements Act (“FTAIA”).

The Second Circuit has set a briefing schedule for its consideration of the dismissal of antitrust claims against global banks that allegedly conspired to fix LIBOR. The opening brief from a class of bond purchasers whose appeal was reinstated last week by the U.S. Supreme Court is due on March 9. The banks’ response is supposed to be filed a month later.  This appeal should shed light on the issues raised in the LIBOR and FX class action litigations regarding antitrust injury and antitrust standing.