November 4, 2024
On September 4, 2024, reading her decision into the record from the bench, Judge Katherine Failla of the Southern District of New York granted final approval to a partial settlement with a number of the world’s largest banks to resolve allegations that they violated the antitrust laws by colluding to prevent the modernization of the stock lending market by jointly boycotting efficient, all-to-all trading platforms and price transparency.
In her decision, Judge Failla noted a few unusual things about the settlement. First, its size—she recognized that the amount of the settlement, approximately $580 million in cash, is a “historical settlement amount.” Second, she noted that the litigation was “particularly complex” and that “Plaintiffs’ counsel really had to begin at the ground level, because there was no investigation or academic treatise or anything sort of giving them a leg up on the facts of this case; they had to find it out themselves.” Third, she awarded the Iowa Public Employees’ Retirement System, Los Angeles County Employees Retirement Association, Orange County Employees Retirement System, Sonoma County Employees’ Retirement System, and Torus Capital LLC, incentive fees in recognition of their “extraordinary” contributions to the litigation. Finally, during the hearing Judge Failla expressed particular interest in hearing about what she described as the “compliance or equitable component of the settlement.”
This component of the settlement—injunctive relief which the parties agreed upon and Judge Failla ordered—is both unusual and noteworthy. In private antitrust litigation, it is unusual for there to be changes in how businesses operate because the Department of Justice or other governmental entities seek that sort of remedy. Rather, monetary compensation is the norm for private parties. Here, however, plaintiffs truly acted as private attorneys general.
Specifically, the injunctive relief, developed with an expert in competition economics, incorporated recommendations from both the guidelines for evaluating corporate antitrust compliance programs and the guidelines for evaluating competitor collaborations, in creating a state of the art program within EquiLend, the joint venture organization that was at the center of the allegations of collusion, to deter EquiLend members from acting jointly to prevent new platforms from entering the stock lending market.
Clear standards: The injunctive relief mandates the creation of an Antitrust Code of Conduct designed to prevent collusion and inappropriate information sharing.
Monitoring and auditing: EquiLend will require all Board Members and Alternate Board Members to certify on an annual basis that he or she will comply with the Antitrust Code of Conduct. In addition, EquiLend’s Chief Compliance Officer will provide annual reports of compliance to the EquiLend Board and the Designated Antitrust Liaison Counsel at each of the owner firms.
High-level involvement: EquiLend Board members will annually certify the Antitrust Code of Conduct to be transmitted to the Chief Compliance Officer of EquiLend. If the Chief Compliance Officer believes a Board Member or Alternate Board Member has violated the Antitrust Code of Conduct, he or she is required to inform the Designated Antitrust Liaison Counsel of the owner firm that employs the Board Member or Alternate Board Member. In addition, the Antitrust Code of Conduct must explicitly state that owner firms may take further steps to investigate any suspect communications or situations.
Reporting: EquiLend Board Members and Alternate Board Members are required to report potential breaches of the Antitrust Code of Conduct to the Chief Compliance Officer of EquiLend if they become aware of such breaches.
Training: EquiLend will provide every EquiLend Board Member and Alternate Board Member with antitrust training every two years.
Information sharing: The Settlement places limits on who can have access to confidential information and a requirement to report breaches of these confidentiality restrictions to EquiLend’s Chief Compliance Officer. These restrictions on information sharing must be incorporated into the Antitrust Code of Conduct.
Governance reforms: The Settlement also includes limitations on the terms of EquiLend Board Members (five years), hiring of new antitrust counsel and limitations on the terms of outside antitrust counsel (three years), and requiring the names of all individuals who attend Board Meetings or Working Group Meetings to be included in the minutes for those meetings. Limitations on the terms of outside antitrust counsel is particularly important because it removes the financial incentive to get re-hired, which may result in a lack of independence in identifying collusive or anti-competitive behavior.
The $580 million cash payment and injunctive relief reforms put into place with the stock lending settlement agreement and ordered by the Court in connection with final approval of the stock lending settlement illustrate the public good that private litigation can bring. As the litigation continues against Bank of America, plaintiffs will continue to push for relief from these abusive anticompetitive practices.