ISDAfix Class Action Litigation

ISDAfix Class Action Litigation

Challenge

  • Identify manipulative transactions resulting in ISDAfix benchmark manipulation
  • Calculate damages based on both defendants’ and plaintiffs’ transactional data
  • Evaluate feasibility of plan of allocation

Methodology

  • Fideres developed pricing models for different types of products affected by ISDAfix manipulation (e.g. swap, swaption, constant maturity swaps, Treasuries)
  • We developed screening tools to identify instances of benchmark manipulation
  • Fideres calculated class-wide trading volumes of various relevant products to estimate the distribution across different baskets of products based on various assumptions
  • We also reviewed defendants’ chatroom communications and matched them to the trading records to match documentary evidence of price manipulation to actual transactions data

Result

  • Fideres’s proprietary research led to the filing of a class action in the US
  • We provided a preliminary class-wide damages estimation
  • We designed a simplified plan of allocation based on notional traded and other sensitivity factors that significantly reduced the burden of data collection and the cost of settlement fund allocation
  • We estimated class-wide damages as well as damages broken down by the relevant financial products involved
  • The plan of allocation was successfully approved by the judge
FX Manipulation

FX Manipulation

Challenge

  • Determine in which ways and at what times market manipulation may have been taking place in foreign exchange (FX) markets
  • Estimate the amount of damages caused by FX manipulation and which categories of plaintiffs were impacted by the alleged misconduct

Methodology

  • Fideres built a statistical model to capture FX dynamics and determine anomalous market movements around the daily 4pm WM/Reuters fixing that could have been caused by manipulative behavior, such as front-running, banging the close or painting the screen
  • We analyzed 27 currency pairs. These include all major G10 currency pairs as well as a selection of emerging market currencies
  • Fideres extended damage theories to include manipulation of other fixings, (such as the ECB fixing) manipulation of bid/ask spreads as well as manipulation in the futures market

Result

  • We estimated frequency and quantum of alleged manipulation across a basket of the most frequently traded currencies
  • We assessed damages on both a class-wide basis, as well as for a selection of large institutional investors, arising from manipulation of the WM/Reuters fixing, the ECB fixing, bid/ask spreads in the spot as well as  the futures market
Closet Indexers

Closet Indexers

Challenge

  • Develop a methodology to identify closet index funds in Europe and North America (these are funds which advertise as actively managed but, in reality, track a benchmark)
  • Provide detailed analysis and a report on the methodology used and results

Methodology

  • Fideres filtered the universe of actively managed funds for the same criteria used by ESMA to produce a sample of over 1000 funds
  • We classified the sub-sample of funds into category-based thresholds for each key statistical metric, such as Active Share, Tracking Error and R-Squared

Result

  • Fideres found that over 16% of European UCITS funds of the sample analyzed show characteristics that may indicate they are potential closet indexers
  • The study was mentioned in a Financial Times article
  • Results of the study closely approximated the results published by ESMA
Gold Price Manipulation Litigation

Gold Price Manipulation Litigation

Challenge

  • Identify signs of market manipulation and benchmark rigging in precious metal markets including gold, silver, platinum and palladium

Methodology

  • Fideres developed new methodologies, including traditional collusion filters and financial market models, to analyze trading data in the physical and futures markets and identify anomalous market behaviour/trading patterns
  • We applied game theory methodology to analyze benchmark panel members’ submissions and identify collusive patterns

Result

  • Fideres’s market manipulation findings were used in class action complaints filed in the US on gold, silver, platinum and palladium cases
RBS Rights Issue Shareholder Dispute

RBS Rights Issue Shareholder Dispute

Challenge

  • During the financial crisis, RBS raised a large amount of new capital
  • Very shortly after, the share price tumbled and investors lost large sums of money
  • English counsel for a large group of institutional investors sought help from Fideres to identify missing or misleading financial information in the rights-issue prospectus issued by the defendant

Methodology

  • Fideres cross-referenced information disclosed by the defendant in the rights-issue prospectus with other sources to identify potential inconsistences, missing disclosure and miscategorization of financial liabilities and write-down provisions
  • We identified numerous missing or misleading statements related to RBS’s exposure to subprime loans in the US, conduits, SIVs and other distressed asset classes

Result

  • Fideres’s findings featured prominently in the particulars of claim issued by the claimants. These factual findings formed the basis for the litigation, which eventually resulted in a large settlement
Swap Mis-selling Cases

Swap Mis-selling Cases

Challenge

  • In the years leading up to the Great Financial Crisis, many UK businesses were sold interest rate swaps or other derivative instruments which ill suited their need to hedge their interest rate or financial exchange risks
  • Fideres was retained by counsels to advise numerous corporate claimants on the suitability of swap transactions, alternative hedging strategies, market practice aspects and damages calculations

Methodology

  • Fideres relied on its partners’ direct market experience and expertise in the structuring and pricing of OTC derivatives, to model and price swap transactions and alternative hedging strategies
  • We reviewed transaction documentation and marketing material with respect to the relevant circumstances

Result

  • We identified alternative suitable hedging strategies
  • We provided estimates of damages suffered by claimants under different scenarios and at different points in time, for the purpose of the pleadings
  • Fideres also identified failures by defendants in complying with good market practice standards and regulatory principles
CDS Antitrust Class Action

CDS Antitrust Class Action

Challenge

  • Conduct investigations into the CDS market to gather economic evidence for complaint filing
  • Develop preliminary damages model to estimate excess transaction costs caused by the alleged collusion

Methodology

  • Through a thorough study of the transition of several financial markets to electronic platforms, we built a model to estimate a counterfactual bid-ask spread in the Credit Default Swap market that would have been brought about by the transparency created through introduction of central clearing houses and a regulated exchange

Result

  • We estimated class-wide and plaintiff-specific damages resulting from the antitrust behaviour
  • Fideres’s client was appointed class lead counsel. In its decision, the court highlighted the work done by Fideres to identify the theory of harm and preliminary damages assessment
  • The class action litigation led to one of the largest antitrust class action settlements in US history, with a settlement of approximately USD1.9 billion
Libor Manipulation

Libor Manipulation

Challenge

  • Fideres was retained by class counsel in the US, to support the antitrust testifying expert
  • Fideres was asked to analyze defendant banks’ LIBOR submissions and determine if their behavior was consistent with the allegations of collusion or could be the result of parallel conduct
  • We were asked to identify suitable counterfactual measures for LIBOR’s benchmark to estimate the amount of suppression of panel banks’ respective LIBOR submissions during and post the Great Financial Crisis
  • In addition, our instructions included developing a damages model to determine damages suffered by investors.

Methodology

  • Leveraging on Fideres' knowledge of financial markets and the industry, we developed innovative but-for approaches integrating numerous sources of banks’ borrowing pricing data to derive counterfactuals for LIBOR
  • We elaborated cross-infection theory to estimate LIBOR suppression in different currencies

Result

  • We estimated that LIBOR manipulation continued until mid-2012
  • We generated a model for estimating counterfactual LIBOR levels in different currencies and tenors
  • We determined daily quantum of LIBOR suppression during the period analyzed
Drug Cartels

Drug Cartels

Challenge

  • Identify the extent of collusion among pharmaceutical manufacturers in the generic prescription drug market
  • Develop economic analysis on defendants’ parallel pricing, collusive markers and plus factors that help distinguish collusion from competition

Methodology

Fideres analyzed drug pricing and used quantitative measures to identify potential price collusion using:

  • Structural break tests
  • Market concentration measures
  • Degree of price correlation amongst manufacturers
  • Various other plus factors and collusive markers

Result

  • Fideres identified over 90 generic drugs that experienced an average price increase of 1,350% and showed a similar timing of sales increases between manufacturers
  • We developed economic analysis used for the filing of four novel drug collusion complaints based on economic evidence with total damage estimates in the region of USD 5.2 billion
  • We identified a number of potentially new issues in regards to the role of Pharmacy Benefit Managers (PBMs) including the potential conflicts of interest, complex rebate structures and general lack of regulation