[USA TODAY] Major banks now face a second forex lawsuit

Kevin McCoy, USA TODAY 11:55 a.m. EST November 18, 2013

The foreign exchange trading investigation is the latest multinational probe of financial benchmarks that affect trillions of dollars in personal and business transactions.

A South Korean company has accused seven global banks of manipulating foreign exchange rates, the second lawsuit filed amid a multi-national investigation into the rigging allegations.

Simmtech, an electronics firm based in Chongju, alleged in the federal lawsuit filed in New York Nov. 8 that the company suffered financial damages from the alleged manipulation by the banks’ traders.

The banks charged in the action are: Britain-based Barclays; Citigroup, along with its U.S. and Korean divisions; Credit Suisse; Germany’s Deutsche Bank; JPMorgan Chase; Royal Bank of Scotland and Swiss banking giant UBS. The banks have denied any wrongdoing.

The lawsuit, which seeks class action status, alleged that some of the banks’ traders have been “trading ahead” of client orders scheduled to be placed based on the foreign exchange benchmark rates that are fixed or set each day at 4 p.m. London time. The traders also manipulated the rates by “pushing through trades before and during the 60-second windows when the benchmarks are set,” the lawsuit charged.

WM/Reuters gathers foreign exchange trade data, then calculates and distributes the rates.

“By making a high number of low-volume trades in the one-minute period before the WM/Reuters rates are calculated, a dealer can artificially increase or decrease an exchange rate by hundredths of a percent, as this exerts the most pressure possible on the published rate,” the lawsuit charged, citing unidentified former traders whose accounts have been published in media reports.

“The final result of this manipulation is that the banks would get the best (trade) execution for their end of the deal, with the client receiving the worst possible price, devaluing the currency transaction,” the lawsuit alleged.

The Simmtech action echoes charges against major banks by the Haverhill, Mass. city employee retirement system, which filed a similar federal lawsuit in New York last month.

Multiple regulators, central banks or law enforcement agencies in the U.S., Europe and Asia are investigating the suspected manipulation of the $5.3-trillion-a-day foreign exchange market. No banks or bank employees have been charged in the early-stages investigation, but media organizations have reported that some traders have been placed on leave or suspended.

The foreign exchange probe follows similar multinational investigations of suspected manipulation of oil prices, interest rates swaps and the London Interbank Offered Rate, or Libor — which is used to set rates on trillions of dollars in mortgages, credit cards and many types of loans.