August 25, 2023

The settlement announced this week with multiple banks over claims they colluded to prop up fees in the stock lending market comes after an earlier $81 million deal with Credit Suisse affiliates.

The stock lending market—where hedge funds seek out big institutional shareholders for a temporary transfer of stock so they can make short-selling bets—is ludicrously large.

Like $1.72 trillion dollars large.

That’s trillion with a T. 

According to institutional investors represented by Quinn Emanuel Urquhart & Sullivan and Cohen Milstein Sellers & Toll, it’s a market that big banks attempted to keep opaque—eschewing modern electronic trading protocols—in order to prop up their own fees. This week after six years of antitrust litigation a team led by Daniel Brockett and Steig Olson of Quinn Emanuel and Michael Eisenkraft of Cohen Milstein secured a proposed $499 million settlement with banks Goldman Sachs, Morgan Stanley, JPMorgan and UBS, as well as EquiLend, the company the plaintiffs claimed the banks formed to corner the securities lending market and prop up the fees they could charge there. The settlement, which comes after an earlier $81 million proposed deal with Credit Suisse, includes forward-looking measures meant to promote competition in the market—a rarity in antitrust settlements involving only private plaintiffs.

Lit Daily: Who are your clients and what was at stake?

Michael Eisenkraft: Our clients—the Iowa Public Employees’ Retirement System, the Los Angeles County Employees Retirement System, the Orange County Employees Retirement System, the Sonoma County Employees Retirement Association, and Torus Capital LLC—are institutional investors who care about the health and fairness of the financial markets. This case is a class action where plaintiffs claim that the prime brokers (some of the world’s biggest investment banks) who dominated the $1.7 trillion stock lending market colluded to boycott new entrants into that market and prevent its modernization.

What was at stake was whether the allegedly collusive behavior of the banks and the stagnant status quo in this critical market would remain unchallenged. Thanks to our clients, who were brave and principled enough to stand up for other investors—they did not. We believe this settlement will provide well-deserved compensation to investors for the supracompetive spreads they paid to the prime broker defendants when lending and/or borrowing shares and hopefully speed the long overdue modernization of the stock lending market by preventing future collusion amongst the prime broker defendants and EquiLend.

. . .

Eisenkraft: Yes, I think the best way to understand it might be to go back to childhood. Imagine a block where the neighborhood bullies have a private clubhouse where they plot domination of the neighborhood, free from adult supervision. Here, the plaintiffs argued that, in the stock lending neighborhood, that private clubhouse was EquiLend. Plaintiffs believe that these reforms make it far harder for the prime broker defendants (the neighborhood bullies) to use the EquiLend clubhouse to collude. It does this in a number of ways—including by mandating the rotation of independent antitrust counsel and the presence of that counsel at meetings, establishing a code of conduct, and limiting permissible information sharing—all backed by the authority of a federal district court (ie., the adult supervision).

. . .

Your claims against Bank of America remain pending. What comes next on that front?

Eisenkraft: That investors (and their counsel) have the resources and courage to stand up and fight when wronged. This litigation claimed that the dominant market players in stock lending illegally engaged in a group boycott. Pressing that claim required standing up to those dominant market players and the armies of lawyers they retained to defend themselves and their position. Investors and their counsel successfully did that here and will do so again if defendants engage in any illegal shenanigans in any corner of the financial markets.

. . .

What will you remember most about this matter?

Eisenkraft: The team bonds COVID built. We were in the middle of what ended up being more than 100 depositions when the world froze due to the advent of COVID. Successfully prosecuting a complex antitrust case against the world’s biggest investment banks and the multiple armies of lawyers they hire is difficult enough in the best of circumstances, but we had to do it in a world where the usual methods of getting facts—sitting in a conference room asking a deponent questions—was suddenly impossible and we were forced to innovate on the fly. So, we did, pioneering virtual depositions, putting together first-of-their-kind discovery protocols, and doing it all from makeshift home offices. We had an incredible team of lawyers on this case from both lead firms, and successfully working together under these circumstances forged deep links of teamwork and trust.

Read Litigators of the Week: In Antitrust Case Against Big Banks, Quinn and Cohen Milstein Land a $499M Settlement and Market Changes.