A federal magistrate judge has recommended a lawsuit filed by pension funds in Sonoma County and several other large governmental organizations against six major banks be certified as class-action suit, meaning the banks could owe money to a growing pool of plaintiffs across the country.
The recommendation is a small step in a lengthy legal battle that began in 2017.
The Sonoma County Employees’ Retirement Association, three other public pension funds and a company called Torus Capital filed suit in August 2017 accusing the banks of colluding in an effort to block access to financial information about stock loans that could have benefited the funds.
The defendants in the suit are Bank of America, Goldman Sachs, JP Morgan, Morgan Stanley and UBS.
Credit Suisse was also a defendant, but settled for $81 million in February, said Julie Reiser, a partner at Cohen Milstein, a New York attorney representing the plaintiffs.
Stock loan programs allow investors to lend their shares to borrowers, who may use them to secure other investments or to cover short sales to profit in companies that are declining in value.
In the stock loan market, lenders and borrowers do not interact directly with each other but must instead go through an intermediary, which is where the banks come in.
The costs that the intermediaries charge is not readily accessible to everyone participating in the market, according to the suit.
“These banks sit in the middle of nearly all stock loan transactions and take a massive cut of almost every single trade, while keeping the size of that cut largely hidden from other participants to the transaction,” the lawsuit states.
The lawsuit contends that the six banks conspired to boycott, acquire or otherwise block companies offering services to help make that data more readily available.
The banks make more than $9 billion annually in the stock loan market, the lawsuit said.
“They have very little risk,” Reiser said. “And yet they’re able to secure these massive profits.”
Sonoma County’s pension fund manages pension benefits for more than 5,478 Sonoma County retirees and 4,066 current county employees, according to the agency’s website.
The plaintiffs are seeking monetary damages and more transparency in the securities exchange market, Reiser said.
The case has gone back and forth in court, but the latest development came on June 30, when United States Magistrate Judge Sarah Cave recommended the class action suit be certified for any person or entity with at least 100 transactions as a borrower or lender with the defendants. The class applies to transactions between Jan. 1, 2012 and Aug. 16, 2017, according to Cave’s recommendation.
A judge at the United States District Court for the Southern District of New York, must now decide whether to adopt Cave’s recommendation, Reiser said.
The banks will have until October to challenge the recommendation, Reiser said. A final decision could come potentially at late as March of next year, she added.
“They take quite a long time to resolve,” Resieser said.
“A trial date could be set two years from now for example,” she added.
You can reach Staff Writer Emma Murphy at 707-521-5228 or firstname.lastname@example.org. On Twitter @MurphReports.