As summer draws to a close and the Wall Street titans enjoy the last of their lazy long weekends in the Hamptons, summering next door to the army of lawyers that keep them out of jail, it’s a curious time to be reading about a major new lawsuit that has the potential to shake Wall Streeters right down to their Gucci loafers. The charges include conspiracy to restrain trade in violation of the Sherman Act and unjust enrichment in a $1.7 trillion market.
Since the Senate hearings of the early 1930s, which examined the Wall Street practices and conspiracies that led to the 1929-1932 stock market collapse and Great Depression, there have been rumblings that Wall Street’s system for lending stock for traders to short is a viper’s nest of ripoffs. Now two major law firms, Quinn Emanuel Urquhart & Sullivan and Cohen Milstein are suing six of the largest Wall Street banks, alleging that they illegally colluded in this market. The defendants are the usual suspects: JPMorgan Chase, Goldman Sachs, Bank of America, Morgan Stanley, Credit Suisse, UBS and their stock lending units. (The only surprise here is that Citigroup is not named.)
You know there’s some high minded legal talent involved when the lawsuit quotes Tolstoy. The plaintiffs’ lawyers tell the Federal Court:
‘To paraphrase Tolstoy, all efficient markets resemble one another, but each inefficient market is inefficient in its own way. This case concerns a market variously called the ‘stock loan,’ ‘stock lending,’ or ‘securities lending’ market. It is one of the largest and most important financial markets that exists in the world today. Unlike many other financial markets, the stock loan market has not evolved to reflect the ways in which modern technology can facilitate efficient and transparent electronic trading. Instead, the stock loan market remains an inefficient, antiquated, and opaque over-the-counter (‘OTC’) trading market dominated by large dealer banks, principally the Prime Broker Defendants. These banks have structured the market in such a way that they take a large cut of nearly every stock loan trade that is made. This arrangement is good for the Prime Broker Defendants. But it is bad for virtually everyone else, including the class members in this case.’
This post was published at Wall Street On Parade on August 22, 2017.