‘A treasure trove for potential claimants’ – forex scandal to bring windfall of instructions to UK firms

US class action filed ahead of DoJ findings targets more than a dozen investors

UK financial disputes partners are gearing up to take on lucrative ‘break the bank’ instructions in the now global investigation into foreign exchange manipulation, as the US class action against a host of investment banks continues to grow, gifting Allen & Overy (A&O) with a lucrative New York mandate.

The class action, which has been filed ahead of any findings by the Department of Justice (DoJ) over whether traders colluded to manipulate the estimated $5.3trn a day foreign exchange market (forex), most recently saw over a dozen investors, including several large US pension funds sign up to an antitrust lawsuit filed in the Southern District of New York.

Originally filed on 1 November 2013, the action initially listed Barclays, Citigroup, Citibank, Credit Suisse, Deutsche Bank, JPMorgan Chase, The Royal Bank of Scotland and UBS as defendants, however Bank of America, BNP Paribas, Goldman Sachs, HSBC and Morgan Stanley have subsequently been added to the list, sparking an initial wave of instructions for US advisers (see box) as well as the New York office of A&O, the only UK law firm listed. A&O is advising BNP Paribas led by John Terzaken and Molly Kelley.

With regulators across the globe, including the UK’s Financial Conduct Authority (FCA), conducting their own investigations into the latest banking scandal, the Swiss competition regulator is so far the only authority to say it has found signs of illegal activity.

Claimants allege that traders at the banks used online chat rooms to co-ordinate their actions, with those records currently under scrutiny by the DoJ and FCA, while a number of banks have already dismissed traders following their own internal investigations.

Eversheds senior litigation partner Andrew Legg told Legal Business: ‘The US normally leads the field when it comes to the pursuit of litigation arising from market scandals – the rest of the world (the UK included) generally follows on from that. In the UK, we wait to see the outcome of regulatory and other investigations, whether it’s driven by the FCA or one of the competition authorities.’

The pay-as-you-go culture within the UK as opposed to a no-win-no-fee basis often adopted in the US is partly credited with acting as a deterrent to potential UK claimants. However, if the FCA does conclude there has been illegal activity, forex claims are predicted to significantly outweigh those relating to Libor-rigging, with one UK partner describing it as a potential ‘treasure trove’ of claims.

RPC’s head of financial disputes Tom Hibbert said: ‘For many investors it is not clear from initial investigations that they have suffered material losses as a result of the alleged Libor manipulation.

‘With forex, investors are able to claim in relation to the specific trades where they suffered a loss and it ought to be a more straightforward approach. It should also be easier with forex to identify where the rate should have been.’

Legg added: ‘Litigation will follow on from any adverse finding made by the regulators who are investigating the forex issues. For the financial institutions defending, there’s likely to be quite a body of people who will wish to pursue them to recover any losses suffered and the more egregious the findings made by the regulators, the increased likelihood that there will be litigation.’

Mandates have so far arisen in the UK for Freshfields Bruckhaus Deringer, Stephenson Harwood and Travers Smith. Freshfields is advising Deutsche Bank while Stephenson Harwood litigation partners Tony Woodcock and Sara George are representing individuals working for financial institutions in connection with the scandals.

Travers, meanwhile, was appointed in March to review the Bank of England’s conduct in the affair, with Lord Grabiner QC appointed by the bank’s oversight committee to run an independent assessment of its actions.

RPC commercial disputes partner Jonathan Cary said: ‘In these types of investigations, firms need very large teams, from partners down to trainees, who are able to do little else five days a week for months on end.

‘They are incredibly intensive and costly, but the banks generally accept that they have no option other than to commit the necessary resources.’