As investigations into alleged manipulation of the global foreign exchange market advance, class actions against the world’s biggest banks are piling up, exposing the banks to potentially billions of dollars in damages.

The lawsuits claim that the banks violated federal antitrust law when their senior traders allegedly shared sensitive market information in chat rooms to execute a variety of strategies to move key benchmark rates.

The collusion, the lawsuits allege, allowed the banks to profit at the expense of their customers.

If the plaintiffs, including some public pension funds, can prove their claims, they would be entitled to recover three times the amount of their actual damages under antitrust law.

But as a recent court decision dismissing antitrust claims over the alleged manipulation of a global interest rate suggests, success is far from guaranteed.

Even if it is proven that manipulation of a benchmark has occurred, antitrust law may not apply.

“We still have to ask whether it is something ‘antitrust-bad,'” C. Scott Hemphill, a professor at Columbia Law School, told a recent New York conference for antitrust lawyers.

So far, at least eight lawsuits have been filed, naming, among others, the seven banks that allegedly control nearly 70 percent of the roughly $5.3 trillion-a-day foreign exchange market: Deutsche Bank, Citigroup, Barclays, UBS, HSBC, JPMorgan Chase & Co , and Royal Bank of Scotland. Those banks declined to comment or did not return messages seeking comment.

Among the plaintiffs are pension funds like the State-Boston Retirement System and the Oklahoma Firefighters Pension and Retirement System.

The lawsuits seek class-action status on behalf of investors, institutions and currency traders affected by the alleged manipulation. One of the lawsuits claims that the class could include thousands of traders who lost value on tens of thousands of transactions, “resulting in potentially billions of dollars in damages.”

Worldwide Investigations

The lawsuits, which are expected to be consolidated into one proceeding, seek to take advantage of government investigations being carried out in at least seven jurisdictions around the globe. Those probes, the lawsuits note, have identified senior foreign exchange traders at banks who were known in Bloomberg chat rooms as “The Cartel” and “The Bandits Club.”

Amid the probes, HSBC and Citigroup have confirmed that they have suspended or put on leave some foreign exchange traders. Additionally, Reuters has reported that Deutsche Bank has suspended the head of its emerging markets foreign exchange trading desk in New York.

The key benchmark foreign exchange rate at issue in the lawsuits is known as the WM/Reuters “fix,” which is set at 4 p.m. London time. It is based on actual trades and order rates recorded primarily by Reuters during a one-minute “fix” period. WM, a unit of State Street Corp, then calculates the benchmark using the median of the reported trades and orders.

The WM/Reuters FX rates are used by investors and corporations looking for a rate to price their portfolios and currency holdings. Most of the main equity and bond index compilers also use the rates in their calculations.

The main claim asserted in the lawsuits is Section 1 of the Sherman Antitrust Act, which makes all conspiracies in restraint of trade illegal.

But the plaintiffs will face a number of obstacles to survive in court. As an initial matter, to make successful antitrust claims, the plaintiffs will have to show that setting the fix is a competitive process, say some legal experts.

Last March, a federal judge in Manhattan dismissed antitrust claims against the world’s major banks over an alleged scheme to manipulate the London Interbank Offered Rate, the average interest rate leading banks in London estimate they would be charged if borrowing from other banks.

U.S. District Judge Naomi Reice Buchwald’s key finding was that setting LIBOR was not a competitive process, and therefore the plaintiffs could not establish that they were injured by anticompetitive behavior under the Sherman Act.

Setting LIBOR, she found, was a “cooperative endeavor” where otherwise competing banks submitted information to a trade association that set the rate.

Anticompetitive Conduct

Without anticompetitive conduct, there can be no anticompetitive injury, said the judge, who is based in the Southern District of New York with jurisdiction over New York City’s major financial centers.

The same issue could stymie investors suing over manipulation of the foreign exchange market, say some legal experts.

“Judging from the complaint and the press reports, I think it’s frankly hard to tell to what extent if any competition has been reduced,” Hemphill of Columbia Law School said.

Daniel Brockett of Quinn Emanuel Urquhart & Sullivan, which filed the lawsuit on behalf of the Boston State-Boston Retirement System, said that setting the fix differed from the setting of LIBOR.

While LIBOR is calculated using estimates made by banks over their borrowing costs, the currency fix is set by aggregating actual transactions made by the banks.

“It’s going to be a much more difficult argument for the banks to make that there is no antitrust standing here, because you had actual buying and selling in the market that went on to arrive at this fixed number,” he said.

Still, a judge could take a narrow view of the fix and conclude that it is a mathematical equation and does not involve competition, said Richard Wolfram, an independent antitrust lawyer who said he had read just one of the complaints.

“It appears on its face that the setting of the London fix is not a competitive process,” he said. “I think the plaintiffs are going to be put to the test because of the decision that Judge Buchwald has rendered in the LIBOR case.”

Even if a court determines that the antitrust law applies, the plaintiffs will face another steep challenge in persuading a court to allow the case to move forward as a class action, said Arthur Burke of Davis Polk & Wardwell, who has defended companies in antitrust class actions.

Some plaintiffs in a proposed class, he said while speaking at a recent conference, may have benefited from a manipulation depending on the direction of their trades.

“It will be very challenging to see how you can certify a class when the manipulations are changing day-to-day and changing directionally,” he said. “That’s going to be an area that’s going to get a lot of attention and it’s probably a few years away.”

(Editing by Howard Goller)