Case 1:17-Cv-06221-KPF Document 73 Filed 11/17/17 Page 1 of 144

Case 1:17-cv-06221-KPF Document 73 Filed 11/17/17 Page 1 of 144 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK IOWA PUBLIC EMPLOYEES’ RETIREMENT No. 17 Civ. 6221 (KPF) SYSTEM; LOS ANGELES COUNTY EMPLOYEES RETIREMENT ASSOCIATION; ORANGE AMENDED CLASS ACTION COUNTY EMPLOYEES RETIREMENT SYSTEM; COMPLAINT SONOMA COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION; and TORUS CAPITAL, LLC, on JURY TRIAL DEMANDED behalf of themselves and all others similarly situated, Plaintiffs, - against - BANK OF AMERICA CORPORATION; MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED; MERRILL LYNCH L.P. HOLDINGS, INC.; MERRILL LYNCH PROFESSIONAL CLEARING CORP.; CREDIT SUISSE AG; CREDIT SUISSE GROUP AG; CREDIT SUISSE SECURITIES (USA) LLC; CREDIT SUISSE FIRST BOSTON NEXT FUND, INC.; CREDIT SUISSE PRIME SECURITIES SERVICES (USA) LLC; THE GOLDMAN SACHS GROUP, INC.; GOLDMAN, SACHS & CO. LLC; GOLDMAN SACHS EXECUTION & CLEARING, L.P.; J.P. MORGAN CHASE & CO.; J.P. MORGAN SECURITIES LLC; J.P. MORGAN PRIME, INC.; J.P. MORGAN STRATEGIC SECURITIES LENDING CORP.; J.P. MORGAN CHASE BANK, N.A.; J.P. MORGAN INSTITUTIONAL INVESTMENTS INC.; MORGAN STANLEY; MORGAN STANLEY CAPITAL MANAGEMENT, LLC; MORGAN STANLEY & CO. LLC; MORGAN STANLEY DISTRIBUTION, INC.; PRIME DEALER SERVICES CORP.; STRATEGIC INVESTMENTS I, INC.; UBS GROUP AG; UBS AG; UBS AMERICAS INC.; UBS SECURITIES LLC; UBS FINANCIAL SERVICES INC.; UBS INVESTMENT BANK; UBS ASSET MANAGEMENT (US) INC.; UBS FUND SERVICES (USA) LLC; EQUILEND LLC; EQUILEND EUROPE LIMITED; and EQUILEND HOLDINGS LLC, Defendants. Case 1:17-cv-06221-KPF Document 73 Filed 11/17/17 Page 2 of 144 TABLE OF CONTENTS OVERVIEW OF THE ACTION .....................................................................................................1 JURISDICTION AND VENUE ....................................................................................................12 PARTIES .......................................................................................................................................14 A. Plaintiffs .................................................................................................................14 B. Defendants .............................................................................................................16 FACTUAL ALLEGATIONS ........................................................................................................28 I. OVERVIEW OF THE STOCK LOAN MARKET ...........................................................28 A. The History and Function of the Stock Loan Market ............................................28 B. The Structure of the Stock Loan Market ................................................................31 C. The Lack of Evolution in the Stock Loan Market .................................................38 II. DEFENDANTS CONSPIRE TO INHIBIT COMPETITION IN THE STOCK LOAN MARKET...............................................................................................................41 A. Early 2000s: New Entrants Introduce Price Transparency and Electronic Trading ...................................................................................................................43 1. Quadriserv introduces limited price transparency to the stock loan market ........................................................................................................43 2. Data Explorers provides additional price transparency and analytics .....................................................................................................44 3. Quadriserv creates Quadriserv Securities and matches more than $2 billion of open stock loan transactions..................................................47 4. Quadriserv creates AQS to develop an anonymous, electronic platform with central clearing of stock loan transactions ..........................48 B. 2009-2011: The Market’s Evolution Accelerates .................................................52 1. AQS launches with a clearing agreement with OCC .................................52 2. SL-x enters the market ...............................................................................58 3. Data Explorers continues to expand, and the Prime Broker Defendants begin to organize against it .....................................................62 i Case 1:17-cv-06221-KPF Document 73 Filed 11/17/17 Page 3 of 144 C. The Prime Broker Defendants Conspire to Boycott and Neutralize AQS and SL-x .................................................................................................................65 1. Goldman Sachs and Morgan Stanley Lead the Prime Broker Defendants to Act as a Cartel.....................................................................66 2. The Prime Broker Defendants agree to boycott AQS and starve it of liquidity ..................................................................................................70 3. Defendants collude to withhold support from and boycott SL-x ...............73 D. The Prime Broker Defendants Use EquiLend to Neutralize Data Explorers .........85 E. The Prime Broker Defendants Agree to “Project Gateway” .................................88 F. The Prime Broker Defendants’ Use of EquiLend as a Forum for Collusion Triggers Special Scrutiny Under the Antitrust Laws ...........................................101 III. DEFENDANTS’ CONSPIRACY CAUSED ANTICOMPETITIVE HARM IN THE STOCK LOAN MARKET ......................................................................................110 IV. DEFENDANTS’ HISTORY OF COLLUSION IN THE FINANCIAL MARKETS ......................................................................................................................120 A. Municipal Bond Investments Market...................................................................120 B. LIBOR Market .....................................................................................................122 C. Foreign Currency Exchange Spot Market............................................................123 D. Interest Rate Swaps (ISDAfix) ............................................................................126 E. Credit Default Swaps ...........................................................................................127 CLASS ACTION ALLEGATIONS ............................................................................................128 EQUITABLE TOLLING OF THE STATUTE OF LIMITATIONS ..........................................131 CAUSES OF ACTION ................................................................................................................136 FIRST CAUSE OF ACTION (CONSPIRACY TO RESTRAIN TRADE IN VIOLATION OF SECTION 1 OF THE SHERMAN ACT) ...........................................136 SECOND CAUSE OF ACTION (UNJUST ENRICHMENT UNDER NEW YORK LAW) ...............................................................................................................................137 PRAYER FOR RELIEF ..............................................................................................................138 JURY DEMAND .........................................................................................................................140 ii Case 1:17-cv-06221-KPF Document 73 Filed 11/17/17 Page 4 of 144 Plaintiffs Iowa Public Employees’ Retirement System (“IPERS”); Los Angeles County Employees Retirement Association (“LACERA”); Orange County Employees Retirement System (“OCERS”); Sonoma County Employees’ Retirement Association (“SCERA”); and Torus Capital, LLC (“Torus”) (collectively, “Plaintiffs”), individually and on behalf of all persons and entities who from January 7, 2009, through the present (the “Class Period”) entered into stock loan transactions with Bank of America, Goldman Sachs, Morgan Stanley, Credit Suisse, JP Morgan, or UBS (collectively, the “Prime Broker Defendants”) in the United States, bring this antitrust class action for treble damages and injunctive relief and allege as follows: OVERVIEW OF THE ACTION 1. To paraphrase Tolstoy, all efficient markets resemble one another, but each inefficient market is inefficient in its own way. This case concerns the “stock loan” or “stock lending” market, which is an inefficient, antiquated, and opaque over-the-counter (“OTC”) trading market artificially dominated by a handful of large prime broker banks. As set forth herein, these banks (the “Prime Broker Defendants”) conspired to keep the stock loan market frozen in this inefficient state to preserve their collective market control and dominance. 2. The stock loan market is one of the largest and most important financial markets in the world. Stock lending is the temporary transfer of stock from one investor to another. In exchange for cash or noncash collateral and subject to the payment of a “borrowing fee,” the owner of shares lends (technically, temporarily sells) its stock to the borrower, which in turn holds the stock for a period of time and then returns the equivalent stock to the lender at the end of the “borrowing” period. 3. Stock lending plays a vital role in maintaining the liquidity of financial markets. It improves the performance of institutional investors who buy and hold large quantities of shares of publicly traded companies by allowing them to earn a return on their investments while 1 Case 1:17-cv-06221-KPF Document 73 Filed 11/17/17 Page 5 of 144 holding a stable interest in the company. Stock lending also facilitates a practice known as “short selling.” Short selling is a trading strategy that involves the sale of a stock that

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