Citations
- 340 F. Supp. 3d 285
Full opinion text
KATHERINE POLK FAILLA, District Judge:
In a 398-paragraph complaint, Plaintiffs detail a wide-ranging conspiracy to prevent the antiquated stock loan market from evolving into a transparent, direct, all-to-all electronic exchange. This market is critical to the short selling of stocks, a not-uncommon investment tool. The thrust of Plaintiffs' allegations is that Defendants conspired to boycott new market entrants - specifically, AQS, SL-x, and Data Explorers - in order to maintain their monopoly grip as prime broker intermediaries, and, by extension, to charge excessive fees under the cover of price opacity.
Defendants have jointly moved to dismiss the Amended Class Action Complaint (the "Amended Complaint" or "AC") under Federal Rule of Civil Procedure 12(b)(6) on five primary bases: the allegations are implausible; the alleged conduct as to SL-x and Data Explorers neither qualifies as per se unlawful nor violates the rule of reason; Plaintiffs lack antitrust standing; Plaintiffs' claims are untimely; and Plaintiffs' claim of unjust enrichment fails for the same reasons as their antitrust claim. Defendant EquiLend adds, in a supplemental motion to dismiss, that its alleged conduct was consistent with rational business strategy, and that the Court lacks specific personal jurisdiction over EquiLend Europe.
As set forth in the remainder of this Opinion, the Court rejects these arguments and denies Defendants' motions to dismiss. While it remains to be seen whether Plaintiffs' factual allegations will be borne out in discovery, the Court is not permitted to dismiss them at this early stage of the litigation.
BACKGROUND
A. Factual Background
Construed in the light most favorable to Plaintiffs, the Amended Complaint alleges the following:
1. The Parties
During the class period, Defendants Bank of America, Credit Suisse, Goldman Sachs, J.P. Morgan, Morgan Stanley, and UBS (collectively, the "Prime Broker Defendants" or "Defendants") engaged in securities lending and stock lending transactions with class members, either directly or through Defendants' affiliates. (AC ¶¶ 50, 56, 61, 69-70, 77-78, 86-87). The Prime Broker Defendants are each partial owners of Defendant EquiLend, and their employees served on EquiLend's Board of Directors during the Class Period. (Id. ). Employees from Bank of America, Goldman Sachs, J.P. Morgan, and Morgan Stanley also served on the Boards of Directors for the Options Clearing Corporation ("OCC") and the Depository Trust Clearing Corporation ("DTCC"), which are central clearinghouses for stock loan transactions. (Id. at ¶¶ 50, 61, 69, 77). Defendant UBS's employees served on the Board of Directors for DTCC. (Id. at ¶ 86). Defendant EquiLend is a "dealer consortium," which, it is alleged, Defendants used as a front for their conspiracy. (Id. at ¶¶ 10, 12).
Plaintiffs Iowa Public Employees' Retirement System ("IPERS"), Los Angeles County Employees Retirement Association ("LACERA"), Orange County Employees Retirement System ("OCERS"), and Sonoma County Employees' Retirement Association ("SCERA") provide retirement and other benefits to public employees. (AC ¶¶ 40-43). Each manages many billions of dollars in assets and each has lent significant volumes of stock to the Prime Broker Defendants and their clients. (Id. ). SCERA has also borrowed significant volumes of stock from Defendant Credit Suisse. (Id. at ¶ 43). Plaintiff Torus Capital, LLC ("Torus") is a trading firm, headquartered in Connecticut, that has borrowed significant volumes of stock from Defendants Goldman Sachs and Bank of America. IPERS, LACERA, OCERS, SCERA, and Torus (collectively, "Plaintiffs") bring this suit as a class action on behalf of themselves and all other similarly situated persons and entities who entered into stock loan transactions with the Prime Broker Defendants from January 7, 2009, to the present (the "Class Period"). (Id. at 1). The proposed class in this action includes borrowers and lenders. (Id. at ¶ 7).
2. The Stock Loan Market
Stock lending transactions are used primarily to facilitate the short selling of stocks, in which short sellers predict that a stock price will decrease. (AC ¶ 94). Short sellers generally do not own the stocks they sell. (Id. at ¶ 95). Instead, they typically use the services of a broker-dealer to "borrow" the stock, in exchange for cash collateral and a lending fee. (Id. at ¶¶ 95, 97). In a stock "loan" transaction, the lender transfers title of the security to the borrower, and the borrower promises to return equivalent securities in the future, in exchange for return of the collateral. (Id. at ¶¶ 105-06). A short seller who accurately predicts that a stock price will decrease can profit by borrowing the stock, selling the "borrowed" stock at a high price to a third party, waiting for the stock price to fall, and then buying back the equivalent stock at the lower price to return to the "lender." (Id. at ¶¶ 95, 97, 105-06). This process is risky in part because stock loans typically have no set termination date; either the lender or borrower can terminate the loan at will. (Id. at ¶ 106).
A stock lending transaction generally involves a number of different parties. (AC ¶ 97). The owner of the stock is known as the "stock lender" or the "beneficial owner." (Id. ). An intermediary agent, called an "agent lender," works for the lender in exchange for a portion of the lending fee. (Id. ). Agent lenders are often banks that service many lenders, and thus have large aggregate collections of stocks to loan out. (Id. at ¶ 107). A "broker-dealer" acts as an intermediary matchmaker between the agent lenders and prospective borrowers. (Id. at ¶ 97). The broker-dealer collects a fee from the borrower, takes a cut, and pays the remainder to the lender. (Id. ). At present, broker-dealers do not reveal to either lenders or borrowers what their counterparty has paid or received, or what percentage of the fee the broker-dealer has pocketed. (Id. ). "Stock borrowers" are generally investors who borrow stocks to facilitate short selling. (Id. ).
The stock loan market is known as an "over-the-counter" (or "OTC") market because it has no central marketplace where participants can engage in direct exchanges, or obtain real-time data about trading prices and transaction volumes. (AC ¶ 98). These characteristics of the market leave prospective lenders and borrowers dependent on the broker-dealer intermediaries, who often set the price of a trade without negotiation, and who keep data about the prices and volume of trades hidden from the market as a whole. (Id. at ¶¶ 98-99).
"Prime brokers" are broker-dealers who offer an array of services that include stock lending. (AC ¶ 102). Between 2014 and 2017, the Prime Broker Defendants controlled between 76% and 80% of market share for prime brokerage services, and, accordingly, the vast majority of real-time price and volume data. (Id. at ¶¶ 102-03). In 2016, the Prime Broker Defendants' share of lending fees amounted to approximately 65% of total industry revenue. (Id. at ¶ 113). In presumed justification, Defendants represented to their clients that one aspect of their role as prime brokers was to "protect[ ] clients from credit and counterparty risk by standing between clients and lenders in every stock loan trade." (Id. at ¶ 147).
Plaintiffs allege that the stock loan market has failed to evolve alongside other, more efficient markets for financial services that take advantage of central electronic trading exchanges, where buyers and sellers can transact more directly, and more transparently, such as the publicly-traded stock exchange. (AC ¶¶ 114-16). Financial markets with central electronic trading exchanges operate through a central counterparty, called a "clearinghouse," which acts as an intermediary between lenders and borrowers, and which guarantees the obligations of each to the other, thereby reducing risk from counterparty default. (Id. at ¶¶ 9 n.3, 116 n.25). "The clearinghouse becomes the borrower to every lender and the lender to every borrower ... [and] maintains sufficient capital to stand behind every trade it clears." (Id. at ¶ 145). Participants on these central electronic trading exchanges transact with the clearinghouse via "clearing brokers," who match buyers and sellers, and who sponsor the participants' access to the central clearing platform. (Id. at ¶¶ 115, 116 n.25).
Clearing brokers are generally members of the clearinghouse who have contributed to its capitalization. (AC ¶ 120 n.26). They "vouch for a counterparty's credit with the clearinghouse ... [and t]he clearinghouse then clears the trade, having marked the transaction against the sponsoring clearing member's credit." (Id. ). In 2016, OCC was the only major clearinghouse that both was licensed by the SEC to clear securities lending transactions and offered clearing of stock loan trades. (Id. at ¶ 289). It is alleged that central clearing threatened Defendants' prime brokerage business in part because, with central clearing, the clearinghouse assumed the risk of counterparty default against which Defendants purported to protect their clients. (Id. at ¶ 147).
Plaintiffs allege that the lack of a central electronic trading exchange, and the opacity of price and volume data, in the stock loan market impede price consistency, obstruct performance benchmarking of service providers, and enable the Prime Broker Defendants to charge excessive fees as middlemen. (AC ¶¶ 103-04, 116, 118). Plaintiffs allege that a regulated, centralized exchange would lower borrowing costs and increase returns for stock loan transactions. (Id. at ¶ 119).
3. The New Market Entrants
a. Quadriserv/AQS:
During the period relevant to the Amended Complaint, several entities attempted to bring innovation to the stock loan market. In 2001, industry veterans founded Quadriserv to provide new financial services to that market. (AC ¶ 127). One early Quadriserv product offered a "give to get" data-sharing service for daily stock loan transactions. (Id. at ¶¶ 128-29). Quadriserv launched another early product that acted as a registered broker-dealer, raised capital to make it a creditworthy counterparty, and matched borrowers and lenders anonymously for a flat, transparent fee. (Id. at ¶¶ 140-42). By 2005, more than $2 billion in stock loan transactions were matched on the Quadriserv platform, which maxed out the platform's credit exposure limit. (Id. at ¶ 143).
Quadriserv then began developing a second platform through its subsidiary, Automated Equity Finance Markets, Inc. ("AQS"). (AC ¶ 144). In or about 2005 or 2006, AQS began negotiating a partnership whereby OCC would provide central clearinghouse services for AQS transactions. (Id. at ¶ 148). As noted, the Prime Broker Defendants viewed central clearing as a threat to their control of the stock loan market. (Id. at ¶ 147). Accordingly, AQS undertook a series of moves to evade the influence of the Prime Broker Defendants' representatives on the OCC Board, following which the Board passed a proposed deal with AQS. (Id. at ¶¶ 149-52).
On January 7, 2009, Quadriserv launched AQS and announced its agreement with OCC. (AC ¶ 154). According to an OCC newsroom release dated January 7, 2009, AQS offered a platform to "match lenders and borrowers using a hybrid auction and continuous price discovery mechanism" where "matched loans [would] be processed through the OCC, which [would] provide central counterparty guarantees." (Id. ). OCC began providing central clearing services for AQS transactions in early 2009. (Id. at ¶ 156). In late 2009, AQS announced that Eurex, a European clearinghouse, had agreed to provide central clearing services for AQS transactions involving European equities. (Id. ).
By September 2009, AQS was "primed" to offer direct stock loan transactions via clearing brokers, in partnership with OCC and SunGard's Loanet platform, which is an "accounting and settlement processing system for securities lending[.]" (AC ¶¶ 161-62). In October 2010, SunGuard integrated its technology with AQS, and a SunGuard vice president and general manager stated that SunGuard's customers had "responded favorably" to the integration. (Id. at ¶¶ 162-63). AQS provided trade matching, access to central clearing via a broker, live pricing data, daily liquidity data, and the option to trade anonymously. (Id. at ¶¶ 146, 159).
AQS received "strong encouragement" from the Federal Reserve Bank of New York, which thought AQS had potential to improve systemic risk controls in the stock loan market. (AC ¶ 155). AQS also received support from Barclays Global Investors, an asset manager and stock lender; Renaissance Technologies, a quantitative hedge fund and stock borrower; Bessemer Ventures, a venture capital fund; and Deutsche Bourse, an exchange that supported AQS through its subsidiaries, one of which was Eurex. (Id. at ¶ 160). AQS received approximately $100 million in investment funds. (Id. at ¶ 299). Citi was an early investor in AQS. (Id. at ¶ 157 n.37). Defendant Bank of America made equity investments in AQS in 2007, 2008, 2009, and 2011. (Id. at ¶ 205). Some hedge fund clients switched their prime brokerage services to Bank of America, "expressly referencing AQS in their decisions to do so." (Id. at ¶ 157 (emphasis in original) ). AQS also received support from "numerous agent lenders" because of its ability to reduce fees. (Id. at ¶ 165). AQS's own analysis of the market predicted that its services would "increase the market volume" and reduce broker-dealer fees by over 30%. (Id. at ¶¶ 167-69).
b. SL-x:
SL-x, which stands for "securities lending exchange," was founded in late 2010. (AC ¶ 172). SL-x was designed to enable "prime brokers, broker-dealers, and agent lenders" to communicate bids and offers simultaneously to all of their existing market contacts, and to engage in simultaneous negotiations, without requiring a phone call, Bloomberg message, instant message, fax, or other one-to-one means of communication. (Id. at ¶¶ 173-75). SL-x provided an automated matching service for "easy-to-borrow stock" transactions, and a preliminary screening service for potential counterparties. (Id. at ¶¶ 175, 180). Broker-dealers and agent lenders could trade anonymously on the SL-x platform, which could "progressively reveal information about each party, and important criteria such as number and price of securities and the nature and amount of collateral." (Id. at ¶¶ 179-80). SL-x also permitted access to central clearing through Eurex for trades in certain European stocks, and "took steps to access central clearing in the U.S.," such as beginning negotiations with, and building a platform that could connect to, OCC. (Id. at ¶¶ 178, 233). Centrally-cleared SL-x transactions "were estimated" to provide broker-dealers with "more than $8 billion in capital savings benefits through balance sheet risk weighting and the zeroing out of counterparty credit risk when facing a central counterparty[,]" in addition to "reduced operational and administrative costs." (Id. at ¶ 181).
SL-x also planned to offer "a real-time display of the price and quantity of completed loans" (which would reveal the fees taken by the Prime Broker Defendants). (AC ¶¶ 175, 183-84). SL-x intended to provide "real-time pricing information (including stock name, trade time, trade quantity, and trade price) on a live ticker viewable by all platform participants, providing an up-to-the-minute stream of available, actionable stock loan prices for all SL-x users." (Id. at ¶ 177). In addition, SL-x "worked to integrate data and analytics from other market sources." (Id. ).
SL-x received initial positive reception. One Prime Broker Defendant called SL-x "the most intelligent, thoughtful and usable approach to the [stock loan] market that we have ever seen." (AC ¶¶ 227, 230-32). And on December 4, 2012, UBS executives told SL-x that transitioning to a centrally-cleared market would in principle help market participants, and recognized "the unmistakable momentum arising from regulatory considerations and other pressures" toward central clearing. (Id. at ¶ 231). In an October 16, 2012 meeting, Karl von Buren, HSBC's Global Head of Equity Finance, told SL-x executives that the stock loan market was moving towards central clearing, and that HSBC might embrace SL-x. (Id. at ¶ 232). J.P. Morgan Chase executives also acknowledged that central clearing would benefit the stock loan market overall. (Id. ).
In meetings with SL-x executives on February 26, March 19, May 9, July 10, and September 6, 2013, executives from Credit Suisse, Deutsche Bank, J.P. Morgan, Citigroup, and UBS praised the SL-x platform. (AC ¶ 230). Specifically, on February 26, 2013, in a meeting in London, Karl Bishti, the European Prime Brokerage Desk Head at Credit Suisse and an Associate Director of EquiLend, told SL-x executives that the stock lending market would "change overnight" to increase automation and efficiency if SL-x gained broad support. (Id. at ¶¶ 240-41). Bishti raved that SL-x had "all the bells and whistles" he expected, lacked nothing, and had "no shortcomings" that would impede its marketability. (Id. at ¶ 230). Kevin Soobadoo, Head of Supply Trading at Deutsche Bank, called the SL-x platform "brilliant," "impressive," and the "most state-of-the-art piece of kit to hit the securities lending space." (Id. ). On February 28 and October 17, 2013, executives from Nomura and Société Générale called the platform "fantastic" and "really an awesome product." (Id. ). And on September 6, 2013, UBS executives Casey Whymark and Laurent Issner called the platform "very cool" and noted that they were "impressed." (Id. ).
c. Data Explorers
In 2002, securities market participants founded Data Explorers, which initially offered a "give to get" data-aggregation service for stock loan transactions that enabled customers to compare the prices for their own transactions to those of comparable market participants. (AC ¶¶ 130-34). By 2007, every major agent lender and 20 borrower clients were participating in the service. (Id. at ¶ 137). By 2009, Data Explorers had acquired market data from both agent lenders and beneficial owners. (Id. at ¶ 185). Several Prime Broker Defendants also shared pricing data with Data Explorers in return for market analytics. (Id. at ¶ 138).
Data Explorers provided separate products for agent lenders and borrowers, and strictly segregated the data for each. (AC ¶ 136). Plaintiffs allege that Data Explorers maintained this segregation for the benefit of the Prime Broker Defendants, who remained the sole actors in the market who knew the "spread" between what borrowers were charged and what lenders received. (Id. at ¶¶ 136, 139). However, in or about 2010, Data Explorers began to offer "performance" data, and also started successfully marketing its product to other types of customers, including hedge funds. (Id. at ¶¶ 187-88). The performance data service enabled end-user borrowers and lenders to compare the financial terms of their own trades to those of comparable trades. (Id. at ¶ 188).
4. EquiLend
If AQS, SL-x, and Data Explorers were the enfants terribles of the stock loan world, EquiLend was the anachronism against which they rebelled. EquiLend was founded in 2001 and provides primarily post-trade "reconciliation" services for stock loan transactions, verifying that the shares, the margins, and the collateral were handled correctly, as well as other post-trade services such as billing delivery and recalls. (AC ¶ 305). EquiLend also offers a daily automated service to effect transactions for stock loans between agent lenders and broker-dealers at predetermined fixed rates. (Id. at ¶ 306). However, it "does not offer fully electronic, price-transparent trading capabilities or the ability to negotiate terms with multiple potential counterparties simultaneously, nor does it offer central clearing to market end users." (Id. at ¶ 307).
Plaintiffs allege that the Prime Broker Defendants "used their positions on the EquiLend Board to co-opt EquiLend as a vehicle through which to promote and achieve their anticompetitive objectives." (AC ¶ 304). For most of the Class Period, EquiLend had ten owners, six of whom were the Prime Broker Defendants. (Id. at ¶¶ 122, 309). Numerous members of EquiLend's Board of Directors were employees of the Prime Broker Defendants. (Id. at ¶ 309). EquiLend's directors met regularly to discuss "industry challenges such as central clearing." (Id. at ¶¶ 249-50). Under the Prime Broker Defendants' control, EquiLend acted "in illegitimate, non-competitive ways ... that in many cases did not further its own economic interests." (Id. at ¶ 304). Specifically,
[t]he Prime Broker Defendants used EquiLend to: (i) suppress price transparency by refusing to release pricing data to its customers, despite having access to this data and despite a clear market demand for such data; (ii) force competitors out of the market by coercing their customers to use EquiLend ... even though EquiLend ... offered lower quality or entirely different services than what their customers desired and what prospective competitors offered; and (iii) stymie pro-competitive market developments by purchasing valuable patents and trading platform technology from SL-x and AQS for valuable consideration, and then refusing to use or capitalize on those assets in any way[.]
(Id. at ¶ 311).
Defendants' conspiratorial communications in emails, Bloomberg chats, text messages, internal memoranda, and recorded phone calls are allegedly housed on EquiLend's servers (as well as those of the individual Prime Broker Defendants). (AC ¶ 312). These communications show that Defendants told EquiLend's representatives, including its CEO, Brian Lamb, not to "break rank," and not to take action "until the 'EquiLend banks' determined as a group whether they would support any of the new platforms." (Id. at ¶ 16). Of note, when EquiLend Board member William Conley discussed ensuring that data transparency would not "kill our business," the businesses to which he was referring were those of the Prime Broker Defendants, not of EquiLend. (Id. at ¶ 313). During the Prime Broker Defendants' individual meetings with AQS and SL-x, they "made clear that they considered themselves bound by understandings reached in EquiLend board meetings." (Id. ).
The Amended Complaint proffers several allegations to support an inference of counter-profit behavior. In or about August 2011, Palamon Capital Partners and SL-x jointly proposed to acquire EquiLend at a price that would have yielded a profit for all parties. (AC ¶ 314). The EquiLend Board refused to engage or negotiate the offer. (Id. ). And in late 2014 or 2015, the tables were turned: "[T]he Prime Broker Defendants directed EquiLend to purchase [SL-x and AQS] to complete the elimination of them as competitors." (Id. at ¶ 270). Plaintiffs argue that, if "EquiLend had truly behaved as a profit-maximizing firm, it would naturally have ... capitalized on the valuable assets and technology" purchased from AQS and SL-x. (Id. at ¶ 315). One EquiLend executive "complained that EquiLend needed to upgrade its services and build something like SL-x, and EquiLend never did so." (Id. ). Based on these actions, Plaintiffs conclude that EquiLend "is not the independent joint venture that it purports to be[.]" (Id. at ¶ 319).
5. Defendants' Anticompetitive Conduct
a. Allegations Concerning AQS
To review, Plaintiffs allege that Morgan Stanley and Goldman Sachs led the other Prime Broker Defendants in a conspiracy to block new market entrants from offering electronic trading and clearing platforms and services to enhance price transparency. (AC ¶¶ 198-99, 212). As one facet of this conspiracy, the Prime Broker Defendants "agreed on a common stance vis-à-vis AQS." (Id. at ¶ 210). Following initial meetings with AQS executives in or about 2009, Goldman Sachs refused to support the AQS platform at all. (Id. at ¶¶ 196, 209). At a 2009 meeting between the head of the Stock Loan Desk at Bank of America and William Conley of Goldman Sachs, Conley said that he was "opposed to transparency in any form" because of the "spread" fees that Goldman Sachs made on stock loan transactions; indeed, Conley "got so angry at the mention of [AQS's] name that spit was coming out of his mouth." (Id. at ¶ 200). Conley pressured Bank of America to "reverse course and to join the opposition to Quadriserv/AQS[.]" (Id. ).
At the same time, Credit Suisse, J.P. Morgan, Morgan Stanley, and UBS each communicated to AQS "that the only way they would support the platform was if AQS made it ... a broker-only platform ... [and] lenders and borrowers would be barred from trading on the platform." (AC ¶ 210). When AQS refused, the Prime Broker Defendants agreed to starve AQS "by collectively refusing to participate on the platform, and thereby to keep their trade flow and trade data outside of the platform's electronic market." (Id. at ¶¶ 211-12). This collective boycott of AQS compromised its utility for other market participants. (Id. at ¶ 212).
In preparation for an SEC roundtable discussion on securities lending held on September 29 and 30, 2009, the Bank of America executive whom Conley had pressured "convened what he characterized as a meeting of 'the five families' ... so the Prime Broker Defendants could settle on their collective messaging[.]" (AC ¶ 202). Around the same time, Goldman Sachs's Conley, a Credit Suisse employee named Shawn Sullivan, and others held a private meeting in which they discussed electronic trading platforms, where "each agreed to oppose AQS and disparage AQS and central clearing during the roundtable discussion." (Id. at ¶ 203). One participant in that meeting later stated that she felt "sorry for what [they were] about to do" to AQS. (Id. ). At the subsequent SEC meeting, Sullivan spoke out against AQS, arguing that central clearing would reduce liquidity and expose beneficial owners to greater credit risk from counterparties. (Id. at ¶ 204).
By 2011, under pressure from Goldman Sachs, Morgan Stanley, Credit Suisse, and unspecified "others," Bank of America withdrew its support for AQS. (AC ¶¶ 205-06). More pointedly, "Bank of America/Merrill Lynch personnel who had formerly supported AQS were purged." (Id. at ¶ 206). Specifically, Mike Stewart, Global Co-Head of Equities and an advocate for AQS, "was abruptly replaced with ... Stuart Hendel, the former head of prime brokerage at Morgan Stanley and UBS." (Id. ). Hendel directed Bank of America personnel to disavow AQS, limited the volume of transactions that the Bank of America stock loan desk was permitted to place on AQS to a small fraction of prior volume, and made no further investments in AQS. (Id. at ¶ 207).
The Prime Broker Defendants also undertook to stop other market participants, including their clients, from using AQS. In 2012, Goldman Sachs threatened executives at agent lender BNY Mellon, including James Slater, its Head of Global Collateral Management and Securities Finance: If BNY Mellon used AQS for stock loan transactions, "Goldman Sachs would return all of the open stock borrowing trades with BNY and stop trading with the BNY stock loan desk altogether." (AC ¶ 218). Thereafter, BNY Mellon abruptly withdrew an offer to AQS of $50 million in credit and an agreement to participate actively on the AQS platform. (Id. at ¶ 18). And Defendants also threatened to cut off an array of services to their own hedge fund clients - including Renaissance Technologies, D.E. Shaw, Millennium Management, and SAC Capital - if those clients transacted on AQS. (Id. at ¶¶ 213, 215-16).
Finally, Defendants blocked access to AQS by refusing to serve as clearing brokers. OCC's by-laws required "that only broker-dealer members of OCC, such as the Prime Broker Defendants, could transact on AQS, either as the lender or borrower." (AC ¶ 214). Accordingly, the Prime Broker Defendants refused to "sponsor" their hedge fund clients' access to AQS by "stand[ing] in to facilitate and clear their trades." (Id. ). Plaintiffs allege that the Prime Broker Defendants would not have refused to provide their hedge fund clients with access to AQS if they were acting unilaterally, as each would have been concerned about losing customers to other prime brokers. (Id. at ¶ 217).
By the end of 2014, AQS was struggling to maintain sufficient liquidity to act as a financially viable stock lending platform, and was marginalized in the market. (AC ¶ 269). However, around the same time, a regulatory development sparked new interest in AQS. On January 1, 2014, the Basel Committee on Banking Supervision had issued a set of measures, known as "Basel III," that "required the Prime Broker Defendants to carry more capital on their balance sheet to cover the same risk" in stock loan transactions. (Id. at ¶ 274). One way banks could comply was to centrally clear stock loan transactions, "thereby offloading the risk to a central clearing counterparty." (Id. at ¶ 276). According to Plaintiffs, staff at each Prime Broker Defendant were siloed to such a degree that the "loan trading staff did not know, and were not told by senior management until later, that a move toward central clearing of stock loan transactions - while superficially beneficial under Basel III - would be disastrous to the bank's profitability on a much larger scale." (Id. at ¶ 278). Hence, the following drama.
In 2014, Susan O'Flynn, Global Head of CCP Strategy, Governance and Optimization at Morgan Stanley, began promoting central clearing of stock loan transactions as a way to comply with Basel III while reducing balance sheet costs and increasing returns on Morgan Stanley's stock lending business. (AC ¶ 281). O'Flynn publically supported central clearing through Eurex and OCC, though she did not share her support with senior management or executives on Morgan Stanley's stock loan desk. (Id. at ¶¶ 282-83). In late 2015 or early 2016, executives from Morgan Stanley's stock loan business became aware of O'Flynn's activities and told O'Flynn and her direct supervisor, Thomas Wipf, Global Head of Bank Resource Management, that central clearing threatened Morgan Stanley's business as a prime broker intermediary for stock loan transactions. (Id. at ¶¶ 281, 284).
Rather than retreat from the balance sheet cost savings that central clearing would provide, Wipf maintained the budget projections that O'Flynn had provided while imposing three conditions on centrally cleared trades. (AC ¶ 287). Specifically, Wipf required that (i) central clearing maintain price opacity, meaning that neither the borrower nor the lender would know the price at which their counterparty transacted; (ii) the clearinghouse not link to an independent trading platform; and (iii) the clearinghouse not publish market data from Morgan Stanley transactions. (Id. ). Wipf also wanted the Prime Broker Defendants to gain complete control of access to the clearinghouses so that market participants would have no other choice but to use the Prime Broker Defendants' services to clear trades. ( Id. at ¶ 288). That meant controlling OCC because, in 2016, OCC was the only clearinghouse licensed by the SEC that cleared stock loan trades. (Id. at ¶ 289).
At that time, OCC was negotiating a deal to acquire AQS, and AQS was developing a new service to assist lenders in investing the cash collateral from their loans through what are known as "repurchase agreements." (AC ¶¶ 291-92). Wipf devised a plan to stop the acquisition and gain exclusive control over all the pathways to central clearing, a plan that he and his colleagues at Morgan Stanley code-named "Project Gateway." (Id. at ¶¶ 21, 293). Between late 2015 and January 2016, Wipf and William Conley from Goldman Sachs met over a series of dinners in New York City that were paid for by Wipf. (Id. at ¶¶ 21-22, 294). Wipf and Conley agreed that Morgan Stanley and Goldman Sachs should acquire AQS in order to shut it down. (Id. ). Specifically, Wipf and Conley planned to persuade the other Defendants to use EquiLend to purchase AQS in order to destroy it. (Id. ).
In a January 2016 internal call, Wipf communicated the plan to his team at Morgan Stanley, which included Susan O'Flynn; Matthew Collins; Tejash Patel, the Managing Director and Co-Head of U.S. Securities Lending; and Thomas Kinnally, the Global Head of Client Financing, Firm Financing and Collateral Risk Management. (AC ¶¶ 22, 295). During the call, Wipf stated that he and Conley had agreed to "get a hold of this thing." (Id. at ¶¶ 22, 296). By use of that phrase, Wipf meant that "Goldman Sachs and Morgan Stanley needed to act together to acquire AQS and shut it down." (Id. at ¶ 296).
At a series of private dinners, meetings at industry conferences, and EquiLend board meetings, executives at Morgan Stanley and Goldman Sachs persuaded the other Defendants to join Project Gateway in order to maintain control over the "universal gateway" to central clearing. (AC ¶ 297). Defendants also agreed to clear all stock loan transactions through their own pipelines to OCC, which pipelines were not connected to an electronic trading platform. (Id. ). And Defendants agreed to exert influence, as Directors of OCC and EquiLend, to prevent OCC's acquisition of AQS. (Id. at ¶ 298).
Late in the negotiations between OCC and AQS, OCC abruptly pulled out of the deal and stopped returning AQS's calls. (AC ¶ 298). Shortly thereafter, on August 1, 2016, EquiLend purchased AQS's assets - the fruits of nearly $100 million in investment - for less than $5 million. (Id. at ¶¶ 299-300). Following the purchase, "the Prime Broker Defendants did not increase their participation in the new electronic trading platform or take other action to make it prosper." (Id. at ¶ 301).
b. Allegations Concerning SL-x
As with AQS, Goldman Sachs refused to support SL-x from the outset. (AC ¶ 196). In a private meeting in 2011, William Conley told other Goldman Sachs employees that any central trading platform with counterparty clearing threatened Goldman Sachs's market position. (Id. at ¶ 219). Conley told SL-x executives: "I ain't supporting this," informing them that the Prime Broker Defendants would only support the evolution of central clearing through an entity that they controlled, specifically EquiLend. (Id. at ¶ 220). Brad Levy, Global Head of Goldman Sachs' Principal Strategic Investments Group, told SL-x executives: "You ain't going to get this done." (Id. at ¶¶ 17, 220).
On August 1, 2011, SL-x sent a letter to EquiLend's Chairman, Jeffrey Benner, proposing a joint venture between SL-x and EquiLend that would afford EquiLend "strong governance rights and a meaningful 'seat at the table' in the development of the SL-x marketplace and shift to a CCP-model." (AC ¶ 221). The EquiLend Board members met in August and September 2011, decided against SL-x's proposal, agreed that no EquiLend member bank would support SL-x, and further agreed only to support such market innovations if developed within EquiLend. (Id. at ¶ 223).
On September 21, 2011, EquiLend's CEO, Brian Lamb, declined SL-x's offer. (AC ¶ 224). The same day, a Morgan Stanley employee, Edward McAleer, told SL-x that he had spoken (also on that day) with Anthony Schiavo, a Managing Director at Morgan Stanley and a Director at EquiLend, who said that SL-x should deal directly with EquiLend, not with Morgan Stanley, and that "approaching a group of brokers outside the EquiLend arena is not an approach he wants to take." (Id. at ¶ 226). On October 12, 2011, McAleer reiterated to SL-x, copying Schiavo on the communication, that "all the relevant people at MS" shared the "house view" that "we do not want to participate in a separate consortium," and noted Morgan Stanley's view "that any solution ... needs to involve EquiLend." (Id. at ¶ 227).
Thereafter, none of the Prime Broker Defendants supported SL-x individually. (AC ¶ 225). Each "withheld capital and support from SL-x through the fall of 2011 and throughout 2012[.]" (Id. at ¶ 228). From 2012 to 2014, SL-x executives met with and pitched its product to high-ranking stock loan executives at each of the six Prime Broker Defendants (Bank of America, Credit Suisse, Goldman Sachs, J.P. Morgan, Morgan Stanley, and UBS), all of whom sat on the board of EquiLend USA or EquiLend Europe. Each refused to support SL-x, allegedly as a result of the EquiLend agreement. (Id. at ¶ 229). In an October 2012 meeting with SL-x executives, some unspecified prime brokers expressed concern that SL-x provided "too much transparency," or "too much immediate transparency." (Id. at ¶ 184). SL-x refused a request from J.P. Morgan for "the ability to turn off the real-time ticker, or block certain trades from being included[.]" (Id. ).
The Prime Broker Defendants doubled down on this position in mid-to-late 2013, when they "agreed to boycott SL-x, collectively refused to use its platform, and took steps to ensure that other market participants turned their back on SL-x as well." (AC ¶ 236). Following initially enthusiastic meetings with SL-x executives, "each bank went cold and, without explanation, refused to engage or proceed further with SL-x." (Id. at ¶¶ 237-38). In July 2013, Credit Suisse declined to join the SL-x platform, explaining that it would only join if and when the "Big Boys" committed to doing so and SL-x had acquired substantial liquidity. (Id. at ¶ 241). Also in July 2013, UBS declined to join the SL-x platform, saying that it would not do so until SL-x had secured "commitments from other large market participants and demonstrate[d] evidence of significant liquidity." (Id. at ¶ 242). In meetings on July 26, 2013, and September 26, 2013, James Buckland, UBS's Global Head of Securities Lending, "frequently referenced EquiLend in the context of discussing SL-x's strategy to gain widespread market acceptance of its platform, noting the benefit of being 'inside the club ' of EquiLend member banks to effectuate market changes and suggesting that any market transition towards an SL-x platform and central clearing of stock loan trades would need to come from inside EquiLend." (Id. (emphasis in original) ).
As with AQS, the Prime Broker Defendants "in some instances threatened their clients with the loss of other prime brokerage services if they signed on to the SL-x platform[.]" (AC ¶¶ 237, 243). On October 12, 2012, Andrew Clayton, the Global Head of Securities Lending at stock lending agent Northern Trust, told SL-x executives that Northern Trust would not support SL-x without approval from Goldman Sachs. (Id. at ¶¶ 18, 252). In 2015, OCC's Chief Operating Officer told SL-x executives that "nothing was going to happen" between SL-x and OCC without approval from the Prime Broker Defendants and specifically from Goldman Sachs. (Id. at ¶ 253). DTCC's Managing Director also told SL-x that it could not offer central clearing services to SL-x without approval from the Prime Broker Defendants and, specifically, from Goldman Sachs. (Id. ).
The Prime Broker Defendants were aware that EquiLend was an "archaic" and "entrenched although unexciting system," with poor functionality that could not compete with SL-x's capacity. (AC ¶¶ 247-49). Nonetheless, they communicated "similar statements" that they would only support innovations such as SL-x's from within EquiLend. (Id. at ¶ 245). On February 26, 2013, Credit Suisse representatives told SL-x executives that "a successful launch will require cooperation of EquiLend." (Id. at ¶ 246). On June 18, 2014, in a meeting in Berlin, Morgan Stanley executives, including EquiLend Board member Edward McAleer, told SL-x that Morgan Stanley would only support central clearing through EquiLend. (Id. at ¶ 243). At a meeting on July 19, 2013, Bishti told SL-x that winning market support would mean "facing off against EquiLend" and that transitioning to central clearing would require "cooperation" and "collaboration" with EquiLend; described EquiLend's Directors as "key players" and "members of the club"; and compared EquiLend to "the mafia run by five crime families[.]" (Id. at ¶¶ 241, 249). On August 7, 2013, John Shellard, Managing Director of Trading Services at J.P. Morgan and EquiLend Board member, told SL-x executives that there was a "general agreement among Directors" of EquiLend "that industry advances should be achieved from within EquiLend," rather than through third parties like SL-x. (Id. at ¶¶ 17, 239). In July 2014, Bank of America told SL-x executives that there was internal controversy about how endorsing SL-x's product would affect Bank of America's relationship with EquiLend. (Id. at ¶ 244).
By September 2014, SL-x had exhausted its financial resources, cancelled its U.K. trading license, and abandoned plans to enter the U.S. market. (AC ¶ 268). After SL-x "shut its doors," the Prime Broker Defendants began negotiating with SL-x's private equity owner to purchase SL-x's intellectual property. (Id. at ¶ 271). In 2015, EquiLend purchased SL-x's intellectual property, without undertaking full due diligence, and allegedly with no intent to actually use it. (Id. at ¶ 272). EquiLend has since shelved the patents. (Id. ).
c. Allegations Concerning Data Explorers
With its 2010 offering of "performance" data, the Prime Broker Defendants became "increasingly wary that Data Explorers would eventually package data that would expose the breadth of the price gap between borrowers and lenders[.]" (AC ¶ 186). During ten meetings that spanned 2011-2012, two Goldman Sachs employees, Shawn Byron and William Conley, "grilled Data Explorers" about "siloing borrower and lender data, despite Data Explorers' constant assurances that there was no leakage." (Id. at ¶ 189). Defendants "gradually decided they could not entrust market data to a firm they did not control." (Id. at ¶ 190). Accordingly, Goldman Sachs began contacting hedge funds, including SAC Capital Advisors, to stop them from sharing data with Data Explorers, achieving mixed success. (Id. at ¶ 191). "In approximately the second or third quarter of 2010, a representative from Goldman Sachs contacted Peter Economou at State Street (a large, influential agent lender) and demanded that State Street not report any of the trading data concerning State Street's trades with Goldman Sachs to Data Explorers, threatening State Street's business if it did not comply." (Id. ). State Street refused to comply. (Id. ). "[W]hen borrower clients instructed Morgan Stanley to provide Data Explorers with their market data, Morgan Stanley would provide a file that contained stale, sparsely populated data scrubbed clean of any timely or actionable information." (Id. at ¶ 192).
At a meeting of the EquiLend Board of Directors, William Conley stated that transparency about the spread between the fees paid to beneficial owners and those collected from borrowers would "kill our businesses." (AC ¶ 255). In response, the Prime Broker Defendants agreed to "neutralize" Data Explorers by "set[ting] up a competing business" called DataLend, which was formed as a division within EquiLend in 2011. (Id. at ¶¶ 255, 257).
The Prime Broker Defendants each agreed (first amongst one another and subsequently with DataLend) to distribution agreements with DataLend that ensured that their data would not be disclosed to lenders or borrowers, and specifically that data about what borrowers paid for stock loans would not be disclosed to beneficial owners. (AC ¶ 257). Plaintiffs allege that DataLend's purpose was to offer a bare minimum of data to compete with Data Explorers while still withholding transparency about the Prime Brokers' fees. (Id. at ¶ 258). Accordingly, the Prime Broker Defendants allegedly told Data Explorer's customers that it was "inaccurate and unreliable." (Id. at ¶ 259).
The Prime Broker Defendants also attempted to stop borrowers and lenders from accessing each other's data directly by seeking "to monopolize access to" agent lender data about aggregate stock loan supply. (AC ¶ 260). To accomplish this, DataLend sought to lure away Data Explorer's agent lender customers by offering "to provide the same data services to agent lenders effectively for nothing." (Id. at ¶¶ 261-62). All major agent lenders except BNY Mellon were members of EquiLend and were "offered DataLend's products for no additional fee." (Id. at ¶ 261). "Agent lenders used the new stream of low-cost information provided by DataLend to renegotiate prices with Data Explorers," causing Data Explorers' revenues to drop. (Id. at ¶ 264). The hobbled Data Explorers was acquired by another company over which Defendants allegedly wielded influence, and which has not indicated an interest in "carrying out Data Explorers' original vision of bridging the data divide between wholesale and retail customers." (Id. at ¶ 265).
B. Procedural Background
Plaintiffs filed an initial Complaint on August 16, 2017 (Dkt. # 1), and an Amended Complaint on November 17, 2017 (Dkt. # 73). On January 26, 2018, Plaintiffs voluntarily dismissed all claims against Defendants Bank of America Corporation; Credit Suisse Group AG; The Goldman Sachs Group, Inc.; J.P. Morgan Chase & Co.; Morgan Stanley; Morgan Stanley Capital Management, LLC; and UBS Group AG, without prejudice to their inclusion at a later time. (Dkt. # 105). The parties stipulated that any statutes of limitations or repose concerning the claims against these dismissed Defendants would be tolled as if they were filed on August 16, 2017. (Id. ).
On January 26, 2018, the Prime Broker Defendants filed a joint motion to dismiss the Amended Complaint (Dkt. # 109), and Defendant EquiLend filed its own motion to dismiss the Amended Complaint (Dkt. # 106). Plaintiffs filed oppositions to both of these motions, separately, on March 2, 2018. (Dkt. # 112, 113). The Prime Broker Defendants and Defendant EquiLend filed separate replies on March 30, 2018. (Dkt. # 114, 115).
DISCUSSION
A. Applicable Law
1. Motions to Dismiss Under Federal Rule of Civil Procedure 12(b)(6)
"To survive a [ Rule 12(b)(6) ] motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "A claim is facially plausible 'when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.' " Allco Fin. Ltd. v. Klee , 861 F.3d 82, 94-95 (2d Cir. 2017) (quoting Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 ). "While Twombly does not require heightened fact pleading of specifics, it does require enough facts to 'nudge [a plaintiff's] claims across the line from conceivable to plausible.' " In re Elevator Antitrust Litig. , 502 F.3d 47, 50 (2d Cir. 2007) (quoting Twombly , 550 U.S. at 570, 127 S.Ct. 1955 ). In determining a Rule 12(b)(6) motion to dismiss, "the only facts to be considered are those alleged in the complaint, and the court must accept them, drawing all reasonable inferences in the plaintiff's favor." Doe v. Columbia Univ. , 831 F.3d 46, 48 (2d Cir. 2016).
2. Restraints of Trade in Violation of the Sherman Act, 15 U.S.C. § 1
To state a claim under Section 1 of the Sherman Act, a plaintiff must show "[i] a combination or some form of concerted action between at least two legally distinct economic entities that [ii] unreasonably restrains trade." United States v. Am. Express Co. , 838 F.3d 179, 193 (2d Cir. 2016). The Court considers each of these elements in turn.
To plead the first element, a plaintiff must show whether "the challenged conduct 'stems from independent decision or from an agreement, tacit or express.' " Mayor & City Council of Baltimore, Md. v. Citigroup, Inc. , 709 F.3d 129, 135 (2d Cir. 2013) (quoting Starr v. Sony BMG Music Entm't, 592 F.3d 314, 321 (2d Cir. 2010) ). "Agreements that fall within the scope of Section 1 are characterized as either 'horizontal' or 'vertical.' " In re Zinc Antitrust Litig. , 155 F.Supp.3d 337, 376 (S.D.N.Y. 2016). "A horizontal agreement is an 'agreement between competitors at the same level of the market structure,' while a vertical agreement is a 'combination[ ] of persons at different levels of the market structure.' " Id. (quoting United States v. Topco Assocs., Inc. , 405 U.S. 596, 608, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972) ).
" Section 1 does not disallow any and all agreements; it disallows only those 'in restraint of trade or commerce among the several States.' " In re Elec. Books Antitrust Litig. , 859 F.Supp.2d 671, 682 (S.D.N.Y. 2012) (quoting 15 U.S.C. § 1 ). Moreover, Section 1"outlaws only unreasonable restraints." Leegin Creative Leather Prods., Inc. v. PSKS, Inc. , 551 U.S. 877, 885, 127 S.Ct. 2705, 168 L.Ed.2d 623 (2007). Therefore, to plead the second element, a Plaintiff must show that the concerted action was unreasonable. Courts generally evaluate reasonableness under the "rule of reason," which requires courts to weigh "all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition," including factors such as the relevant business and the history, nature, and effect of the restraint. Id.
B. The Prime Broker Defendants' Motion to Dismiss Is Denied
1. The Amended Complaint Adequately Alleges That Defendants Conspired to Restrain Trade in Violation of 15 U.S.C. § 1
a. Applicable Law
Defendants focus their efforts on Plaintiffs' pleading of the first element of a Sherman Act claim: whether there has been "a combination or some form of concerted action between at least two legally distinct economic entities[.]" Am. Express Co. , 838 F.3d at 193 (internal quotation marks and citation omitted). Their opening sortie is to argue that Plaintiffs have failed to plead a plausible antitrust conspiracy. Such an argument presents a high hurdle in the context of a motion to dismiss, and a hurdle that is not crossed here.
"A plaintiff's job at the pleading stage, in order to overcome a motion to dismiss, is to allege enough facts to support the inference that a conspiracy actually existed." Citigroup , 709 F.3d at 136 ; accord Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ("[S]tating [a Section 1 ] claim requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made."). "To survive dismissal, 'the plaintiff need not show that its allegations suggesting an agreement are more likely than not true or that they rule out the possibility of independent action, as would be required at later litigation stages such as a defense motion for summary judgment, or a trial.' " Gelboim v. Bank of Am. Corp. , 823 F.3d 759, 781 (2d Cir. 2016) (quoting Anderson News, LLC v. Am. Media, Inc. , 680 F.3d 162, 184 (2d Cir. 2012) ), cert. denied , --- U.S. ----, 137 S.Ct. 814, 196 L.Ed.2d 599 (2017). "Instead, a well-pleaded complaint may proceed even if ... actual proof of those facts is improbable, and ... a recovery is very remote and unlikely as long as the complaint presents a plausible interpretation of wrongdoing." In re London Silver Fixing, Ltd., Antitrust Litig. , 213 F.Supp.3d 530, 558 (S.D.N.Y. 2016) (emphasis in original) (internal quotation marks and citations omitted).
b. Discussion
Defendants' arguments with respect to the first element of Section 1 touch on six main issues, which the Court will address in turn: (i) facial plausibility; (ii) group pleading; (iii) direct evidence of conspiracy; (iv) parallel conduct; (v) so-called "plus factors"; and (vi) the sufficiency of the pleadings with particular respect to Bank of America, J.P. Morgan, UBS, and Credit Suisse.
i. The Alleged Conspiracy Is Facially Plausible
Defendants first argue that Plaintiffs' conspiracy theory is facially implausible. For the reasons that follow, the Court finds otherwise.
Duration and Membership: Defendants contend that it is facially implausible that "just six prime brokers effected a nine-year conspiracy that blocked the migration of stock loans to an anonymous exchange[,]" when borrowers, lenders, and agent lenders could have dealt with the "dozens of other prime brokers" in existence. (Def. Br. 17). Defendants cite no legal authorities to support this assertion, and the Court is aware of none. (Id. ).
As an initial matter, the Court agrees with Plaintiffs that there is nothing facially implausible about the timeline of the alleged conspiracy, which began in 2009 with Goldman Sachs and Morgan Stanley, expanded by 2011 to include the other Defendants in a "general agreement," and continued "until the boycott achieved its objectives." (Pl. Opp. 20; AC ¶¶ 195-208, 239). Cf. In re Foreign Exch. Benchmark Rates Antitrust Litig. , 74 F.Supp.3d 581, 585, 587 (S.D.N.Y. 2015) (finding that allegations of a "long-running conspiracy" that endured for "over a decade" were plausible).
Contrary to Defendants' contentions, it is also not facially implausible that a small subset of prime brokers could bring about an actionable conspiracy, because the six named Prime Broker Defendants allegedly controlled between "76% and 80% of the market share in the stock loan market," and used that "overall clout in the market" to discourage others from investing in, or patronizing, AQS, SL-x, and Data Explorers. (AC ¶¶ 102, 122; Pl. Opp. 20). Plaintiffs argue, not without force, that it is not facially implausible for market participants who control this percentage of market power to carry out an effective group boycott. (Pl. Opp. 21). See, e.g., Fashion Originators' Guild of Am. v. Fed. Trade Comm'n , 312 U.S. 457, 462, 465, 61 S.Ct. 703, 85 L.Ed. 949 (1941) (finding that members of a garment manufacturing and distribution guild, who collectively sold between 38% and 60% of all women's garments within a particular price range, and thus "occup[ied] a commanding position in their line of business[,]" carried out a group boycott in violation of the Sherman Act); Starr , 592 F.3d at 323-24 (vacating the dismissal of an antitrust complaint that alleged price-fixing based on parallel conduct by defendants who controlled over 80% of the market). Of course, at later stages of litigation, Plaintiffs will be required to show in more detail how Defendants effectuated the alleged conspiracy. Cf. Fashion Originators' Guild of Am. , 312 U.S. at 461, 463, 61 S.Ct. 703 (observing that the boycott was effectuated through signed cooperation agreements and audits of members' books). But at the pleading stage, allegations of a conspiracy undertaken by six defendants that controlled 76% to 80% of the market are not rendered facially implausible by virtue of the existence of other market participants who could have transacted with the boycotted businesses.
EquiLend Board Meetings: Defendants next argue, again without reference to legal authority, that it is implausible that the conspiracy was planned at EquiLend board meetings because those meetings included "large agent-lenders" who supported the victim businesses and whose clients would have been harmed by the conspiracy. (Def. Br. 17; Def. Reply 4). Plaintiffs respond that the agent lenders on EquiLend's Board were themselves "entrenched" actors who "may well have their own incentives to preserve the status quo" and align themselves with Defendants, including vulnerability to pressure from the Defendants. (Pl. Opp. 27-30).
The parties' dispute on this issue amounts to a battle of competing inferences about who had the agent lenders' greatest loyalty. On a motion to dismiss, the Court must draw "all reasonable inferences in the plaintiff's favor[.]" Columbia Univ. , 831 F.3d at 48. Here, the Amended Complaint alleges sufficient facts to support a reasonable inference in Plaintiffs' favor: namely, that the agent lenders were willing to align themselves with Defendants, even to the detriment of their own clients. For instance, the Amended Complaint alleges that "the other owners of EquiLend effectively acquiesce[d] to the Prime Broker Defendants" due to the latter's overall market clout (AC ¶ 122); that agent lenders BNY Mellon, State Street, and Northern Trust told SL-x that they "could not support it" because the Prime Broker Defendants "were aligned against the platform" and because their own conduct "was subject to the approval of" a Prime Broker Defendant (id. at ¶¶ 18, 218, 251-52); and that Defendants "lure[d]" agent lenders with services provided "at very little cost or, in some cases, virtually for free (id. at ¶¶ 261-62). Moreover, as Plaintiffs point out, the Amended Complaint also alleges numerous meetings in furtherance of the conspiracy that took place outside of EquiLend, such as at Wipf's dinner meetings with Conley and internal Morgan Stanley "pipeline call," and other "private dinners and meetings that often occurred at industry conferences[.]" (Pl. Opp. 27; AC ¶¶ 21-22, 297). Drawing all reasonable inferences in Plaintiffs' favor, the mere presence of the agent lenders in some of the meetings where the conspiracy was allegedly formed does not undercut the Amended Complaint's explication of that formation.
Access to OCC: Defendants also argue that the conspiracy is implausible because the bylaws of the sole central clearinghouse, OCC, prevent lenders and borrowers from transacting directly and require instead that they clear stock loans through broker-dealer members of OCC. (Def. Br. 18; AC ¶¶ 120 n.26, 214). In essence, Defendants characterize the Amended Complaint as alleging that they unlawfully agreed not to provide clearing broker services that would have afforded borrowers and lenders access to OCC - even though, according to Defendants, providing such services was not required by regulation and would not have been in their economic self-interest, as shown by the fact that the Amended Complaint does not allege that any of the roughly 60 other broker-dealer members of OCC chose to provide the service either. (Def. Br. 19; Def. Reply 3; AC ¶¶ 120 n.26, 154 n.36; see also id. at ¶¶ 13-14, 214).
Defendants point out that the Amended Complaint does not allege that they "did anything to discourage or prevent" other brokerage firms from offering clearing broker services. (Def. Br. 19). From this, they seek to analogize this case to In re Interest Rate Swaps Antitrust Litigation , in which a sister court in this District dismissed as implausible an antitrust complaint that alleged a conspiracy to destroy central clearing platforms for all-to-all interest rate swaps ("IRS") trading, where there was no regulatory mandate that required central clearing of such transactions, and where the infrastructure for such platforms did not yet exist. (Id. (citing In re Interest Rate Swaps Antitrust Litig. , 261 F.Supp.3d 430, 463-72 (S.D.N.Y. 2017) (" In re IRS ") ). Defendants here posit that the lack of "clearing brokers willing to clear stock loans through OCC" in the present action is similar to the absence of infrastructure in In re IRS . (Id. ).
Defendants misconstrue the Amended Complaint. It does not allege that the conspiracy aimed to prevent borrowers and lenders from transacting directly without a clearing broker intermediary, and thus whether such transactions were permitted by OCC is of no moment. Nor does the Amended Complaint allege - or need to allege - that Defendants conspired to stop any of the roughly 60 other broker-dealer members of OCC from offering clearing broker services. Rather, the Amended Complaint alleges that Defendants refused to provide their own clients with clearing broker services, and threatened their clients, as well as other market participants, to prevent them from taking advantage of any such opportunities that OCC's other broker-dealer members mi