Treasury Market-Rigging Further Disrupts the Middle Class

By Barry Elias | Friday, 02 Oct 2015 06:48 AM

The U.S. Department of Justice and the New York State Department of Financial Services are looking into possible manipulation of the U.S. Treasury market by banks and brokers that serve as primary dealers to underwrite government debt.

To date, 23 lawsuits have been filed, with 2 more coming soon, that allege collusion by these institutions to enhance their profits at the expense of their investor clients. More than half of the cases brought forth thus far have been on behalf of pension funds, which predominantly serve the middle class.

The allegations claim the dealers inflated the price of newly issued Treasury securities that they sold to investors and lowered the price for securities they purchased from the U.S. Treasury. If accurate, this raises the cost of issuing Treasury security debt to taxpayers.

These cases include a comparable price analysis that was used in the market manipulation trials over the Libor — the London Interbank Offered Rate and the benchmark interest rate for lending between banks — and the currency markets, which resulted in more than $5.6 billion in penalties from six banks.

Gregory Asciolla, a partner at the law firm Labaton Sucharow, which is the lead counsel in two cases that involve the State-Boston Retirement System and Arkansas Teacher Retirement System, claims the auction and pre-auction market — also known as “when issued” — are “rigged.”

The Cleveland Bakers and Teamsters Pension Fund alleges the price was reduced in 69 percent of the auctions for securities in the secondary market — or those already in circulation. This analysis included data between 2007 and 2015.

Declining comment are the U.S. Treasury, The Federal Reserve Bank, and primary dealers contacted by The Financial Times.

Once again, high powered financial institutions continue to prosper at the expense of the middle class.

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