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Treasury Securities Dealers Accused of Collusion in Lawsuit

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Bank of America Corp., Goldman Sachs Group Inc. and JPMorgan Chase & Co. are among 22 financial companies accused of colluding to manipulate auctions of U.S. Treasury securities in a lawsuit filed by investors.

A pension fund for Boston public employees alleged the so-called primary dealers used electronic chatrooms and instant messages to inflate the prices of treasuries they sold to investors and to deflate the prices they paid for those treasuries at auction.

“As a result of defendants’ unlawful manipulation of the treasuries market, the prices of when-issued treasury securities were artificially high and the prices of treasury securities at auction were artificially low,” the fund said in a complaint filed Thursday in federal court in Manhattan. “This scheme maximized defendants’ profits at the expense of their customers and others in the market.”

The U.S. Justice Department has begun looking at possible collusion in the $12.7 trillion U.S. Treasury market after securing guilty pleas and $6 billion in fines from global banks in a similar investigation of currency rigging.

Dozens of times a year before the Treasury holds an auction, salespeople at 22 primary dealers field billions of dollars in bids for government debt. Traders working at some of these financial institutions have the opportunity to learn specifics of those bids hours ahead of the auctions, several people familiar with these operations said last month.

Lawrence Grayson, a spokesman for Bank of America, Tiffany Galvin, a spokeswoman for Goldman Sachs, and JPMorgan spokesman Joe Evangelisti all declined to comment on the lawsuit.

The case is State-Boston Retirement System v. Bank of Nova Scotia, New York Agency, 15-CV-05794, U.S. District Court, Southern District of New York (Manhattan).

— Check out Making the Case for High-Yield Bonds Before the Fed Rate Hike on ThinkAdvisor.