GSE Bonds Antitrust Litigation was a class action in which 16 of the world’s largest banks and financial institutions allegedly conspired to fix the prices of debt securities issued by government sponsored entities (“GSEs”), such as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. To fund operations critical to the financing of the US housing market, GSEs issue trillions of dollars in debt, underwritten by some of the largest financial institutions in the world.
Plaintiffs alleged that these underwriting financial institutions orchestrated a horizontal conspiracy to artificially inflate the price of GSE Bonds. Defendants allegedly used electronic communications (among other means) to set pricing floors when new bond issuances were brought to market in the “free-to-trade” phase. Dr. Caves developed an econometric bond pricing model to measure artificial inflation in GSE Bond prices attributable to the alleged conspiracy. Drawing on Dr. Caves’ peer-reviewed academic work, the econometric model applied a nonparametric representation of the price formation process to Defendants’ voluminous transactional data.
In late 2019—less than a year after the case was filed— 13 large banks and financial services companies initially agreed to pay $337 million to resolve claims by investors that they conspired to rig prices of bonds issued by mortgage companies. By January 2020, all 16 Defendants agreed to settle for a total of $386.5 million, resulting in a substantial recovery for investors nationwide.
In granting final approval of the settlement, Judge Rakoff of the Southern District of New York noted the “high quality” of plaintiffs’ counsel’s work throughout the “fast pace[d]” litigation, and noted that “expert work…was essential to the resolution of this complex case.” In recognition of this accomplishment, counsel for Plaintiffs received the American Antitrust Institute’s award for Outstanding Antitrust Litigation Achievement in Private Law Practice.