A group of Korean companies filed a class action suit against eight global investment banks in the United States on Monday, claiming that the big financial firms manipulated foreign exchange rates.
The IBs are Barclays, Citigroup, Credit Suisse, Deutsche Bank, JPMorgan Chase, National Association, Royal Bank of Scotland and UBS.
In their damages claim filed with a court in New York state, the plaintiff including Simmtech Co. said the IBs rigged foreign exchange rates via a cartel and ultimately inflicted losses on Korean firms.
The plaintiff added that the defendant violated the Sherman Antitrust Act and commercial laws of New York state.
“As the eight players are in charge of more than 60 percent of the world’s total foreign currency trading worth $4.7 trillion (5.1 quadrillion won) to $5.3 trillion, manipulation (via price-fixing practices) is certainly feasible,” said an attorney for the plaintiff.
Most of the Korean firms joining the suit were found to have suffered losses from their investment in financial derivatives during the 2008-09 global financial crisis.
As one example, North Chung-cheong Province-based Simmtech claimed that it underwent heavy losses from investment in the so-called knock-in-knock-out, or KIKO, currency options, which were aimed at hedging risks from sudden increases in the value of the Korean won against the U.S. dollar.
The victimized investors reportedly were not given a full explanation about the risky product when some IBs sold it to them.
The KIKO option became one of the most compelling examples of immorality in the banking sector after investors ― mostly small and mid-sized firms ― suffered investment losses worth trillions of won.
The options were designed to protect buyers from the Korean won’s sharp appreciation against the dollar, but the won actually fell sharply during the 2008 financial crisis, pushing many firms to the brink of collapse.
In a similar vein, according to recent allegations raised by some foreign media, dealers at the world’s biggest banks colluded with counterparts at different firms to boost the chances of moving the rates.
The manipulation occurred daily in the spot foreign exchange market and has been going on for at least a decade, affecting the value of funds and derivatives, the news reports said.
Insisting the WM/Reuters currency rate system was flawed, foreign media such as Bloomberg and the Financial Times said the U.K.-based supervisor Financial Conduct Authority was considering a probe into possible rate manipulation.
The European Commission and U.S. regulators have already been looking into some big investment banks’ allegedly similar misdeeds involving fabrication of crude oil prices or the ISDAfix rate.
