Six banks sued over role in short sales

Goldman Sachs, JPMorgan Chase and four other investment banks are conspiring to control the more than $1 trillion market for lending stocks, according to a lawsuit filed in federal court Thursday.

The complaint by the Iowa Public Employees Retirement System and two other government pension plans claims that the banks are blocking a shift to all-electronic system for matching lenders and borrowers of shares so that they can continue to profit from each transaction. In a short sale, traders sell borrowed stock, anticipating the price will drop so they can profit by buying back the shares at a lower price.

“Major investment banks are conspiring to preserve their profits at the expense of everyday investors,” plaintiffs’ attorney Michael Eisencraft of Washington-based Cohen Milstein Sellers & Toll said in a statement Thursday. The investors are seeking unspecified damages in the class-action antitrust case, which could be tripled under federal law.

The banks are accused of stifling a shift to an electronic “all to all” market that would enhance price transparency and competition while eliminating the banks as transactional middle men. The market for lending stocks plays a vital role in the U.S. economy, allowing hedging while also ensuring that financial systems operate efficiently.

Defendants in the suit also include Bank of America, Morgan Stanley, Credit Suisse AG and UBS AG. Representatives of all the banks declined to comment.

— Bloomberg News