1. Research by: Burt I. Ross
August 28, 2016
CDS ANTITRUST LITIGATION CLAIMS
An under the radar trade
Recommendation
I recommend buying Class Member claims in the Credit Default Swap Antitrust Class Action
lawsuit at current levels. The claims are currently trading around 12, with an expected payout
of 16 within a year. This trade’s median expected return is 33.0%, with a 66.2% return on the
high end, and return of 10.8% on the low end.
Thesis Overview
A class action lawsuit was brought against numerous banks alleging anti-competitive acts that
affected the pricing of Credit Default Swaps (“CDS”) transactions, and that these banks were
unjustly enriched from these acts. A settlement was reached with the Class Plaintiffs in the
amount of $1.86 billion. This settlement will be distributed on a pro rata basis to any Class
Members who submitted qualifying claims with the Settlement Administrator, Garden City
Group, LLC. In the trial it was estimated that total damages ranged from $8-12 billion,
meaning the settlement amount represents a recovery of 15-23% (before legal and
administrative expenses). The claims currently trade at 12, meaning depending on the total
qualifying claims submitted, and timing of the disbursement, returns and IRR on the trade
could be very high.
Key Risks to Thesis
There are two potential risks to the thesis above. The first is that the total qualifying claims
submitted it is not yet public. While estimates have been created it will be hard to say
definitively where the actual total qualifying claims will turn out in the range. The second
potential risk is the timing of the settlement payment. While the administrator believes
settlement payments will occur in 2016, there is a large amount of information that must be
reviewed before distributions can be calculated and processed.
Asset Rating BUY
Catalyst Category Event Driven
Price Target 16.00
Price (8/26/2016): 12.00
Stats ($USD)
Net Settlement Fund: $1.86B
Estimated Total Claims: $8-12B
Source: Settlement Administrator (Garden
City Group, LLC)
Analyst Details
Name: Burt I. Ross
Email: ross.burt@gmail.com
Phone: 917-689-3179
Analyst Disclosure
Position Held: No

2. Research by: Burt I. Ross
August 28, 2016
Litigation Overview
In the fall of 2013 a number of lawsuits was consolidated into a class action lawsuit against 12 major banks (Bank of America,
Barclays, BNP, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, RBS, and UBS).
These banks accounted for approximately 95% of the CDS trading in the United States. The class action lawsuit alleged that the
banks conspired to prevent price transparency and competition in the market for CDS trades. Through these anti-competitive acts
it was alleged that the banks were unjustly enriched by billions of dollars in the period between January 1, 2008 and September
25, 2015.
The Class Members of this suit are pension funds, university endowments, hedge funds, insurance companies, corporate
treasuries, fiduciary and depository institutions, small banks, and money managers. The Class Members would invest in CDS,
both buying and selling the instruments. Virtually all trades were conducted “over-the-counter”, enabling the banks to keep
pricing information obscure and margins very high for their services in the transactions. As observed in a New York Times
article dated December 11, 2010 (A Secretive Banking Elite Rules Trading in Derivatives) it would be like a real estate agent
selling a house where the buyer knows only what she paid and the seller knows only what she received. The agent would pocket
the difference as her fee, rather than disclose it. Moreover, only the real estate agent – and neither the buyer nor seller – would
have easy access to the prices paid recently for other homes on the same block. While exchanges and clearinghouses were
proposed to mitigate this problem, the lawsuit claimed the banks would jointly refuse to deal with any nascent entity, thus
ensuring no exchanges or clearinghouses would be able to operate.
In December 2014 the Plaintiffs and Defendants in the class action case engaged the Honorable Daniel Weinstein (Retired) as
mediator, seeking a parallel negotiated track alongside the case in the courts. By August 2015 the Plaintiffs reached an
agreement to settle the case with the banks. As Judge Weinstein (Ret.) explains: “In the end, [Plaintiffs’] strategy, timing, and
execution resulted in one of the best settlements I have witnessed in more than 30 years of mediating, particularly given the
challenges they would have faced in litigating this complex case.” The settlement required the banks to pay a collective
$1,864,650,000.00 into a settlement fund for the class action members. Additionally, the International Swaps and Derivatives
Association (“ISDA”) agreed to adopt a number of reforms with the aim of increasing transparency and competition in the
market.
By the exclusion deadline, meaning the parties who elected to “opt out” of the settlement agreement, only five requests were
submitted out of a class of nearly 14,000. The deadline for filing a claim was May 27, 2016. All work now by the administrator
will be to verify that the claims submitted qualify, estimating the amount of bid-ask spread inflation resulting from the banks’
alleged conduct on qualifying claims, and calculating the pro rata share of the settlement in relation to the total amount of
qualified claims submitted.
Return Analysis
The settlement with the banks for $1.86 billion is before legal fees and expenses. The legal counsel of Quinn Emanuel Urquhart
& Sullivan, LLP and Pearson, Simon & Warshaw LLP together will receive 13.61% of the settlement (approximately $254
million), plus approximately $10 million in expenses. The administrators will likely receive approximately $5 million for their
work. Thus the numerator for the recovery calculation is approximately $1.6 billion.
The estimated range of damages sought in the trial were between $8 and $12 billion. Utilizing this range, the recoveries based on
the $1.6 billion that will be distributed to claimants ranges between 13.3% - 19.9%. Purchasing the claims at 12 today would
lead to returns between 10.8% and 66.2%.
Settlement 1,864,650,000$
Legal Fees (253,778,865)
Expenses (15,000,000)
Remainder for Class 1,595,871,135$
Numerator Calculation

3. Research by: Burt I. Ross
August 28, 2016
Returns could potentially be higher if the actual pool of qualifying claims turns out to be less than $8 billion. This is entirely
possible, as Class Members needed to proactively submit their claims to the administrator. Initial research seems to indicate that
there are plenty of Class Members who did not proactively submit their claims to the administrator by May 27, 2016.
Total Qualifying Claims % Recovery
Return if
Purchased at 12
8,000,000,000 19.9% 66.2%
9,000,000,000 17.7% 47.8%
10,000,000,000 16.0% 33.0%
11,000,000,000 14.5% 20.9%
12,000,000,000 13.3% 10.8%