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US judge’s financial dispute prompts new lawsuit against big banks
Eduardo Munoz Alvarez/VIEWpress/Corbis/Getty Images
Overview of Bank of America headquarters on July 18, 2023 in New York.
A U.S. appeals court has rejected the dismissal of an antitrust lawsuit accusing 10 major banks of overcharging investors in corporate bonds, saying the lower court judge should have been removed because his wife owned shares in one of the banks.
The 2nd U.S. Court of Appeals in Manhattan said that while U.S. District Judge Lewis Liman “almost certainly unknowingly” had a conflict of interest, his bias could reasonably be questioned because his wife’s ownership of Bank of America stock created an “appearance of impropriety.”
A spokesman for the Manhattan federal court where Liman works declined to comment.
Tuesday’s unsigned ruling came nearly three years after a Wall Street Journal investigation found that more than 130 federal judges had violated federal law and judicial ethics since 2010 when overseeing cases involving companies in which they or members of their families owned stock.
Bond investors have accused Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, NatWest and Wells Fargo of overcharging for “odd lot” trades, which are worth less than $1 million and comprise the majority of corporate bond trades.
Liman, appointed by former President Donald Trump, received the lawsuit in April 2020 and dismissed it with prejudice in October 2021, three months after his wife sold $15,000 worth of Bank of America stock.
In February 2022, a court clerk alerted the parties to the conflict, writing of the judge that “stock ownership did not affect or impact his decisions.”
It was unclear when Liman learned of the conflict, and the case was transferred to U.S. District Judge Valerie Caproni while the investors appealed the dismissal.
The banks said Liman’s failure to discover his conflict did not require the case to be recused or reinstated.
But the appeals court found a “legitimate risk” that similar violations could undermine public confidence in the judicial process.
US Supreme Court Chief Justice John Roberts highlighted in his 2021 address annual report on the judiciary the need for judges to be vigilant about financial conflicts.
George Zelcs, an attorney for the investors, said: “We look forward to litigating the case on the merits before Judge Caproni.”
Bank of America and lawyers handling the banks’ appeal did not immediately respond to requests for comment.