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Banks to Settle With Investors in Suit Over Financial Crisis

Large banks are preparing to pay $1.865 billion to settle accusations that they conspired unfairly to control a derivatives market that stood at the center of the financial crisis, a lawyer suing the banks said in court on Friday.

The banks have faced public criticism since the financial crisis for the opaque manner in which their traders bought and sold credit default swaps, a type of financial contract that allows investors to speculate and hedge against losses and that figured prominently in the crisis.

Lawyers for several large investors, including a Los Angeles pension fund, argued in a suit filed in 2013 that the 12 banks — essentially all the largest ones in the world — conspired to keep competitors out of the market, allowing the banks to charge higher prices.

In a hearing on the suit in federal court in Manhattan on Friday morning, a lawyer for the investors suing the banks said they were expecting to complete their settlement with the banks, after months of negotiations, in the next two weeks.

One of the lawyers for the investors, Bruce L. Simon, said in an interview on Friday that in addition to the monetary settlement, the banks have agreed to some changes to improve the transparency of the credit default swaps market.

“We got major relief that helps the entire market and the competitive landscape of that market,” said Mr. Simon, a lawyer at Pearson, Simon & Warshaw who represented the Los Angeles County Employees Retirement Association, a public sector pension fund that was one of the lead plaintiffs.

None of the banks responded to requests for comments about the settlement, but they were represented at the hearing on Friday and did not object to the description given by the plaintiffs’ lawyers.

The United States district judge overseeing the case, Denise Cote, gave the two sides until Sept. 25 to complete the terms of the settlement for her approval.

The case is one of several in which investors have accused the banks of maintaining anticompetitive control over key financial markets before and after the financial crisis.

While the government has pursued the banks for their conduct in several markets, the private lawsuits have gone in front of different judges and ended in very different conclusions.

One of the most prominent suits, involving the key interest rate benchmark known as Libor, was thrown out by another United States district judge in Manhattan, who said that rate rigging was not anticompetitive conduct and therefore not a candidate for an antitrust lawsuit.

In contrast, a different federal judge in Manhattan allowed investors to proceed with their suits accusing the banks of conspiring to fix prices in the foreign currency markets. Those cases have been settled by the banks individually, but collectively they have yielded over $2 billion for investors.

The pending settlement in the credit default swaps lawsuit is expected to be one of the largest antitrust cases since the financial crisis.

The suit was seen as facing more of an uphill battle because the government has not come to its own settlement with the banks on the issue, as it did in the case of the foreign exchange market.

The plaintiffs, though, were working with a judge, Ms. Cote, who has developed a reputation for coming down hard on the banks.

The role the banks play in the credit default swaps market came into the public eye in 2010 when The New York Times published a lengthy investigation detailing the private meetings in which the banks worked to keep competitors, like the hedge fund Citadel Group, out of the market.

The banks were said in the article to have worked to shut down an effort by Citadel to create an exchange where the swaps could have been traded more transparently.

The lawsuit cited the article and said that through such practices the banks had “successfully maintained an inefficient and opaque market structure that yielded for them exorbitant profits at the direct expense” of big investors who bought swaps from the banks.

The lawsuit also named some of the institutions the banks work through to oversee swaps trading, including the data firm Markit and the International Swaps and Derivatives Association, both of which declined to comment on the settlement.

The banks said in response to the lawsuit that the way they administered the market was meant to reduce risks and ensure that all players had enough money to sustain losses.

The market for credit default swaps has shrunk since the financial crisis and the contracts now trade more transparently as a result of the Dodd-Frank financial reform legislation. But Mr. Simon said that as part of the settlement there will also be further changes to the market that should allow more players to participate.

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: Banks to Settle With Investors in Suit Over Crisis. Order Reprints | Today’s Paper | Subscribe

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