By Jonathan Stempel

NEW YORK (Reuters) -A U.S. appeals court threw out the dismissal of an antitrust lawsuit accusing 10 large banks of overcharging investors by billions of dollars of corporate bonds, saying the trial judge should have been recused because his wife owned stock in one of the banks.

The 2nd U.S. Circuit Court of Appeals in Manhattan said that while U.S. District Judge Lewis Liman “almost certainly unknowingly” had a conflict of interest, his partiality 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 decision came nearly three years after a Wall Street Journal investigation found that more than 130 federal judges had since 2010 violated federal law and judicial ethics by overseeing cases involving companies in which they or family members owned stock.

Bond investors accused Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, NatWest and Wells Fargo of overcharging them since 2006 on “odd-lot” trades, which are worth less than $1 million and comprise most corporate bond trades.

Liman, an appointee of former President Donald Trump, was assigned the lawsuit in April 2020 and dismissed it with prejudice in October 2021, three months after his wife sold $15,000 of Bank of America stock.

In February 2022, a court clerk alerted parties to the conflict, writing of the judge that the “ownership of stock neither affected nor impacted his decisions.”

It wasn’t clear when Liman learned of the conflict, and the case was reassigned to U.S. District Judge Valerie Caproni, while investors appealed the dismissal.

The banks said Liman’s failure to uncover his conflict didn’t require recusal or reviving the case.

But the appeals court found a “legitimate risk” that similar violations could undermine public confidence in the judicial process.

U.S. Supreme Court Chief Justice John Roberts highlighted in his 2021 annual report on the judiciary a need for judges to be vigilant about financial conflicts.

George Zelcs, a lawyer for the investors, said: “We look forward to litigating the case on the merits before Judge Caproni.”

A spokesman for Bank of America declined to comment.

The case is Litovich v Bank of America Corp et al, 2nd U.S. Circuit Court of Appeals, No. 21-2905.

(Reporting by Jonathan Stempel in New York; Editing by Aurora Ellis)

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