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US appeal court reinstates Libor rigging case against 16 global banks

BBR Staff Writer Published 24 May 2016

In a major setback to 16 global banks, a US appeals court has reinstated lawsuits against them for alleged manipulation of the benchmark interest rate, London Interbank Offered Rate (Libor).

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In 2013, a lower court had dismissed the case ruling that the banks' alleged actions did not violate antitrust laws as claimed by the investors.

The lawsuits alleged that 16 banks, including Deutsche Bank, UBS , Bank of America , Citigroup and JPMorgan Chase, colluded to rig Libor rate, bringing harm to investors who bought financial instruments tied to the interest rate.

Plaintiffs in the case were mainly the owners of different financial instruments who claimed that the collusion between banks affected investment. The plaintiffs included cities like Baltimore, San Diego and Houston.Libor is a short-term interest rate used by banks for borrowing purposes among them. The rate is used to fix interest rate on credit cards, consumer loans and mortgages.

The plaintiffs alleged:"The British Bankers Association (BBA) publishes Libor every day in ten currencies, including U.S. dollars. Various banks - respondents here - together provided the information that the BBA used to set the U.S. dollar Libor.

"It has been revealed, however, that respondents conspired to manipulate Libor by submitting false information. The respondents' collusion suppressed Libor, which directly suppressed the payments on Libor-linked financial instruments, including the interest paid to floating rate bondholders for the use of their money."

Last year, the US Supreme Court allowed the bondholders in the lawsuits to appeal the dismissal of the case, Courthouse News Service reported.

The Second Circuit Court has revived the lawsuits on the grounds of antitrust violation in fixing the interest rate.

Judge Dennis Jacobs said, writing for the three-judge bench: "Appellants' complaints contain numerous allegations that clear the bar of plausibility.

"These allegations evince a common motive to conspire -- increased profits and the projection of financial soundness -- as well as a high number of interfirm communications, including Barclays' knowledge of other banks' confidential individual submissions in advance. The parallelism is accompanied by plus factors plausibly suggesting a conspiracy."

The reversal decision could assist investors to claim billions of dollars in damages from the banks for fixing prices of Libor-linked financial instruments.

Jacobs added: "Common sense dictates that the banks operated not just as borrowers but also as lenders in transactions that referenced Libor.

"Banks do not stockpile money, any more than bakers stockpile yeast. It seems strange that this or that bank (or any bank) would conspire to gain, as a borrower, profits that would be offset by a parity of losses it would suffer as a lender."

Hausfeld and Susman Godfrey served as co-lead counsel on behalf of the plaintiffs.

Commenting on the verdict Hausfeld chairman Michael Hausfeld said: "The Second Circuit's decision today in the LIBOR litigation is a major, long-awaited vindication of fundamental antitrust principles. It is also a roadmap for all other similar matters involving benchmark rate fixing."


Image: US appeal court reinstates Libor rigging case against 16 global banks. Photo courtesy of JanPietruszka/FreeDigitalPhotos.net.