New York Securities Lawyer Blog
In 1986, the British Bankers’ Association (“BBA”) created the London Interbank Offered Rate (“LIBOR”) to assist BBA members to set corporate loan interest rates. LIBOR is an average interest rate that determines the cost of inter-bank lending, sets the average rates banks pay to borrow from one another and is very influential in the marketplace as it establishes the benchmark for interest rates in the financial system. LIBOR is determined by the largest London/Wall Street banks submitting estimated rates. The highest and lowest four estimated rates are disregarded, and the remainder of the rates are averaged which sets the LIBOR. The LIBOR is published daily by Thomson Reuters.
In June 2012, a LIBOR manipulation scandal erupted when it was revealed that the banks were inaccurately inflating and deflating rates in order to generate a bolstered impression of their creditworthiness and generate profits. Several reports began to surface which alleged that LIBOR manipulation had transpired by the largest banks since the early 1990s. On June 27, 2012, Barclays Bank entered into an agreement with the United States Department of Justice and admitted to LIBOR manipulation. Barclays Bank was fined $200 million by the United States Commodity Futures Trading Commission (“CFTC”), as well as $160 million by the Department of Justice for its involvement in the LIBOR manipulation. The Department of Justice stated in its statement of facts that, “the manipulation of the submissions affected the fixed rates on some occasions.” See Statement of Facts, United States Department of Justice, June 26, 2012, available a http://www.justice.gov/iso/opa/resources/9312012710173426365941.pdf (last viewed September 10, 2012). Since Barclays Bank has admitted to its wrongdoing, regulators including the CFTC and the Securities and Exchange Commission, have launched investigations into LIBOR rigging with various other financial institutions. Moreover, regulators are contending that the BBA failed to maintain the reliability of LIBOR. Obviously a manipulation involves multiple parties, so many are watching to see what other large financial institutions will be investigated by regulators, and which investigations will result in fines.
Moreover, investors, small lenders, municipalities and hedge funds are beginning to sue various financial institutions alleged to have been involved in the LIBOR manipulation claiming that they suffered losses based upon the rates affecting bonds, loans, derivatives and mortgages. For example, on July 25, 2012, the Berkshire Bank, a small New York based lender, filled a class action lawsuit against the larger banks involved in setting LIBOR, including but not limited to, Bank of America Corporation, Barclays Bank PLC, Citigroup, Inc., Credit Suisse Group AG, Deutsche Bank AG, HSBC Bank PLC, JPMorgan Chase Bank, Royal Bank of Canada and Royal Bank of Scotland. See Index No. 12-cv-5723. The class action complaint alleges that the LIBOR scandal affected interest rate payments to it and several investors, and is seeking an undetermined amount of compensatory and punitive damages. Various other suits have been filed nationwide by small lenders and investors against the larger Wall Street Firms that are heavily involved in setting LIBOR. If you believe that you have suffered losses as a result of the LIBOR scandal, please contact Lax & Neville LLP for a consultation at (212) 696-1999. Our firm has extensive experience and knowledge representing victims of investment fraud nationwide.