It All Falls Down

As banks continue to settle Libor- rigging charges with regulators, institutional investors consider pursuing individual actions

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Three of the world’s leading banks—Barclays, UBS, and the Royal Bank of Scotland—have admitted to manipulating the London Interbank Offered Rate (“Libor”), the world’s leading short-term interest rate benchmark, for numerous currencies over the course of several years. With regulators from various countries pushing forward in their investigations, and a multitude of class actions being filed, institutional investors with large exposures to Libor-linked instruments are considering pursuing individual actions.

Libor is the average interest rate at which a panel of the world’s largest banks report they could borrow unsecured funds from other banks in the London wholesale money market for maturities ranging from overnight to one year. Libor is calculated for 10 different currencies and is a primary interest-rate benchmark used to price numerous financial instruments, including mortgage loans, student loans, credit card debt, bonds, and various derivative products. The value of derivatives and other financial products tied to Libor is estimated to be at least $350 trillion.

The British Bankers’ Association consults a reference panel of between six and eighteen banks for each currency calculated. Between 2007 and 2010, the U.S. dollar Libor panel consisted of sixteen banks: Bank of America, Bank of Tokyo-Mitsubishi, Barclays Bank, Citibank, Coöperatieve Centrale Raiffeisen-Boerenleenbank, Credit Suisse, Deutsche Bank, HBOS, HSBC, JPMorgan Chase, Lloyds Banking Group, Norinchukin Bank, Royal Bank of Canada, The Royal Bank of Scotland Group (“RBS”), UBS, and WestLB AG.

At approximately 11:00 a.m. (GMT) each morning, each panel bank reported its estimated costs to “borrow funds, were [it] to do so by asking for and then accepting interbank offers in reasonable market size, just prior to 11.00 London time.”[i]  Libor is calculated by discarding the four lowest and four highest reported rates, and averaging the remaining eight.

Beginning in August 2007, and corresponding with the financial crisis, Libor began to behave erratically and became decoupled from other financial indicators that had historically functioned as benchmarks.

While Libor has historically remained high during times of financial uncertainty — reflecting banks’ reluctance to lend unsecured funds to one another without receiving a higher risk premium — the U.S. dollar Libor remained surprisingly low during the financial crisis. This led to concern that Libor’s abnormal behavior was the result of manipulation. Economists speculated that both the desire to appear financially sound and the potential to profit from Libor-based holdings incentivized panel banks to artificially suppress Libor.

In early 2011, domestic and foreign regulators began to investigate whether certain panel banks had manipulated Libor. In July 2011, investigators expanded their probe to include yen-based Libor and the Tokyo Interbank Offered Rate (“Tibor”).

In exchange for cooperating with the investigation, UBS disclosed in a July 26, 2011, SEC filing that it had “been granted conditional leniency or conditional immunity from authorities . . . including the Antitrust Division of the DOJ, in connection with potential antitrust or competition law violations related to submissions for Yen Libor and Euroyen Tibor.” The DOJ Antitrust Division’s conditional leniency program is reserved for corporations reporting “illegal antitrust activity.”

On February 17, 2012, the Wall Street Journal reported that a “cooperating bank, which unnamed sources identified as UBS AG told Canadian investigators that those involved in the alleged scheme [to manipulate Libor] ‘were able to move’ the yen Libor at times between 2007 and June 2010.” Notably, from 2006 to 2009, thirteen of the sixteen banks on the USD Libor panel were also on the Yen Libor panel.

In June 2012, as part of a non-prosecution agreement, Barclays agreed to pay to U.S. and U.K. regulators $453 million. In that agreement, Barclays admitted publicly that “[o]n at least a few occasions from approximately September 2007 through at least approximately May 2009, Barclays submitted improperly low Libor contributions.”[ii] The agreement cites numerous internal Barclays emails demonstrating that its Libor submitters knowingly submitted false rates at the request of Barclays traders to benefit Barclays’ trading positions and that management instructed submitters to stay “within the pack” by submitting rates “in line” with other panel banks.

By August 2012, the investigation expanded to include panel members HSBC, RBS, and Lloyds Banking Group.

In December 2012, UBS paid $1.5 billion to settle charges of Libor manipulation with U.S., U.K., and Swiss regulators. In connection with the settlement, a Japanese subsidiary of UBS, UBS Securities Japan, agreed to plead guilty to U.S. criminal charges of felony wire fraud. U.S. authorities also unsealed a criminal complaint against two former UBS traders for their alleged role in the scheme. As part of the settlement, UBS admitted that “[f]rom as early as 2001 through at least June 2010, . . . [UBS] derivatives traders requested, and sometimes directed, that certain UBS Libor, Euroyen Tibor, and Euribor submitters submit benchmark interest rate contributions that would benefit the traders’ trading positions, rather than rates that complied with the definitions of Libor, Euroyen Tibor and Euribor.”[iii]

On February 6, 2013, the Royal Bank of Scotland (“RBS”) agreed to pay $612 million to settle Libor-manipulation charges with U.S. and U.K. regulators in connection with charges concerning the Yen Libor and Swiss Franc Libor. As part of the settlement, RBS’s Japanese unit agreed to plead guilty to a U.S. criminal charge of fraud. The settlement reveals that RBS traders in London, Singapore, and Tokyo succeeded in moving Libor. One communication from an RBS trader, released as part of the settlement, stated that Yen Libor “is a cartel now” and “its [sic] just amazing how libor fixing can make you that much money.”[iv]

The Justice Department and Commodity Futures Trading Commission are now also investigating inter-dealer brokers ICAP, PLC and R.P. Martin Holdings Ltd., which serve as middlemen for banks seeking counterparties for hard-to-trade assets and assist some banks with their submissions for Libor.

The cumulative effect of the alleged Libor manipulation is substantial. For example, academic articles suggest that U.S. Libor was underpriced as follows:




Aug. 2007

Aug. 2008

12 basis points

Sept. 2008

Dec. 2008

100 basis points

Jan. 2009

Mar. 2010

40 basis points

Considering that an estimated $350 trillion of derivatives are tied to Libor, manipulating the benchmark by up to 100 basis points (or 1%) can improperly shift enormous amounts of wealth.

In addition to government scrutiny, numerous civil lawsuits alleging Libor manipulation have been filed against panel banks.

Many of these actions—consisting of both putative class actions and individual suits—have been consolidated into multidistrict litigation proceedings in the United States District Court for the Southern District of New York.

The plaintiffs—holders of Libor-tied instruments—allege that, in knowingly submitting false borrowing rates, panel banks violated the Sherman Act, the Racketeer Influenced and Corrupt Organizations Act (“RICO”), the Commodities Exchange Act (“CEA”), and numerous state laws. Defendants in the Libor MDL have filed joint motions to dismiss these claims.

Defendants attack the plaintiffs’ Sherman Act claims by arguing: (1) plaintiffs do not plausibly allege a conspiracy, (2) plaintiffs fail to allege a restraint of trade, (3) plaintiffs have not suffered an “antitrust injury,” and (4) plaintiffs who are indirect purchasers lack antitrust standing. Given that nearly all of the current plaintiffs assert antitrust claims, the court’s ruling on these issues will significantly impact the course of the litigation.

With regard to plaintiffs’ RICO claims, Defendants cite the Private Securities Litigation Reform Act, which states that claims actionable under the securities laws cannot be brought under RICO. Thus, to the extent plaintiffs allege fraud in connection with the sale of securities, they are precluded from bringing RICO claims.

Lastly, Defendants attack both plaintiffs’ RICO and CEA claims on the grounds that these two statutes do not apply to conduct occurring outside of the United States. Plaintiffs respond by arguing that significant parts of the alleged conspiracy occurred within the United States. Not only are three of the defendant banks U.S.-based, but also plaintiffs’ CEA claims are based on instruments purchased on the Chicago Mercantile Exchange.

While more than thirty Libor-related suits have already been filed, a large number of potential plaintiffs are likely awaiting the court’s ruling on the pending motions to dismiss the class actions, which are scheduled for oral argument on March 5, 2013. As the litigation continues, one can expect investors and other entities with large exposures to Libor-linked financial holdings to consider opting out of class actions and pursuing individual actions. Each investor’s portfolio would need to be reviewed on an individual basis to determine its potential losses from Libor manipulation. In general, institutional investors (for example, insurance companies, mutual funds, hedge funds, and pension funds) appear to be more likely to have significant losses from Libor-linked holdings which might warrant individual actions.

The wealth of evidence already uncovered by regulators will no doubt give civil litigants a head start on their investigations. Though much will be learned through discovery in the growing number of civil suits, thus far the global conspiracy appears larger than many could have imagined.

[i] British Bankers’ Association website definition of Libor, available at
[ii] . Statement of Facts incorporated into the non-prosecution agreement dated June 26, 2012, between the U.S. Department of Justice and Barclays Bank PLC, at ¶ 49, available at More information about the Barclay’s non-prosecution agreement can be found on the Department of Justice website, at
[iii] Statement of Facts incorporated into the non-prosecution agreement dated December 18, 2012, between the U.S. Department of Justice and UBS AG, at ¶ 20, available at More information about the UBS non-prosecution agreement can be found on the Department of Justice website at
[iv] More information about the RBS deferred prosecution agreement can be found on the Department of Justice website at

© 2013 Robins, Kaplan, Miller & Ciresi L.L.P.

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