Antitrust Law Daily Wrap Up, ANTITRUST NEWS: California county joins suits against banks over LIBOR manipulation, (Nov 14, 2013)

By Tobias J. Gillett, J.D., LL.M.

The County of Mendocino, California has filed a civil complaint in the federal district court in San Francisco, charging that major financial institutions committed federal and state antitrust violations, as well as other claims, through their manipulation of the London Interbank Offered Rate (LIBOR) (County of Mendocino v. Bank of America Corp., filed November 13, 2013).

The complaint joins other California public entities in the lawsuit, including the University of California Board of Regents; the Counties of Sonoma, Sacramento, San Mateo, and San Diego; the Cities of Richmond and Riverside; the East Bay Municipal Utility District; and the San Diego Association of Governments, according to a press release from Mendocino County Counsel Thomas Parker, as well as numerous other public and private suits filed by entities around the country.

The British Bankers’ Association sets LIBOR every day based on an average of the interest rates at which LIBOR member banks report they could borrow money from other LIBOR member banks. Each bank self-certifies the rate at which it could borrow funds, rather than reporting an actual borrowing rate. LIBOR is employed worldwide as the benchmark rate for setting short-term interest rates on a wide variety of financial instruments.

According to the complaint, a bank that reported that it could borrow money at a lower interest rate was considered to be more credit-worthy. Manipulating LIBOR upward could permit banks to increase their profits, while manipulating LIBOR downward could permit them to project an illusion of financial strength. A lower LIBOR could permit banks to pay less interest to investors, while a higher LIBOR could permit banks to charge higher interest rates to lend money.

Since March 2011, regulators in the United States, United Kingdom, Switzerland, the European Union, Japan, Canada, and Singapore have conducted ongoing investigations into alleged LIBOR manipulation. In the United States, these investigations have involved several agencies, including the Department of Justice, the Commodity Futures Trading Commission, and the Securities and Exchange Commission. So far, Barclays has agreed to pay $450 million in penalties, UBS has agreed to pay more than $1.5 billion, and Royal Bank of Scotland has agreed to pay $610 million just to settle the U.S. and U.K. investigations. In addition, U.S. and European prosecutors have brought criminal charges against individual traders allegedly involved in the manipulation.

The complaint alleges that financial institutions conspired to manipulate LIBOR from at least as early as August 2007 until no earlier than March 2011. This conspiracy allegedly resulted in manipulation of LIBOR by deliberate suppression, resulting in artificially low and non-competitive LIBOR rates for the financial institutions, allowing them to reduce the amount of money paid on LIBOR-linked financial instruments; manipulation of LIBOR by over-reporting, resulting in artificially high and non-competitive LIBOR rates for the financial institutions, allowing them to reap wrongful gains; “denial to the public of a LIBOR benchmark rate free of manipulation, inflating, and suppression”; and “loss of the integrity of the global financial system, especially as it relates to global benchmark interest rates that are central to the operation of global financial markets.” As a result, the County of Mendocino allegedly received lower-than-competitive returns on investments, and paid higher-than-competitive rates to borrow money.

The complaint asserts claims for violations of California’s Cartwright Act, violations of Section 1 of the Sherman Act, fraud and deceit, negligent misrepresentation, breach of contract, breach of the implied covenant of good faith and fair dealing, interference with economic advantage, and unjust enrichment.

The complaints seek a decree that the financial institutions’ acts were unlawful; economic, monetary, actual, consequential, and compensatory damages; pre- and post-judgment interest; exemplary or punitive damages; treble damages for the antitrust violations; disgorgement of ill-gotten gains; restitution of all amounts paid to the institutions as consideration for notes and other financial instruments affected by the institutions’ misconduct; an injunction prohibiting the institutions from continuing their alleged misconduct; costs of suit; attorneys’ fees; and any other just and proper relief.

“Manipulation of the LIBOR, if proven, constitutes an outrageous violation of the public trust by large national and multinational banks,” said Mendocino County Board of Supervisors Chair Dan Hamburg. “This suit promises to bring justice in the form of financial compensation to public agencies like Mendocino County which have suffered losses as the result of illegal banking practices.”

The case is No. 3:13-cv-05278.

Attorneys: Nanci E. Nishimura (Cotchett, Pitre & McCarthy, LLP) for County of Mendocino.

Companies: Bank of America Corp.; Bank of Tokyo-Mitsubishi UJF Ltd.; Barclays Bank, PLC; Citigroup, Inc.; Coöperatieve Central Raiffseisen-Boerenleenbank, B.A.; Credit Suisse Group AG; Deutsche Bank AG; HSBC Holdings PLC; JPMorgan Chase & Co.; Lloyds Banking Group PLC; HBOS PLC; Royal Bank of Canada; The Norinchukin Bank; SociétéGénérale, S.A.; The Royal Bank of Scotland Group PLC; UBS AG; Portigon AG; WestDeutsche ImmobilienBank AG

News: Antitrust CaliforniaNews