Antitrust Law Daily Wrap Up, ANTITRUST NEWS: City of Houston and County of Sacramento challenge alleged LIBOR manipulation, (Jul 24, 2013)

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

The City of Houston and the County of Sacramento have filed civil complaints in the federal district courts in Houston and Sacramento respectively, 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) (City of Houston v. Bank of America Corp., filed July 23, 2013; County of Sacramento v. Bank of America Corp., filed July 23, 2013).

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.

In March 2011, regulators in the United States, United Kingdom, Switzerland, and Japan announced that they had initiated investigations of alleged LIBOR manipulation. 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. In addition, U.S. and British prosecutors have brought criminal charges against a former UBS and Citigroup trader. Charges against numerous others remain pending.

The complaints allege that financial institutions conspired to manipulate LIBOR from at least as early as August 2007. 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, Houston and the County of Sacramento allegedly received lower-than-competitive returns on investments, and paid more-than-competitive rates to borrow money.

The City of Houston’s complaint asserts claims for violations of Section 1 of the Sherman Act and the Texas Free Enterprise and Antitrust Act, while the County of Sacramento’s complaint asserts claims for violations of Section 1 of the Sherman Act and the California Cartwright Act. Both complaints assert claims for fraud and deceit, negligent misrepresentation, interference with economic advantage, breach of the implied covenant of good faith and fair dealing, and unjust enrichment.

The complaints seek a decree that the financial institutions’ acts were unlawful; economic, monetary, actual, consequential, and compensatory damages; 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; pre- and post-judgment interest; costs of suit; attorneys’ fees; and any other just and proper relief.

“I have instructed the city legal department to aggressively pursue any monies owed the city,” said Houston Mayor Annise Parker in a press release. “Any manipulation of rates paid by the taxpayers must be corrected.”

“Nobody questions the existence of the conspiracy, nobody questions that the rigging took place,” City Attorney David M. Feldman added. “The question is the amount of damages.”

The cases are Nos. 2:13-cv-01476-KJM-CKD and 4:13-cv-02149.

Attorneys: Nanci E. Nishimura (Cotchett, Pitre & McCarthy, LLP) for County of Sacramento. Richard Warren Mithoff (Mithoff Law Firm) for City of Houston.

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; Société Générale, S.A.; The Royal Bank of Scotland Group PLC; UBS AG; Portigon AG; WestDeutsche ImmobilienBank AG

News: Antitrust