Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Federal credit union regulator sues banks over LIBOR manipulation, (Mar 23, 2015)

By Linda O’Brien, J.D., LL.M.

Major domestic and foreign financial institutions engaged in a conspiracy to restrain trade through their manipulation of the London Interbank Offered Rate (LIBOR), according to a complaint filed by the federal credit union administrator in the federal district court in New York City (National Credit Union Administration Board v. Credit Suisse Group AG, March 19, 2015).

The British Bankers’ Association (BBA) is the leading trade association for the U.K. banking and financial services sector and is governed by a board of its member banks. The BBA determines LIBOR every business day based on an average of interest rates at which LIBOR member banks report as their costs of borrowing funds in various currencies. LIBOR is the primary benchmark rate for setting interest rates globally on a wide variety of financial instruments.

The National Credit Union Administration (NCUA) is an independent agency of the U.S. government that charters, regulates, and insures in the savings in federal credit unions across the U.S. through its management of the National Credit Union Share Insurance Fund (NCUSIF). Credit unions held billions in investments that paid interest based on LIBOR.

The complaint alleges that LIBOR is the reference point for determining interest rates for trillions of dollars in financial investments. In order to reap undeserved profits, the defendant banks conspired to manipulate LIBOR from August 2007 to May 2010 by falsely reporting on a daily basis the interest rates at which they were able to borrow funds.

According to the complaint, the defendant banks had strong incentives to suppress LIBOR. By providing artificially low LIBOR submissions, the defendants were able to portray themselves as more financially stable and liquid than they actually were. The defendants actively shared information about their future submissions and communicated directly, or through interdealer brokers, to artificially suppress LIBOR rates.

Regulatory agencies in the United Kingdom, Switzerland, Japan, Canada, Singapore, the European Union, and the United States—including the U.S. Department of Justice, Securities & Exchange Commission, and Commodities Futures Trading Commission—initiated investigations into LIBOR manipulation in 2010. In 2012 and 2013, sanctions and settlements with the defendant banks and affiliated entities were announced in connection with the manipulation of LIBOR.

Analysis by government agencies and independent studies demonstrate that LIBOR deviated from other well-established benchmarks of the banks’ costs of borrowing during the relevant period, the NCUA claimed. The fact that defendant banks’ patterns of divergence from the Eurodollar benchmark were very similar to each other during this period confirms that LIBOR was lower than it should have been as an economic matter, the complaint alleges.

The complaint also maintains that the conspiracy could not have been discovered prior to March 2011, when government investigations of the defendant banks became public. The defendants’ misconduct was self-concealing, since their internal communications were not public information. Additionally, the defendants engaged in a concerted media strategy of affirmatively providing plausible alternative explanations for the manipulated LIBOR rates.

The plaintiff asserts claims for unfair competition, breach of contract and implied covenant of good faith and fair dealing, intentional interference with contract, intentional interference with prospective economic advantage; unjust enrichment, and violations of Section 1 of the Sherman Act. The action seeks injunctive relief; compensatory, punitive, and treble damages; costs of suit; attorneys’ fees; and any other just and proper relief.

The case is No. 1:15-cv-02060.

Attorneys: George A. Zelecs and Stephen M. Tillery (Korein Tillery LLC), David C. Frederick (Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C, and Michael J. McKenna, General Counsel, National Credit Union Administration for National Credit Union Administration Board.

Companies: Credit Suisse Group AG; Credit Suisse Group International; Barclays Bank PLC; Barclays Capital Inc.; Lloyds Banking Group Plc; WestLB, AG; WestDeutsche Immobilienbank AG; UBS AG; The Royal Bank of Scotland Group Plc; Cooperatieve Centrale; Raiffeisen Boerenleenbank B.A.; The Nortinchukin Bank; The Bank of Tokyo-Mitsuishi UFJ, Ltd.; HBOS Plc; Societe Generale S.A.; Royal Bank of Canada; Bank of America Corporation; Bank of America, N.A.; Citigroup Inc.; Citibank, N.A.; Citigroup Financial Products; Deutsche Bank AG; Rabobank International; Citi Swapco Inc.; HSBC Holdings Plc; HSBC Bank USA, N.A.; JPMorgan Chase & Co.; JPMorgan Chase Bank, N.A.

News: Antitrust NewYorkNews