Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Investment fund manager sues banks over LIBOR manipulation, (Apr 20, 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 an investment fund manager in the federal district court in New York City (Axiom Investment Advisors, LLC v. Bank of America Corporation, April 16, 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 developed LIBOR as a tool to set interest rates on large corporate loans issued by its member banks. It serves as the primary benchmark rate for setting interest rates globally on a wide variety of financial instruments. 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.

Axiom Investment Advisors, through its affiliated funds, is a financial investment company that earns incentive and management fees related to the performance of its managed accounts. The company used trading strategies in which LIBOR was a component.

The complaint alleges that LIBOR is the reference point for determining interest rates for trillions of dollars in financial investments. The defendant banks allegedly betrayed investor confidence and 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.

The defendant banks had substantial financial incentives to suppress LIBOR. By providing artificially low LIBOR submissions, the defendants were able to portray themselves as more financially stable than they actually were and paid lower interest rates on LIBOR-based financial instruments they sold to investors. As a result, the defendants bilked investors of their rightful rates of return on the investments and reaped hundreds of millions of dollars in ill-gotten gains, according to the complaint.

Independent analyses by consulting experts demonstrate that LIBOR did not correspond with other benchmarks of the banks’ costs of borrowing during the relevant period, the plaintiff maintained. The difference between the defendant banks respective LIBOR quotes and their probabilities of default and the patterns of divergence from the Eurodollar benchmark confirmed that LIBOR was artificially suppressed during this period. Additionally, the discrepancy between the banks submissions to the BBA and their actual borrowing costs were too low in light of the dire financial circumstances that some of the banks were facing, the complaint alleges.

Regulatory agencies in the United Kingdom, Switzerland, Japan, Canada, Singapore, the European Union, and the United States, including the U.S. Department of Justice 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.

The complaint also states that the conspiracy could not have been discovered prior to March 2011, when the government investigations of the defendant banks became public. The plaintiffs had no reason to suspect the defendants’ misconduct due to their purposeful concealment.

The plaintiff asserts claims for deceptive trade practices, fraud, deceit, concealment, interference with prospective economic advantage, breach of contract, and implied covenant of good faith and fair dealing, unjust enrichment, and violations of Section 1 of the Sherman Act, Racketeer Influenced and Corrupt Organizations Act, and the New York Donnelly Act. The action seeks declaratory and injunctive relief, compensatory and punitive damages, disgorgement, restitution, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 1:15-cv-02973.

Attorneys: Richard M. Heimann and Steven E. Fineman (Lieff, Cabraser, Heimann & Bernstein, LLP) and Bruce S. Sperling (Sperling & Slater, P.C.) for Axiom Investments Advisors, LLC and Gildor Management, LLC.

Companies: Bank of America Corporation; Bank of America, N.A.; Bank of Tokyo-Mitsubishi UFJ Ltd.; Barclays Bank PLC; Citigroup Inc.; Citibank, N.A.; Cooperatieve Centrale; Raiffeisen Boerenleenbank B.A.; Credit Suisse Group AG; Deutsche Bank AG;.; HSBC Holdings PLC; HSBC Bank PLC; JPMorgan Chase & Co.; JPMorgan Chase Bank, N.A.; National Association; Lloyds Banking Group PLC; HBOS PLC; The Bank of Scotland PLC; The Royal Bank of Scotland Group PLC; Royal Bank of Canada; The Nortinchukin Bank; UBS AG; Portigon AG; WestDeutsche Immobilienbank AG; British Bankers’ Association.

News: Antitrust NewYorkNews