Antitrust Law Daily Wrap Up, ANTITRUST NEWS: U.S. investment firms sue banks over yen LIBOR and TIBOR manipulation, (Jul 28, 2015)

By Linda O’Brien, J.D., LL.M.

Major domestic and foreign financial institutions and investment firms engaged in a conspiracy to restrain trade through their manipulation of the (1) London Interbank Offered Rate (LIBOR) for the Japanese yen, (2) Tokyo Interbank Offered Rate (TIBOR) for the euro and Japanese yen, and (3) prices of Euroyen-based derivatives, according to a complaint filed in the federal district court in White Plains, New York (Sonterra Capital Master Fund, Ltd. v. UBS AG, July 24, 2015).

Yen LIBOR and Euroyen TIBOR are the daily reference rates intended to reflect the interest rates at which banks offer to lend unsecured funds denominated in Japanese yen to other banks in the offshore wholesale money market. Yen-denominated interest rates issues that settle during European trading hours are generally priced using Yen LIBOR rates set by the British Bankers’ Association (BBA), the leading trade association for the U.K. banking and financial services sector. Yen-denominated interest rates issues that settle during Asia-Pacific trading hours are generally priced using the Euroyen TIBOR rates set by the Japanese Bankers Association (JBA).

New York-based investment fund Sonterra Capital Master Fund and Hayman Capital Management, L.P., a Texas investment fund advisor, have engaged in U.S. transactions for Euroyen derivatives. Euroyen derivatives are financial instruments priced, benchmarked, or settled to Yen LIBOR or Euroyen TIBOR.

The complaint alleges that the defendant banks and firms conspired to manipulate Yen LIBOR and Euroyen TIBOR from January 2006 to June 2011 by falsely reporting on a daily basis the interest rates at which they were able to borrow funds. This unlawful and collusive conduct created prices that were fixed at artificial levels and were not reflective of legitimate forces of supply and demand.

The motivation for the defendants’ manipulation of Yen LIBOR, Euroyen TIBOR, and the prices of Euroyen-based derivatives was agreed. Because of the high notional value of Euroyen-based derivatives, even very small movements in Yen LIBOR and/or Euroyen TIBOR would have a significant positive impact on the profitability of the defendants’ Euroyen-based derivatives positions and a corresponding negative impact on their counterparties’ trading positions. Since traders’ compensation was based on the profit and loss calculation of the defendants’ trading books, the manipulation of the prices of Euroyen-based derivatives was a substantial financial benefit to their traders’ compensation, according to the complaint.

Regulatory agencies in the United Kingdom, European Union, Japan, and the United States—including the U.S. Department of Justice, Commodities Futures Trading Commission, and New York State Department of Financial Services—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 Yen LIBOR and Euroyen TIBOR.

Analyses by government agencies and independent studies demonstrate that Yen LIBOR and Euroyen TIBOR deviated dramatically from their historical relationship with the Euroyen Deposit Rate (EYDR), the plaintiffs asserted. EYDR is similar to Yen LIBOR and Euroyen TIBOR except that the set of participating financial institutions is larger than the number of banks participating in the BBA and JBA panels. The analyses show that the Yen LIBOR and Euroyen TIBOR quotes submitted by the defendant banks were significantly lower than the prevailing EYDR rate, further supporting the artificial rate manipulation from 2006 to 2011, the complaint alleges.

The complaint also states that the conspiracy could not have been discovered prior to July 2011 as to UBS and until February 2012 for the other defendants, when the government investigations of the defendant banks and firms became public. The defendants’ misconduct was inherently self-concealing, since their internal communications were not public information. Although the plaintiffs actively monitor their investments, there was no evidence of fraud or irregularities in their trading positions in connection with Euroyen-based derivatives until the public disclosures of the defendants’ involvement in the manipulation of Yen LIBOR, Euroyen TIBOR, and the prices of Euroyen-based derivatives.

The plaintiffs assert claims for unjust enrichment, breach of the implied covenant of good faith and fair dealing, violations of the Racketeer Influenced and Corrupt Organizations Act, and price fixing and restraint of trade in violation of Section 1 of the Sherman Act. The action seeks declaratory and injunctive relief, restitution, treble damages, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 1:15-cv-05844.

Attorneys: Vincent Briganti, Geoffrey M. Horn, Peter D. St. Phillip, Raymond Girnys, and Christian Levis (Lowey Dannenberg Cohen & Hart, P.C.) for Sonterra Capital Master Fund, Ltd. and Hayman Capital Management, L.P.

Companies: UBS AG; Mizuho Bank, Ltd.; The Bank of Tokyo-Mitsubishi UFJ, Ltd.; The Sumitomo Trust and Banking Co., Ltd.; The Nortinchukin Bank; Resona Bank, Ltd.; JPMorgan Chase & Co.; Deutsche Bank AG; The Shoko Chukin Bank; The Bank of Yokohama, Ltd.; Societe Generale S.A.; The Royal Bank of Scotland PLC; Barclays Bank PLC; Citigroup Inc.; Citibank, N.A.; Cooperatieve Centrale Raiffeisen Boerenleenbank B.A.; HSBC Bank PLC; Lloyds Bank PLC; ICAP PLC; R.P. Martin Holdings Limited; Tullett Prebon PLC; Bank of America Corporation; Merrill Lynch International, Inc.

News: Antitrust NewYorkNews