Last month, when plaintiffs' lawyers filed their amended class
action complaints against a bevy of banks accused of
manipulating the London interbank offered rate (or Libor), I
noted that the antitrust complaints were long on wonky economic
analysis but short on juicy conspiracy evidence, mostly because
U.S. District Judge Naomi Reice Buchwald had denied motions to
grant the private antitrust plaintiffs access to materials the
banks turned over to regulators. I asked whether there was
enough billowy black smoke in the class complaints to withstand
the banks' motions to dismiss.
I don't think that's going to be a problem anymore.
On Wednesday, Barclays won the race to reach a deal with
U.S. and British regulators, beating UBS, which was reportedly
the first bank to begin cooperating with international antitrust
authorities. Barclays agreed to pay at least $450 million to
resolve government investigations of manipulation of Libor and
the Euro interbank offered rate (or Euribor): $200 million to the U.S. Commodity Futures Trading Commission, $160 million tothe criminal division of the U.S. Department of Justice and
$92.8 million to Britain's Financial Services Authority. What's
more, the CFTC and DOJ filings on the deal feature more smoking
guns than a Martin Scorsese movie.
The CFTC's Order Instituting Proceedings and the Justice
Department's Statement of Facts cite truly eye-popping emails,
instant messages and other evidence indicating that between 2005
and 2008 Barclays employees agreed to manipulate the rates they
submitted to the banking authority that oversees the daily Libor
report for seemingly anyone who asked them to monkey with it:
senior Barclays officials concerned that the bank would look
weak if it reported too high a borrowing rate; interest rate
swap traders trying to improve Barclays' derivatives trading
position; even former Barclays traders begging for favors. We're
talking naked, blatant manipulation. Here's one exchange cited
in the DOJ filing:
Trader: "Can you pls continue to go in for 3m Libor at 5.365
or lower, we are all very long cash here in ny."
Libor rate submitter: "How long?"
Trader: "Until the effective date goes over year end (i.e.
turn drops out) if possible."
Submitter: "Will do my best sir."
The CFTC filing -- which quoted Libor submitters saying
"Always happy to help, leave it with me, Sir" and "Done ... for
you big boy," in response to trader requests to report
particular rates -- also said that in the fall of 2007 senior
Barclays managers devised a strategy of underreporting the
bank's borrowing rate to counter negative publicity about a
Barclays liquidity crunch (and to match what Barclays considered
Libor underreporting by other banks). "As Barclays employees
stated in internal communications, the purpose of the strategy
of under-reporting dollar LIBORs was to keep Barclays's 'head
below the parapet' so that it did not get 'shot' off," the CFTC
filing said.
This kind of internal evidence is exactly what private
antitrust plaintiffs need to establish a viable conspiracy case,
especially because the DOJ and CFTC filings are full of
indications that Barclays' bankers were convinced other banks
were engaged in the same kind of manipulation. (There's direct
evidence of a concerted plan among traders from different banks
to rig Euribor but not Libor.) Class counsel Michael Hausfeld of
the eponymous firm Hausfeld told me that other banks are known
to be in settlement talks with regulators, so presumably their
settlement agreements will show that Barclays was right and did
indeed have plenty of company in messing with Libor.
Hausfeld also said the private plaintiffs already know much
more than what we saw in their complaints but had to keep mum
while the criminal investigation is underway. "It shouldn't
surprise anyone," he said, if the plaintiffs eventually amend
their complaints to include the evidence that emerges from CFTC,
DOJ and foreign regulators.
In fact, Hausfeld said, Britain's Financial Services
Authority case may turn out to be more useful to the private
plaintiffs than the U.S. cases. In the CFTC settlement, Barclays
neither admitted nor denied the agency's allegations. The DOJ
criminal division's letter agreement, meanwhile, said Barclays
"admits, accepts, and acknowledges responsibility" for the
alleged misconduct. That's good language for the private
plaintiffs but not as powerful as a guilty plea. Hausfeld said
the British agreement "will contain admissions of wrongdoing"
that are stronger than those in the U.S. deals (though I didn't
see such admissions in the FSA's final notice). I asked Hausfeld
if admissions in Britain will preclude Barclays from denying
liability in the private U.S. class actions. "We're going to
find out," he said.
I reached out to Hausfeld's co-counsel at Susman Godfrey but
didn't hear back. I also left a phone message for Barclays'
lawyer in both the DOJ and civil Libor cases, David Braff of
Sullivan & Cromwell, but he didn't respond.
(Reporting by Alison Frankel)
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