On Thursday, the co-CEO of Deutsche Bank confirmed what Reuters
first reported last week: Some of the banks involved in
allegedly manipulating the benchmark London interbank offered
rate, Libor, talked about settling en masse with international
regulators at the World Economic Forum in Davos. The Deutsche
Bank official, Anshu Jain, cautioned that the talks were
preliminary and informal but said an industrywide deal with
government enforcers could help the banks resolve follow-on
civil litigation. Jain's comments made me wonder about two
things: Would regulators really agree to a group settlement in a
case that includes allegations of an antitrust conspiracy? And
what are the chances that all of the banks involved in Libor
rate setting would go along with a group deal?
The answers, based on my reporting, are that there is plenty
of precedent for group settlements with U.S. antitrust
regulators, even in criminal cases. But it's extremely unlikely,
at least at this point, that all of the Libor banks want that
resolution.
It may seem odd even to think of resolving allegations of
concerted action via the concerted action of a group settlement,
but antitrust lawyer Jay Levine of Bradley Arant Boult Cummings,
who is not involved in the Libor litigation, said that if
regulators want to shut down cartels, they often need to deal
simultaneously with all of the members of a supposed conspiracy.
"Sometimes, to remedy illegal group behavior, you need the group
together," he said. Antitrust law professors Daniel Sokol of the
University of Minnesota and Shubha Ghosh of the University of
Wisconsin (both of whom write at the Antitrust & CompetitionPolicy Blog) pointed out that the Justice Department frequently
settles with more than one member of a cartel at a time. The
most recent example is the e-books litigation, but recent
price-fixing investigations of the air cargo,
aftermarket-autoparts and vitamin industries have all involved
Justice Department fines and plea deals with more than one
defendant at a time. In a case with some Libor parallels,
prosecutors back in the mid-1990s even reached an industrywide settlement with 24 securities firms accused of fixing the spread
on stocks traded on the Nasdaq. Not every Antitrust Division
case involves group resolutions - bank defendants in the
municipal bond derivatives bid-rigging investigation, for
instance, reached individual deals - but plenty do.
So would U.S. regulators in the Libor cases consider a group
deal? Sokol noted that the Libor investigation in just the
United States includes antitrust and rate-rigging allegations
and seems to involve both the Antitrust Division and the
Criminal Division of the Justice Department, as well as the
Commodity Futures Trading Commission. The multiplicity of
regulators complicates matters. That said, if government
enforcers could agree on an industrywide settlement, they could
certainly portray big fines against an array of defendants as a
victory, according to Sokol. Ghosh cautioned that prosecutors
would have to consider whether a group Libor deal included
adequate accountability for each bank's misconduct, especially
because the benchmark rate has such broad impact on worldwide
securities. "I would be suspicious," Ghosh said.
It's obvious why Libor banks such as Deutsche Bank or Royal
Bank of Scotland might prefer a group deal to the sort of
individual resolutions regulators reached with Barclays and UBS.
(Both Deutsche Bank and RBS are reportedly deep in Libor talks
with various international regulators.) When British and U.S.
authorities announced deals with Barclays last June and UBS last
December, news organizations and politicians lapped up the
disclosure of damning emails by the banks' traders. The furor
cost Barclays' CEO and chairman their jobs. A multibank deal, by
contrast, would mitigate scrutiny of each defendant.
But that's precisely why an industrywide settlement isn't
likely to happen. Right now, the heat seems to be on Deutsche
Bank and RBS. By contrast, there hasn't been much talk about the
conduct of the three U.S. banks on the Libor panel, Bank of
America, Citigroup and JPMorgan Chase. So if you were the CEO of
one of those banks, why would you want to join a settlement that
gives cover to Deutsche Bank and RBS, especially when your own
culpability hasn't been tested? The rate rigging disclosed in
the Barclays and UBS deals suggests that Libor manipulation
wasn't necessarily the sort of concerted, industrywide price
fixing that we saw in, say, the vitamin or Nasdaq cases.
Evidence will be individualized, and regulators will have much
stronger cases against some banks than others. Sure, prosecutors
can threaten holdouts with more onerous settlement terms than
those that cave quickly, but banks with limited culpability have
little to gain in a group deal.
Moreover, an industrywide settlement with regulators
wouldn't, at this stage, resolve all of the industry's Libor
liability. As you know, there's an ever-growing Libor multidistrict litigation by private plaintiffs who claim to have
been damaged by rigging of the benchmark rate. U.S. District
Judge Naomi Reice Buchwald of Manhattan, who is overseeing the
consolidated cases, still hasn't ruled on defense motions to
dismiss the first wave of suits, which include a couple of
well-pleaded class action complaints. Until Buchwald issues a
ruling outlining what claims can proceed, the banks and those
suing them don't have a good idea of potential liability. They
don't even know which plaintiffs have viable cases to wrap into
a global settlement. At least for the U.S. banks, uncertainty on
the private side is probably a deal breaker on the regulatory
side. (I checked in with William Carmody of Susman Godfrey, who
is co-lead in the biggest Libor class action. He said that so
far, there haven't been talks with the banks of a global
settlement with private plaintiffs. He also said, however, that
he'd welcome discussions, which he said would be aided by a
group resolution with regulators.)
BofA, Citi and JPMorgan are certainly willing to enter group
deals when they believe the price is low enough; they were all
part of last year's $25 billion nationwide robo-signing
settlement and last month's $8.5 billion wrongful foreclosure
settlement. I'm just not convinced that they're yet facing the
same kind of pressure in the Libor litigation, or that they
would obtain the same kind of certainty.
(Reporting by Alison Frankel)
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