Executive Intelligence Review
Subscribe to EIR


Baltimore-Led Federal Lawsuit
Hits Wall Street and British Banks
for Libor Crimes

July 19, 2012 (EIRNS)—One of the Libor-rigging lawsuits consolidated by Federal Judge Naomi Reice Buchwald in New York's Southern District, brought by the Mayor and City Council of Baltimore and the City of New Britain (Connecticut) Firefighters' And Police Benefit Fund, gives a whole new meaning to the phrase "urban warfare." The lawsuit, alleging violation of federal antitrust laws, seeks to recover from the damages wrought on those municipal entities from their purchases of interest-rate swap derivatives tied to Libor, from one or more of the defendants—a who's who of major U.S., British, European, and other banks, who were members of the U.S. dollar Libor panel. The transactions at issue are solely "over-the-counter" transactions (as opposed to, for example, derivatives bought on exchanges, which are in a different proposed class in others of the Libor lawsuits).

The Consolidated Amended Complaint filed in the case on April 30, 2012, says that Baltimore purchased "hundreds of millions of dollars worth" and the New Britain pension fund purchased "tens of millions of dollars worth" of these derivatives. The Complaint describes the defendants' actions as "a global conspiracy to manipulate Libor—the reference point for determining interest rates for trillions of dollars in financial instruments worldwide—by a cadre of prominent financial institutions," and says that "Investigations regarding Libor are ongoing in the United States, Switzerland, Japan, United Kingdom, Canada, the European Union, and Singapore by ten different governmental agencies, including the DOJ [Justice Department], the SEC [Securities and Exchange Commission], and the CFTC [Commodity Futures Trading Commission]."

The Class is defined as

"All persons or entities [other than the defendants and related entities] that purchased in the United States, directly from a Defendant, a financial instrument that paid interest indexed to Libor ... any time during the period August 2007 through May 2010."

The Complaint continues,

"While the exact number of Class members is unknown at this time, the Baltimore Plaintiffs are informed and believe that at least thousands of geographically dispersed Class members purchased Libor-Based Derivatives directly from Defendants during the Class Period."

The lawsuit asks for a judicial declaration that the defendants' actions were in violation of the Sherman and Clayton antitrust acts, an injunction against them and their employees from any further violations, and "treble damages" as the antitrust law provides. It requests a jury trial.

The Factual Allegations section of the Complaint:

  • refers to the Libor-setting mechanism as "the British Bankers' Association ('BBA') rate-setting cartel." In describing that cartel, the Complaint points out that it is not a regulatory body, and reports to no regulatory body. A commentator is quoted, that "If the BBA admits that Libor isn't a market rate but a cartel rate that was established through price fixing, it will be subject to global lawsuits resulting from fraudulent behavior and misrepresentations. The likelihood of the BBA reforming itself, providing transparency and giving up its cartel monopoly is very low given the astronomical liability that will result."

  • says that "... banks were motivated to manipulate Libor to hide their precarious financial conditions and to financially benefit from a manipulated Libor ..."

  • continues that "there is economic evidence that Libor was manipulated and could not have been so manipulated in the absence of a conspiracy."

  • explains, "An increase in the bank's PD [probability of default] indicates that the risk of default has increased, thereby causing investors to require a higher rate of return for loans to the bank—which should correspond with a higher Libor quote. Accordingly, a finding of a statistically significant negative coefficient (of any size) [i.e., PD and Libor-quotes moving in opposite directions] between a bank's daily Libor quotes and its PDs shows that increases in PDs correspond with decreases in Libor quotes—which violates fundamental finance theory. This would indicate that banks are suppressing their Libor quotes to avoid revealing the higher rates that reflect their true (higher) probabilities of default."

  • infers collusion among the defendants in the manipulation of Libor from comparison between the Federal Reserve Eurodollar Deposit Rate calculated by the Fed from data of ALL London interbank lending rates, not just those of the sixteen Libor-panel members. It cites a consulting expert, that "it would be unusual for even one bank to submit a Libor bid below the Federal Reserve's Eurodollar Deposit Rate. For all Defendants to submit bids [which are confidential until submitted to the panel] below the Federal Reserve's Eurodollar Deposit Rate would be extremely unusual, and is strong evidence of collusion among the banks."