Court Dismisses Libor Price Fixing Claims

Although banks have not generally been looked upon favorably lately, U.S. District Judge Naomi Reice Buchwald decided to look favorably upon 16 banks seeking dismissal of antitrust allegations, racketeering, and state-law claims. The allegations come from leading suits which had been seeking class action certification and claimed that the banks broke federal antitrust laws by allegedly suppressing the London Interbank Offered Rate (otherwise known as Libor).
Libor is calculated on a daily basis for different currencies on estimated borrowing rates submitted by banks on panels. The lawsuits are targeting banks who sat on the panels used to work out US-dollar rates. Executives and traders at certain banks allegedly tried to manipulate Libor in order to increase trading profits or improve the banks’ image.

However, Judge Buchwald says in her 161-page ruling that, because the Libor-setting process is a “cooperative endeavor” and was “never intended to be competitive” the banks would have had no motivation to intentionally put in false numbers. Therefore, any losses suffered by investors and other plaintiffs would have resulted from the banks’ “misrepresentation, not harm from competition”. With this being the case, the banks can not be charged with breaking federal antitrust laws.

Banks have already been hit hard by federal regulators. So far, Royal Bank of Scotland Group PLC (RBS) has agreed to pay $612 million to U.S. and British authorities. UBS AG agreed to pay $1.5 billion, and Barclays agreed to pay $453 million. About a dozen firms still remain under scrutiny, including Citigroup, Inc., Credit Suisse Group AG, Duetsche Bank AG, HSBC Holdings PLC, WestLB AG, and Royal Bank of Canada, among others.

Judge Buchwald acknowledged that, because of these settlements to federal agencies, her ruling may be “unexpected”. She pointed out though that, unlike government agencies, private plaintiffs have many requirements to meet under the statutes to bring a case.
“Therefore, although we are fully cognizant of the settlements that several defendants here have entered into with government regulators, we find that only some of the claims that plaintiffs have asserted may properly proceed.” Among the claims that she did not dismiss are the allegations of breaching commodities laws.

Michael Hausfeld, chairman of Hausfeld LLP, which is representing the city of Baltimore as a plaintiff in one of the largest Libor class-action suits, says that his clients will now have to decide if they want to file an amended suit or appeal the judge’s ruling. Unless the plaintiffs successfully appeal the ruling, it will mean a significant reduction in the potential costs to the banks. The ruling is also likely to diminish the financial incentive for new plaintiffs to join the investors, cities, lenders, and other parties that have already filed suits.

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