A recent development in what some have characterized as the largest financial scandal in the history of the market emerged this week when five civil lawsuits were filed in California federal courts involving claims that numerous banks manipulated the Libor interest rates for profit. While the Libor scandal itself may be old news—official governmental and regulatory investigations into the claims of fraudulent rate inflation and deflation were already underway, and public knowledge, in early 2012—the complaints filed by Burlingame-based Cotchett, Pitre & McCarthy LLP on behalf of local municipalities, including San Diego and San Mateo counties, the cities of Richmond and Riverside and the East Bay Municipal Utility District, suggest that the scandal is far from over.
This new rash of litigation alleges that Bank of America Corp., JP Morgan Chase & Co., HSBC Holdings PLC, Deutsche Bank AG and 18 other financial institutions were involved in, and conspired to, knowingly providing false Libor rates and places millions (if not billions) of dollars at issue. More specifically, the plaintiff municipalities claim they purchased bonds to finance various projects between 2005 and 2010 and were paying a fixed interest rate on said bonds to the banks. The crux of the complaints is that the return rates the municipalities received were either inflated or suppressed through manipulation of the Libor by the defendant banks. The specific actions are as follows:
- City of Richmond et al. Bank of America Corp., et al., 13-cv-00106 (N.D. Cal. filed Jan. 9, 2013);
- City of Riverside et al. v. Bank of America Corp., et. al., 13-cv-00062 (C.D. Cal. filed Jan. 9, 2013);
- East Bay Municipal Utility Dist. v. Bank of America Corp., et al., 13-cv-00109 (N.D. Cal. filed Jan. 9, 2013);
- County of San Diego et al. v. Bank of America Corp., et al., 13-cv-00048 (S.D. Cal. filed Jan. 9, 2013);
- County of San Mateo et al. v. Bank of America Corp., et al., 13-cv-00108 (N.D. Cal. filed Jan. 9, 2013).
Notably, these actions, which were all filed on January 9, 2013, surfaced just one day before reports from London that the Royal Bank of Scotland is expecting to face several hundreds of millions of dollars in fines from U.S. and U.K. authorities for its role in the Libor scandal. Last July, Barclays Bank was fined $200 million by the Commodity Futures Trading Commission, $160 million by the United States Department of Justice and £59.5 million by the Financial Services Authority for attempted manipulation of the Libor and Euribor rates. Then, in December, Swiss bank, UBS was fined a total of $1.5 billion by US, UK and Swiss regulators for their involvement in rate-rigging. As other criminal investigations proceed in the U.S. it appears more hefty fines levied against the banks is imminent and many suspect that a new breed of class actions will be born.