Freddie Mac Suit May Change LIBOR Litigation Landscape

    In a complaint filed last week in the U.S. District Court for the Eastern District of Virginia, home mortgage purchaser Freddie Mac has injected itself into the already sprawling network of cases alleging wrongdoings in connection with the USD LIBOR manipulation scandal.  Freddie Mac has named more than a dozen major banks that sat on the USD LIBOR panel as defendants, and, in a new twist, is the first plaintiff to also sue the British Bankers’ Association and several related entities.  The BBA oversaw the daily setting of the rate benchmark during the time the alleged manipulation took place.  The complaint alleges antitrust claims under the Sherman Act, and common law claims for fraud, tortious interference with contract, and breach of contract.  A copy of the complaint is available here.

    Freddie Mac is already a class member of one suit pending in the multi-district litigation in the Southern District of New York, where the City of Baltimore is the lead plaintiff.  That suit principally alleges antitrust claims under the Sherman Act.  That case is currently subject to a motion to dismiss before Judge Naomi Reice Buchwald, who heard oral arguments on the motion in early March, but did not indicate which way she was leaning.

    A spokesperson for Freddie Mac has stated that the organization felt it needed to preserve its claims that are distinct from those of the City of Baltimore class.  In particular, Freddie Mac allegedly entered into swap master agreements with each of the bank defendants pursuant to which various pay-fixed swaps were made.  Certain of these bank defendants have already admitted to USD LIBOR manipulation in settlements with regulators.  The admissions that were part of those settlements (with UBS, Barclays and RBS) are woven heavily throughout the Freddie Mac complaint.

    The defendants will likely move to have this case joined into the multi-district litigation before Judge Buchwald, hoping for a narrowing of the case or dismissal of claims should she rule their way.  However, Freddie Mac’s somewhat unique direct relationship with the defendants may distinguish the complaint enough to keep it as a freestanding litigation in Virginia.  The Eastern District is known colloquially as the “Rocket Docket” for the speed with which cases move through the court—if the case stays there, it is even possible that this later-filed case will be one of the first where definitive rulings are made.

    Commentators have speculated that Fannie Mae may shortly file its own LIBOR suit, based on the recommendation of the Federal Housing Finance Agency, which oversees both organizations since their government bailout in late 2008.  We are continuing to closely monitor developments in all major LIBOR-related litigation.

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