Member News, News

Libor Manipulation: Litigation and Related Issues

The London interbank offered rate (“LIBOR“) is currently in the news due to a rate manipulation scandal that erupted in the UK.  The scandal looks likely to have an impact on a variety of financial entities.

As matters stand, lawyers are dealing with a steady stream of queries about the potential investor impact and class actions in the US are apparently being progressed.  In addition, regulators in both the US and the UK are currently investigating the manipulation, a parliamentary enquiry is underway, there are rumours of criminal charges being brought and Barclays has agreed to pay fines valuing £290 million to various regulatory bodies.

The principal challenges currently being encountered by the majority of the banks involved include carrying out initial preparations for the potential deluge of claims, dealing with the on-going allegations and endeavouring to clarify where potential liabilities, if any, might arise.  In that latter respect, commentators have been quick to point out that LIBOR calculations automatically discard the four highest and four lowest bank submissions and average out the remaining LIBOR submissions to assess the final rates each day.  As such, it may well be that, whilst the participants in the manipulation presumably saw the strategy as a promising one, ultimately their submissions may have had little or no impact, which has led such commentators to the view that potential claims against them may be limited.

However, on the basis that there are a multiple range of potential claimants (for example counterparties to relevant contracts, claimants relying on a multitude of alleged breaches relevant to LIBOR calculations and/or shareholders basing claims on incorrect share prices arguably connected to the rate manipulation) it seems very likely that some claims will be advanced.

The rate manipulation scandal also raises important questions of competition/antitrust law. Competition law, broadly, prohibits anti-competitive arrangements between ‘undertakings’ which have, as either their object of effect, the prevention, restriction or distortion of competition. Established competition law jurisprudence makes it clear that competition regulators are prepared to tackle both direct collusion between undertakings and also collusion facilitated through third parties (so called ‘hub and spoke’ collusion).  Undertakings can face fines of up to 10 per cent of worldwide turnover for violation of the competition laws.  Further, if the competition regulators ultimately find that banks have acted in violation of the prohibition on anti-competitive arrangements, that decision will be binding in private actions for damages by those who have suffered as a result.  The competition investigation appears to be gathering pace, with EU Competition Commissioner Almunia indicating recently that he was increasing the allocation of resources to the case.

In conclusion, therefore, the unfolding LIBOR manipulation scandal has generated a myriad of potential legal issues. These include both the potential for civil litigation as well as further action by applicable regulators. The extent to which litigation will ensue in practice remains to be seen but as additional details regarding the scale of the manipulation become apparent through the on-going regulatory investigations, potential litigants will be better able to assess their position and the potential to pursue any right of action arising from this.

Brought to you by EACC New York Member Mason Hayes + Curran. For more information please contact your usual contact at Mason Hayes & Curran, Litigation Partner Paul Convery, or Co-Author Niall Collins.