Baltimore, Pension Fund Consolidate Libor Suit in N.Y.

The City of Baltimore and New Britain Firefighters’ Benefit Fund filed a consolidated and amended complaint against Citigroup Inc., Credit Suisse AG, Bank of America Corp. and more than a dozen other banks, alleging they artificially “suppressed” the London interbank offered rate.

“This case arises from 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,” the fund said in the amended complaint filed in Manhattan federal court.

The complaint is one of four being filed in the class-action lawsuit today, according to William Butterfield, a partner with Hausfeld LLP in Washington. The firm has been selected as co-lead counsel for the city of Baltimore in the case. Baltimore filed its initial complaint in August.

An analysis by outside consultants found that Libor was suppressed from 2007 to 2008, allowing the banks to mask their level of risk during a period of financial crisis, according to the complaint.

“By submitting an artificially low Libor quote,” banks send “a false signal that it is less risky than it truly is,” according to the complaint.

In addition, for banks to submit Libor bids below the Federal Reserve Eurodollar Deposit Rate, the rate at which banks in the London Eurodollar market lend U.S. dollars to one another, “would be extremely unusual and is strong evidence of collusion among the banks,” according to the complaint.

Investigations Under Way

Investigations regarding alleged manipulation of Libor are under way in the U.S., Switzerland, Japan, the U.K., Canada, the European Union and Singapore by nine government agencies, including the Justice Department, the Securities and Exchange Commission and the Commodity Futures Trading Commission, according to the complaint.

The first public notice of the government investigations came when UBS AG disclosed in a March 2011 filing it had received subpoenas from the SEC, the CFTC and the Justice Department, and was cooperating with investigators, according to the complaint.

The Justice Department sent a letter to the federal judge presiding over the cases, Naomi Reice Buchwald in Manhattan, saying it is “conducting a criminal investigation into alleged manipulation of certain benchmark interest rates” including those for “several currencies” on the Libor exchange.

21 Class Actions

Buchwald is presiding over litigation involving 21 class-action, or group, suits against banks accused of conspiring to suppress Libor by understating their borrowing costs to the British Bankers Association.

By manipulating the Libor rate, the banks “surreptitiously bilked investors--the lenders--of their rightful rates of return on their investments, reaping hundreds of millions, if not billions, of dollars in ill-gotten gains,” according to a second complaint filed today by a New York resident, Ellen Gelboim, and Linda Zacher, of Bryn Mawr, Pennsylvania.

The two women, who are beneficiaries of retirement accounts that owned Libor-based securities, said they and other class members owned more than $500 billion of Libor-based financial instruments that paid artificially low returns in the period between August 2007 and May 2010.

Libor is the primary benchmark for short-term interest rates. It plays a crucial role in the operation of financial markets, according to the complaint filed by Gelboim and Zacher.

Basis of Libor

It is based on borrowing rates reported by panels of banks created by the British Bankers’ Association, from which an average rate is calculated for 10 currencies and for maturities ranging from overnight to one year, the complaint said.

Libor is used as the basis for securities including the rate of return on short-term, fixed-rate notes as well as for the pricing and settlement of Eurodollar futures and options-- the most actively traded interest-rate futures contracts on the Chicago Mercantile Exchange, the complaint said. The British Bankers Association has called it “the world’s most important number” on its website.

The case is In re: LIBOR-Based Financial Instruments Antitrust Litigation, 11-MD-2262, Southern District of New York (Manhattan).

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