Eurodollar Traders Can Revise Libor Manipulation Claims

Barclays Plc and Rabobank Groep can be accused of using the London interbank offered rate to gain trading advantages in a lawsuit filed by Eurodollar futures traders alleging banks manipulated the benchmark, a judge ruled.

U.S. District Judge Naomi Reice Buchwald in Manhattan yesterday granted the request to add claims to the lawsuit filed by a group of investment funds, which allege that banks including Bank of America Corp., Citigroup Inc. and Credit Suisse Group AG artificially suppressed the interest rate to hide increasing borrowing costs.

“Put simply, plaintiffs may plead that they either paid too much for Eurodollar futures contracts on certain dates or earned too little by selling them,” Buchwald said in her opinion.

The lawsuit is among more than two dozen interrelated cases before the judge alleging that banks conspired to depress Libor, a measure of banks’ borrowing costs used as a reference point for trillions of dollars in financial instruments. Buchwald dismissed federal antitrust and racketeering claims brought by plaintiffs in the cases in March 2013.

Yesterday, Buchwald also dismissed Societe Generale SA as a defendant, finding allegations against that bank were filed too late.

‘Many Hurdles’

Buchwald said the Eurodollar futures traders “still face many hurdles,” including demonstrating “they actually sustained damages as a result of defendants’ improper conduct.”

By understating Libor, banks provided a “false or misleading impression of their financial strength to investors and the rest of the market,” the traders said in a complaint filed in April 2012.

Global authorities have been investigating claims that more than a dozen banks altered submissions used to set benchmarks such as Libor to profit from bets on interest-rate derivatives or make the lenders’ finances appear healthier.

Barclays, based in London, agreed to pay 290 million pounds ($492 million) and Royal Bank of Scotland Group Plc paid $612 million to U.S. and U.K. regulators to resolve claims. UBS AG agreed to pay 1.4 billion Swiss francs ($1.56 billion). Rabobank agreed to pay more than $1 billion in penalties to U.S. and European regulators.

“We look forward to prosecuting the trader-based claims against Barclays and Rabobank and, if there’s other evidence that arises, against other banks as well,” said David Kovel, a lawyer for the Eurodollar futures traders.

Lynne Burns, a spokeswoman for Rabobank, and a Barclays spokesman, Jon Laycock, declined to comment on yesterday’s ruling.

The consolidated case is In re Libor-Based Financial Instruments Antitrust Litigation, 11-MD-02262, U.S. District Court, Southern District of New York (Manhattan).

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