Report: AGs now looking into alleged LIBOR manipulation

Jessica M. Karmasek Jul. 17, 2012, 10:15am



NEW YORK (Legal Newsline) - A group of state attorneys general are reportedly looking into an alleged manipulation of the London InterBank Offered Rate, or LIBOR.

LIBOR is the average interest rate at which a select group of large, reputable banks that participate in the London InterBank money market can borrow unsecured funds from other banks.

According to the U.S. Commodity Futures Trading Commission, LIBOR is among the most important benchmark interest rates in the world's economy, and is a key rate in the United States.

LIBOR impacts enormous volumes of swaps and futures contracts, commercial and personal consumer loans, home mortgages and other transactions, according to the CFTC.

Last week, a class action lawsuit was filed in a New York federal court for customers who bought American Depository Receipts of Barclay, two subsidiaries and the company's former chairman and chief executive.

The suit alleges securities fraud in the LIBOR scandal.

In June, Barclays was fined a record $200 million by the CFTC for allegedly attempting interest rate manipulation and false reporting to benefit its derivatives trading positions.

Now, New York Attorney General Eric Schneiderman, Connecticut Attorney General George Jepsen, Massachusetts Attorney General Martha Coakley, Florida Attorney General Pam Bondi and Maryland Attorney General Doug Gansler are investigating, Bloomberg reported Tuesday.

According to the news service, Schneiderman and Jepsen are working together.

"The New York and Connecticut attorneys general have been looking into these issues for over six months, and will continue to follow the facts wherever they lead," a spokesman for Schneiderman told Bloomberg in an email.

In particular, the attorneys general are looking into whether their states have incurred any losses.

Coakley also is investigating whether any manipulation could affect Massachusetts' investments, Bloomberg reported.

Meanwhile, Bondi is simply "reviewing the matter," and Gansler is "looking into" allegations of manipulation, spokespeople for both offices told the news service.

According to the complaint filed last week, Barclays "admittedly participated in an illegal scheme to manipulate the Libor interest rates for the benefit of Barclays' traders and to make Barclays appear financially healthier than it was during the Class Period."

The complaint also alleges that Barclays "lied to the company's shareholders about the company's purported compliance with their principles and operational risk management processes and repeatedly told shareholders that Barclays was a model corporate citizen even though at all relevant times it was flouting the law."

The complaint states, "the London InterBank Offered Rate ('LIBOR') is a tool to measure risk within the banking system as a whole and it may be more surgically applied to test a particular bank's creditworthiness. When a bank lends to a customer (in this case another bank), it fixes the interest rate and other terms premised on an assessment of the borrower's ability to repay the loan.

"The greater the risk, the higher the rate the bank will charge to assume the risk. The opposite is true: the lower the credit risk, the lower the rate the bank will charge to take on the risk."

From Legal Newsline: Reach Jessica Karmasek by email at

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