Opinion

Alison Frankel

Barclays’ gift to private antitrust plaintiffs in Libor case

By Alison Frankel
June 28, 2012

Last month, when plaintiffs’ lawyers filed their amended class action complaints against a bevy of banks accused of manipulating the London interbank offered rate (or Libor), I noted that the antitrust complaints were long on wonky economic analysis but short on juicy conspiracy evidence, mostly because U.S. District Judge Naomi Reice Buchwald had denied motions to grant the private antitrust plaintiffs access to materials the banks turned over to regulators. I asked whether there was enough billowy black smoke in the class complaints to withstand the banks’ motions to dismiss.

I don’t think that’s going to be a problem anymore.

On Wednesday, Barclays won the race to reach a deal with U.S. and British regulators, beating UBS, which was reportedly the first bank to begin cooperating with international antitrust authorities. Barclays agreed to pay at least $450 million to resolve government investigations of manipulation of Libor and the Euro interbank offered rate (or Euribor): $200 million to the U.S. Commodity Futures Trading Commission, $160 million to the criminal division of the U.S. Department of Justice and $92.8 million to Britain’s Financial Services Authority. What’s more, the CFTC and DOJ filings on the deal feature more smoking guns than a Martin Scorsese movie.

The CFTC’s Order Instituting Proceedings and the Justice Department’s Statement of Facts cite truly eye-popping emails, instant messages and other evidence indicating that between 2005 and 2008 Barclays employees agreed to manipulate the rates they submitted to the banking authority that oversees the daily Libor report for seemingly anyone who asked them to monkey with it: senior Barclays officials concerned that the bank would look weak if it reported too high a borrowing rate; interest rate swap traders trying to improve Barclays’ derivatives trading position; even former Barclays traders begging for favors. We’re talking naked, blatant manipulation. Here’s one exchange cited in the DOJ filing:

Trader: “Can you pls continue to go in for 3m Libor at 5.365 or lower, we are all very long cash here in ny.”

Libor rate submitter: “How long?”

Trader: “Until the effective date goes over year end (i.e. turn drops out) if possible.”

Submitter: “Will do my best sir.”

The CFTC filing – which quoted Libor submitters saying “Always happy to help, leave it with me, Sir” and “Done … for you big boy,” in response to trader requests to report particular rates – also said that in the fall of 2007 senior Barclays managers devised a strategy of underreporting the bank’s borrowing rate to counter negative publicity about a Barclays liquidity crunch (and to match what Barclays considered Libor underreporting by other banks). “As Barclays employees stated in internal communications, the purpose of the strategy of under-reporting dollar LIBORs was to keep Barclays’s ‘head below the parapet’ so that it did not get ‘shot’ off,” the CFTC filing said.

This kind of internal evidence is exactly what private antitrust plaintiffs need to establish a viable conspiracy case, especially because the DOJ and CFTC filings are full of indications that Barclays’ bankers were convinced other banks were engaged in the same kind of manipulation. (There’s direct evidence of a concerted plan among traders from different banks to rig Euribor but not Libor.) Class counsel Michael Hausfeld of the eponymous firm Hausfeld told me that other banks are known to be in settlement talks with regulators, so presumably their settlement agreements will show that Barclays was right and did indeed have plenty of company in messing with Libor.

Hausfeld also said the private plaintiffs already know much more than what we saw in their complaints but had to keep mum while the criminal investigation is under way. “It shouldn’t surprise anyone,” he said, if the plaintiffs eventually amend their complaints to include the evidence that emerges from CFTC, DOJ and foreign regulators.

In fact, Hausfeld said, Britain’s Financial Services Authority case may turn out to be more useful to the private plaintiffs than the U.S. cases. In the CFTC settlement, Barclays neither admitted nor denied the agency’s allegations. The DOJ criminal division’s letter agreement, meanwhile, said Barclays “admits, accepts, and acknowledges responsibility” for the alleged misconduct. That’s good language for the private plaintiffs but not as powerful as a guilty plea. Hausfeld said the British agreement “will contain admissions of wrongdoing” that are stronger than those in the U.S. deals (though I didn’t see such admissions in the FSA’s final notice). I asked Hausfeld if admissions in Britain will preclude Barclays from denying liability in the private U.S. class actions. “We’re going to find out,” he said.

I reached out to Hausfeld’s co-counsel at Susman Godfrey but didn’t hear back. I also left a phone message for Barclays’ lawyer in both the DOJ and civil Libor cases, David Braff of Sullivan & Cromwell, but he didn’t respond.

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