Latest in private Libor cases: California city, counties file suit

January 10, 2013

The first time I wrote about private antitrust claims against banks for rigging the London Interbank Offered Rate (or Libor), it was August 2011 and the judicial panel on multidistrict litigation had just consolidated 18 class actions alleging a conspiracy to manipulate the benchmark rates, which are used to set variable interest rates on all sorts of securities around the world. I titled the piece, “The megabillions litigation you’ve never heard of.”

How things have changed in the 17 months since then! The private Libor litigation still has megabillions potential, but thanks to the tsunami of Libor news in 2012, everyone knows it. The consolidated cases are proceeding in federal court in Manhattan before U.S. District Judge Naomi Reice Buchwald, who is considering fully briefed motions to dismiss by more than a dozen bank defendants. Meanwhile, new claimants have piled on. I’ve already told you about the class actions filed after the $450 million Barclays settlement last summer, which tried to distinguish themselves from the cases already under way. Now there’s another wrinkle in the private Libor litigation: On Wednesday, the counties of San Diego and San Mateo, the city of Riverside and the municipal utility district of Oakland filed simultaneous antitrust complaints in three different federal courts in their home state of California. And a lawyer from the firm that filed all of the new cases, Cotchett, Pitre & McCarthy, told me Thursday that he is hoping more California cities and counties will join in. “California public entities — that’s who we’re trying to gather up,” said Daniel Sterrett of Cotchett.

The allegations in the California suits will be familiar to anyone who has followed the burgeoning Libor scandal, in which banks supposedly falsified reports of interbank borrowing rates to a British banking authority in order to improve trading positions or avoid damaging their reputations. The new complaints aren’t even the first to mine documents released by British and U.S. regulators in connection with UBS’s $1.5 billion settlement in December. The Los Angeles County Employees Retirement Association, represented by Bernstein Litowitz Berger & Grossmann, filed a class action on Dec. 21 that included allegations based on the UBS materials. (The pension fund’s suit, interestingly, asserts only federal racketeering and California state-law claims that are not already in the ongoing class action, so at least as the original case is currently pleaded, the pension fund’s case doesn’t overlap it.)

But the new suits are notable because they portend messy complications for the banks in the private Libor litigation. California counties and cities would almost certainly be members of the class action already under way before Judge Buchwald if that class is eventually certified; one of the lead plaintiffs in the case, after all, is the city of Baltimore, which has the same causes of action as the California municipalities. Because of the related claims, the JPMDL should send the California cases to Buchwald for pretrial discovery. But after that, assuming the cases survive dismissal motions, the California suits would be sent back to California federal courts, where, Sterrett said, his clients will be before hometown juries. “We think there’s an advantage to having juries in California hear these claims,” the Cotchett lawyer told me.

That’s the message the Cotchett firm is spreading to other municipalities in California — and that plaintiffs’ firms are doubtless preaching to city and county officials in other states. New York’s Nassau County, for instance, has also peeled off from the main class action in Manhattan and filed a New York State Supreme Court complaint, which the bank defendants removed to federal court in December. More individual suits by municipalities that issued and invested in billions of dollars of securities with Libor-tied rates means more headaches for bank defendants.

The Libor scandal seems destined only to expand. The Wall Street Journal had a great scoop this week on internal documents from Deutsche Bank that appear to contradict bank assertions that they didn’t net any profits from Libor manipulation because they hedge interest-rate positions. British lawmakers, meanwhile, grilled top UBS executives about how the bank could have been ignorant of the misconduct it admitted in the December settlements. My bet is that if Judge Buchwald denies the banks’ motion to dismiss the original suits, we’re going to see a lot more plaintiffs with big individual claims decide that it’s worth their while to bring their own suits.

I called Michael Hausfeld — one of the lead lawyers in the original class action and a vigorous defender of his turf — for comment on the new filings, but I didn’t hear back.

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