LIBOR Scandal

US Seeking to File Criminal Charges Against Royal Bank of Scotland Group in Interest-Rate-Rigging Settlement Involving Libor

Published on: January 29, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Authorities in the United States want to reach a settlement with Royal Bank of Scotland Group (RBS.L) that would require that the British bank plead guilty to criminal charges and pay about $790M in penalties to Britain and America over its alleged involvement in last year’s Libor-rigging scandal. RBS would be the third bank to settle over interest-rate-rigging allegations. UBS AG (UBS) and Barclays PLC (BCS) reached settlements last year that together totaled almost $2 billion. They both admitted to committing wrongdoing.

Prosecutors want an RBS unit where some of the alleged rate-rigging occurred to plead guilty to attempting to manipulate the rates. Currently, reports The Wall Street Journal, RBS executives are balking at making such an admission, especially because it could make exposure to securities lawsuits greater. However, ultimately the decision is up to the US Justice Department.

Meantime, at least a dozen other banks around the world are still under investigation for trying to manipulate Libor and Euribor. Bloomberg reports that it has obtained documents that show that for years traders at numerous banks worked with colleagues tasked with establishing the Libor benchmark to rig the price of money. The traders reportedly knew each other from work or from trips involving interdeal brokers. The manipulation of the Libor is believed to have gone on for years.

LIBOR Investigation Leads to Three Arrests

Published on: December 11, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Anti-fraud and police in Britain have made three arrests related to the global interest rate rigging scandal involving the London Interbank Offered Rate (LIBOR). The three men are Thomas Hayes, an ex-Citigroup Inc. (C) and UBS AG (UBSN.VX) trader, and James Gilmour and Terry Farr, who both worked at RP Martin, an interdealer broker. All of them are British nationals.

The Canadian Competition Bureau regulator claims that Hayes and others tried to manipulate yen Libor, which is the average interbank interest rates that banks are willing to lend in unsecured funds that are in Japanese yen denominations to each other. The regulator is also accusing Hayes of reaching out to traders at other banks in London and trying to persuade them to manipulate yen rates.

Regulators and prosecutors in Europe, Canada, the US, and Japan have been probing how traders have been able to rig interbank lending rates, including LIBOR, and whether banks may have changed submissions that are supposed to set benchmarks so they could make money off interest-rate derivatives-related bets or make lenders appear more financially healthy.

LIBOR Oversight-Related Changes Announced by FSA Chief

Published on: October 2, 2012 | by Shepherd Smith Edwards & Kantas, LLP

Britain’s Financial Services Authority managing director Martin Wheatley says that oversight of Libor should become the UK regulator’s job. He made his statements on Friday, proposing that over 100 Libor rates tied to maturities and currencies that lack enough trading information to be set properly should be eliminated right away. He also said that submissions by banks should be grounded in “hard data.”

Questions were raised about the London Inter-Bank Offer Rate’s accuracy a few months ago following allegations that Barclays (BCS) and other large banks had been rigging it by turning in borrowing estimates that were artificially low. Considering that LIBOR is the average borrowing cost for banks in Britain for when they are lending each other money, as well as a benchmark interest rate that impacts financial contracts and corporate loans globally, such manipulation cannot happen. Barclays later admitted that it had tried to rig rates to boost its own derivative trading, hide actual lending costs, and create the impression of better financial health during the economic crisis. The bank would go on to settle over these securities allegations: $453 million to the FSA, $200 million to the Commodity Futures Trading Commission, and $160 million to the US Department of Justice. However, several other banks are still under investigation related to the LIBOR scandal.

“Many regional banks and other financial institutions are seeking to recover losses based on fraudulently manipulated Libor rates,” said Securities Fraud Attorney William Shepherd. “Most lenders have abandoned the ‘prime’ rate formula and now base their rates on the widely accepted (and trusted) Libor rate. Our law firm represents financial institutions in claims for damages.”

Acknowledging that Libor governance has been a complete failure, Wheatley, who is expected to become the Financial Conduct Authority’s chief executive when the FSA breaks up into two agencies, acknowledged that inadequate regulation and a “comprehensive mechanism” to retaliate against those that attempt to “manipulate the system” has made resulting problems worse. He wants FSA to be given additional authorities, including vetting power over rate-submitters and the ability to prosecute rate manipulation efforts.

According to Advisen.com, with regulatory actions and securities litigation over the LIBOR manipulation scandal growing every day, through the first week of September it had counted 88 actions against 20 banks—that’s 20 regulatory probes and 68 complaints. Among the defendants, besides Barclays, are JP Morgan Chase Bank (JPM), Citibank (C), Royal Bank of Scotland Group (RBS), Bank of America (BAC), Credit Suisse Group AG (CS), UBS (UBS), HSBC, Deutsche Bank AG (DB), Bank of Tokyo Mitsubishi, Royal Bank of Canada (RY), and others. More actions over pension fund losses are likely.

FSA to Oversee Libor in Streamlining of Tarnished Interest Rate, SF Gate, September 28, 2012

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SEC Reviewing LIBOR-Related Disclosures by Issuers

Published on: August 10, 2012 | by Shepherd Smith Edwards & Kantas, LLP

According to SEC Division of Corporation Finance director Meredith Cross, Corp Fin is now looking at issuers’ closers related to the LIBOR scandal. Cross said that right now we are in the ‘early stages” for these types of disclosures, which could be more material for financial institutions. She also spoke about how companies that issue payments according to the London InterBank Offered Rate would have to consider their own circumstances when determining whether they should/shouldn’t make disclosures to shareholders about how exposed they were to the controversy. Cross, who addressed a Federal Regulation of Securities Committee panel at this year’s American Bar Association meeting in Chicago on August 3, made it clear that the views she is expressing are her own and not that of the SEC or any other staffers.

European and US regulators have been looking into whether a number of financial institutions rigged LIBOR, which is considered the global benchmark interest rate for banks to borrow from other banks in the London interbank market. A couple of months ago, Barclays Bank PLC (BCS) consented to pay $360 million to settle charges made by the Commodity Futures Trading Commission and the US Justice Department that it engaged in the manipulation of its LIBOR submissions.

Cross said that the SEC division would likely look at the disclosures belonging to companies that, per media reports, experienced computer breaches. If any of these companies that were reportedly hacked only reports in its disclosure that it may have been “infiltrated,” Cross said that this would be a potential red flag. Also, while Cross spoke about how issuers need to make sure their disclosures are accurate, she emphasized that Corp Fin isn’t looking for disclosures to reveal too much that they show hackers how to get in. (It was nearly a year ago that Corp Fin put out guidance on how companies should disclose incidents involving data breaches, cyber security, and related expenses.)

Last month, US News said the LIBOR controversy may very well be the “mother of all scandals” and the one that could cause major banks’ insolvency, as well as criminal charges to finally be filed. Meantime, regulators are also being accused of contributing to the rigging of LIBOR when they allegedly disregarded clear indicators that the rates were being fixed. Rather than bringing in law enforcement agencies, regulators were busy looking at how to improve ongoing practices.

SEC Division of Corporation Finance

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Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope

Published on: July 16, 2012 | by Shepherd Smith Edwards & Kantas, LLP

The London Inter-Bank Offer Rate (LIBOR) manipulation scandal involving Barclays Bank (BCS-P) has now opened up a global probe, as investigators from the United States, Europe, Canada, and Asia try to figure out exactly what happened. While Barclays may have the settled the allegations for $450 million with the UK’s Financial Services Authority, the US Department of Justice, and the Commodity Futures Trading Commission, now a number of other financial firms are under investigation including UBS AG (UBS), JPMorgan Chase (JPM), Deutsche Bank AG, Credit Suisse Group (CS), Citigroup Inc., Bank of Tokyo-Mitsubishi UFJ, HSBC Holdings PLC (HBC-PA), Lloyds Banking Group PLC (LYG), Rabobank Groep NV, Mizuho Financial Group Inc. (MFG), Societe Generale SA, RP Martin Holdings Ltd., Sumitomo Mitsui Banking Corp., and Royal Bank of Scotland PLC (RBS).

In the last few weeks, the accuracy of LIBOR, which is the average borrowing cost when banks in Britain loan money to each other, has come into question in the wake of allegations that Barclays and other big banks have been rigging it by submitting artificially low borrowing estimates. Considering that LIBOR is a benchmark interest rates that affects hundreds of trillions of dollars in financial contracts, including floating-rate mortgages, interest-rate swaps, and corporate loans globally, the fact that this type of financial fudging may be happening on a wide scale basis is disturbing.

“It’s my understanding the total financial paper effected by LIBOR is close to $500 trillion dollars. This is a half-quadrillion dollars if you are wondering about the next step up,” said Shepherd Smith Edwards and Kantas, LTD, LLP Founder and Institutional Investment Fraud Attorney William Shepherd.