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Fund Sues Big Banks, Alleging Libor Harm

04/20/2011 | The Wall Street Journal
A Vienna hedge fund alleges that it was harmed in the derivatives market when some of the world’s biggest banks manipulated a key benchmark interest rate, according to a lawsuit filed Friday in New York federal court.

Questions about the accuracy of the London interbank offered rate have increased in recent weeks amid a U.S. law-enforcement investigation into whether banks colluded in setting Libor. The lawsuit by FTC Capital GmbH is one of the first to identify traders who claim in a lawsuit to have been harmed by the alleged manipulation. Questions about Libor - which is supposed to reflect the rate at which banks lend to one another - also have focused on whether banks low-balled borrowing rates to mask financial problems.

In the lawsuit, FTC Capital alleges that Libor manipulation affected Eurodollar futures, which allow traders to bet on the future direction of interest rates in the U.S. The futures are priced using Libor.

“If Libor had been fairly priced, my clients would not have been harmed trading the Eurodollar market,” said FTC Capital lawyer David Kovel of Kirby McInerney LLP in New York. Mr. Kovel is working with Motley Rice LLC, a South Carolina firm known for pursuing big plaintiffs’ litigation such as cases against cigarette and asbestos makers.

FTC’s lawsuit doesn’t identify specific trades where it was harmed. FTC is seeking unspecified damages, according to the complaint. The banks that served on a panel that set dollar Libor and that are named in the complaint are: Credit Suisse Group, Bank of America Corp., J.P. Morgan Chase & Co., HSBC Holdings PLC, Barclays PLC, Lloyds Banking Group PLC, WestLB, UBS AG, Royal Bank of Scotland Group PLC, Deutsche Bank AG, Citigroup Inc., and Norinchukin Bank. Spokespersons for the banks either declined comment, said the complaint was without merit or weren’t immediately reachable.