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04/19/11 | Firm News
Kirby McInerney LLP Files Lawsuit Alleging 13 Banks Fixed Libor Rates
NEW YORK, April 19, 2011 - The law firms of Kirby McInerney LLP, Sturman LLC, and Motley Rice LLC announced today that they have filed a class action against 13 global banks on behalf of a number of investors, alleging that the banks colluded to misreport and manipulate Libor rates, thereby harming investors in futures, swaps, and other Libor-based derivative products between January 2006 and June 2009.
Libor is the most important privately determined statistic used in the world of commerce, both domestic and international. Most short term borrowing is tied to Libor. It is also used as the basis to price fixed income futures, options, swaps and other derivative products traded on the Chicago Mercantile Exchange and in the over-the-counter market. “LIBOR is a benchmark interest rate whose integrity must remain unassailable in order to be useful. By treating LIBOR as something they could manipulate at their option, the defendant banks created artificial prices in the derivatives markets and misled investors,” said David Kovel, a partner at Kirby McInerney LLP.
The complaint further notes that in the early months of 2008, although banks were facing different financial stresses, the defendant banks submitted USD Libor rates that did not vary markedly, nor did the rates increase or decrease sharply, although one would have expected that in an unmanipulated marketplace they would have risen significantly during that period of instability.
According to the allegations, when compared with other reliable measures of bank risk, such as federal funds trades (which require collateral) and the credit default market, the reported Libor rates of the contributing banks were underpriced. For example, in 2008, the Federal Reserve auctioned $50 billion of one-month loans to banks at an average annualized interest rate of 2.82% - a rate greater than the comparable Libor rate. However, because banks provide collateral for the Federal Reserve loans, they should have received them for a lesser rate than Libor, which is unsecured.
Several government regulatory agencies, including the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Department of Justice, the Japanese Financial Supervisory Agency, and the United Kingdom's Financial Services Authority, are investigating the reporting practices of the banks reporting Libor rates during the relevant period.
Libor is the most important privately determined statistic used in the world of commerce, both domestic and international. Most short term borrowing is tied to Libor. It is also used as the basis to price fixed income futures, options, swaps and other derivative products traded on the Chicago Mercantile Exchange and in the over-the-counter market. “LIBOR is a benchmark interest rate whose integrity must remain unassailable in order to be useful. By treating LIBOR as something they could manipulate at their option, the defendant banks created artificial prices in the derivatives markets and misled investors,” said David Kovel, a partner at Kirby McInerney LLP.
The complaint further notes that in the early months of 2008, although banks were facing different financial stresses, the defendant banks submitted USD Libor rates that did not vary markedly, nor did the rates increase or decrease sharply, although one would have expected that in an unmanipulated marketplace they would have risen significantly during that period of instability.
According to the allegations, when compared with other reliable measures of bank risk, such as federal funds trades (which require collateral) and the credit default market, the reported Libor rates of the contributing banks were underpriced. For example, in 2008, the Federal Reserve auctioned $50 billion of one-month loans to banks at an average annualized interest rate of 2.82% - a rate greater than the comparable Libor rate. However, because banks provide collateral for the Federal Reserve loans, they should have received them for a lesser rate than Libor, which is unsecured.
Several government regulatory agencies, including the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Department of Justice, the Japanese Financial Supervisory Agency, and the United Kingdom's Financial Services Authority, are investigating the reporting practices of the banks reporting Libor rates during the relevant period.
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