The Justice Department announced last week that it had reached a non-prosecution agreement with Barclays Bank regarding misconduct related to the bank’s submissions for the London Interbank Offered Rate (Libor) and Euro Interbank Offered Rate (Euribor). According to the Department’s official statement on the agreement,
Barclay’s provided Libor and Euribor submissions that, at various times, were false because they improperly took into account the trading positions of its derivatives traders, or reputational concerns about negative media attention relating to its LIBOR submissions.
The Barclays settlement, which allows the bank to avoid pleading guilty while providing the Justice Department with information about Libor manipulation in the industry, has opened a door for additional investigations and prosecutions against both institutions and individuals. As the New York Times DealBook reports this week, the Barclays settlement is significant because although it is not the first major investigation into Libor wrongdoing, it is the first conducted by the Justice Department’s fraud section, a part of the criminal division. Last year, UBS obtained conditional immunity from the Antitrust Division by being the first company to come forward to report violations.
The shift from antitrust to fraud is significant. Peter J. Henning writes for DealBook that while the Antitrust Division has a leniency programming that allows for deals like the one UBS was offered last year, the fraud section does not. Potential prosecutions could be brought under the federal wire fraud statute (under which defendants could receive up to 30 years in prison) and the Racketeer Influenced and Corrupt Organizations Act (RICO). Henning writes:
The Libor investigation is likely to continue on two fronts in the coming months. First, the criminal investigation will focus on other banks and individuals that were contributors to Libor to determine their role in submitting false interest rate data for setting the benchmark…
The second front will be private lawsuits against the banks for manipulating Libor and its counterparts… Settlements with the Justice Department require an admission of misconduct, not the more typical resolution in civil enforcement actions that come without any acknowledgement of violations. Those admissions can prove quite useful to plaintiffs in pursuing their own cases.
The prosecutions could potentially keep both plaintiff’s lawyers and white collar defense attorneys busy for years to come. Possible RICO allegations make civil cases particularly appealing, because as Henning points out, RICO allows for both triple damages and the recovery of legal fees.
Posted by Emily Fisher