The Libor/Euribor manipulation controversy continues to pick up steam as state officials launch investigations into whether banks or their employees have violated state law. The scandal, which we began discussing on the blog in July, involves the alleged fraudulent manipulation of both the London Interbank Offered Rate (Libor) and the Euro Interbank Offered Rate (Euribor). Barclays reached agreements earlier this summer with government agencies in both the US and the UK, under which the bank admitted to making false Libor and Euribor submissions in order to benefit its own trading positions and avoid negative media attention. Barclays is now participating in government investigations into the matter in exchange for non-prosecution, opening the door for both criminal prosecutions and civil lawsuits throughout the industry.
With the federal inquiry underway, states are now joining the fray. The earliest activity appears to have come from New York attorney general Eric Schneiderman, who sent subpoenas in July and August to Deutsche Bank, Citigroup, JPMorgan Chase, Royal Bank of Scotland, HSBC, UBS and Barclays (the non-prosecution agreement does not extend to the states). And now, according to a report this week from the New York Times, state officials in North Carolina, Connecticut, Maryland and Massachusetts have joined in:
The attorneys general in Maryland, Massachusetts, New York and Connecticut have all been examining how much their states may have lost as a result of a lowered Libor. A spokeswoman for Connecticut’s attorney general, George C. Jepsen, said that the state’s work with New York’s attorney general, Eric T. Schneiderman, “has broadened significantly over the last few weeks and we are now coordinating with a much larger group of attorneys general.”
Schneiderman’s work in New York is likely to remain the center of state activity, since New York state law offers more tools for prosecution of this sort of activity. As the Financial Times explained last month (registration required), New York’s Martin Act allows the state attorney general to “investigate anyone doing business in New York and to bring cases without having to show that the accused intended to commit fraud.” The Martin Act rose from relative obscurity during Eliot Spitzer’s tenure as New York AG, when he used it broadly to investigate and charge fraud in the investment banking industry.
In addition to federal and state investigations, the Libor controversy is already beginning to amass civil litigation activity. A number of proposed class actions have been filed, and the federal courts have already consolidated the action in the U.S. District Court for the Southern District of New York (In Re: Libor-Based Financial Instruments Antitrust Litigation, No. 11-md-2262).
In a dynamic that most lawyers know well, this is all bad for the banking industry but good for the lawyers and firms that represent the industry. In a recent article on the Libor investigations and lawsuits, Crain’s New York Business compared the situation to corporate malfeasance that helped drive growth in the industry about a decade ago:
[T]he LIBOR settlements could eclipse the record $7 billion shelled out nearly a decade ago to end the Enron class action and $6 billion for WorldCom, [attorney Jason Zweig of Hagens Berman] said. “This has the potential to make those look like pocket change.”
It should be noted that Zweig is not an impartial observer – Hagens Berman is representing plaintiffs in one of the Libor lawsuits. However, he’s also not alone. Crain’s reports that many members of the legal community believe the Libor controversy could help drive the legal economy for the next several years.
Posted by Emily Fisher
For more on the Libor controversy, see our previous posts:
Libor Litigation Heats Up with Barclays Settlement
Libor Investigations Already Keeping Some Firms Busy