federal depositOn March 14, 2014, In the latest development in the long-running saga of the Libor scandal, the FDIC in its capacity as receiver of 38 banking institutions that failed between 2008 and 2011, has filed a massive new lawsuit in the Southern District of New York against the U.S. dollar Libor rate-setting banks and against the British Bankers’ Association and related entities, alleging that between 2007 and mid-2011, the defendants conspired to manipulate the USD Libor rate. A copy of the FDIC’s complaint can be found here.


The defendants in the lawsuit include sixteen USD Libor benchmark rate setting banks and related entities, as well as the British Bankers’ Association and related entities. During the relevant time-period the BBA sponsored and facilitated the setting of the Libor benchmark rates. The rate-setting banks named as defendants include banks from the U.S., U.K., Canada, Switzerland, France, German, the Netherlands and Japan.


The FDIC in its capacity as the failed banks’ receiver alleges that the defendants manipulated and suppressed the U.S. dollar Libor benchmark rate from as early as August 2007, allegedly to create the impression that the banks were healthier than they appeared and in order to benefit individual trading positions at the various banks. The complaint includes detailed allegations drawing heavily upon the admissions of and the internal communications from the rate-setting banks that have reached regulatory settlements (specifically, UBS, Barclays, RBS and Rabobank).


The FDIC’s allegations against the BBA and related entities are that the organization allegedly participated in the scheme to protect revenue streams the organization derived from selling Libor licenses and to appease the panel banks.


The complaint alleges that the defendants’ manipulative conduct restricted the price of products tied to Libor, limited consumer choice, and suppressed the rates paid on Libor benchmarked financial products, including in particular products in which the rate-setting banks themselves where counterparties. The complaint alleges that the closed banks were “injured in their business and property and have suffered damages in an amount presently undetermined.”  


The complaint alleges that “financial institutions around the world, including the closed banks, reasonably relied on Libor as an honest and accurate benchmark of a competitively determined interbank lending rate.” The FDIC alleges that the “Defendants’ wrongful conduct … caused substantial losses to the closed banks.” The FDIC also alleges that the rate-manipulation resulted in higher prices for Libor-based financial products.



The closed banks on whose behalf the FDIC is proceeding as receiver in this action closed between 2008 and 2011, and include both some the largest failed banks (including WaMu, the largest bank failure in U.S. history), as well as numerous other smaller failed banks. Obviously, by aggregating the claims of nearly four dozen failed banks, the FDIC hopes to be able to magnify the scale of prospective damages.


The complaint asserts twenty-four separate substantive counts, including ten counts for breach of contract and two additional contract related counts. In these contractual violation counts, the FDIC alleges that various specified contracting banks entered into various pay-fixed swaps or other interest-rate sensitive financial products. The FDIC alleges that the manipulative conduct breached the specified defendant(s) contract(s) with the specified failed bank, resulting, among other things, in an underpayment of interest due under the contracts.


Counts XIII through XXII of the complaint assert that by their alleged manipulative conduct the various defendants committed a variety of torts, including fraud, aiding and abetting fraud, civil conspiracy to commit fraud, negligent misrepresentation, tortious interference with contract (and related tortious interference claims).


Count XXIII alleges a violation of Section 1 of the Sherman Act, and Count XXIV alleges violations of the Donnelly Act (which is the primary antitrust law of New York).


The FDIC is not the first U.S. governmental agency to file a massive civil complaint for damages against the Libor benchmark rating setting banks alleging that the banks had manipulated the benchmark. For example, as noted here, in March 2013 Freddie Mac filed an action in the Eastern District of Virginia against the Libor rate setting banks as well as against the BBA, alleging both antitrust violations as well as breach of contract claims.


Similarly, in October 2013, Fannie Mae sued nine of the Libor rate-setting banks alleging that they had manipulated the rates causing Fannie Mae to lose money on mortgages and other instruments, and seeking over $800 million in damages.


In addition, as discussed here, in September 2013, in a complaint that in many way foreshadowed the FDIC’s Libor-related complaint, the National Credit Union Administration acting as receiver of five failed credit unions filed an action in the District of Kansas alleging that the defendant rate-setting banks  manipulated the benchmark, costing the failed institutions millions of dollars in lost interest income. Interestingly, however, the NCUA’s complaint asserts claims based only on alleged antitrust violations.


In its complaint, the FDIC, by contrast to the NCUA, chose not to feature its antitrust allegations, although the FDIC did include antitrust claims. The FDIC’s promotion of its other claims  in preference to its antitrust allegations is hardly surprising in light of the fact that, as discussed here, in March 2013, Judge Naomi Reece Buchwald ruled in the consolidated Libor antitrust action pending in the Southern District of New York that the claimants lack antitrust standing, She ruled that the defendants’ alleged actions did not affect competition, as the rate-setting banks were not in competition with one another with respect to Libor rate-setting. Judge Buchwald said ““the alleged collusion occurred in an arena in which defendants never did and never were intended to compete.” (Judge Buchwald’s ruling is on appeal to the Second Circuit).


In the wake of Judge Buchwald’s decision, other claimants have opted to file their Libor manipulation claims in state court, alleging state law claims (as shown for example here), or to try to proceed on other legal theories – for example, under the federal securities laws. The FDIC appears to have adopted this model, by contrast to the approach of the NCUA, which elected to proceed on the basis of the antitrust allegations alone.


The continuing accumulation of Libor scandal-related litigation is interesting. Though the regulators have scored some very impressive regulatory settlements, the related civil litigation has so far been unproductive for the damages claimants. Not only was the consolidated antitrust action dismissed, as noted above, but in addition the securities class action lawsuit filed against Barclays was also dismissed (about which refer here). So far at least, the damages claimants have little to show for their efforts. It remains to be seen if the FDIC’s sortie on behalf of the failed banks will fare any better.


A March 14, 2014 Bloomberg article regarding the FDIC’s lawsuit can be found here.