barclaysThe Libor-scandal based securities suit filed against Barclays and certain of its directors and offices will now be going forward. The case was initially dismissed, but on appeal the Second Circuit vacated a part of the dismissal ruling and returned the case to the district court for further proceedings. The defendants filed a renewed motion to dismiss. In an October 21, 2014 order (here), Judge Shira Schindlin denied the defendants’ motion, holding that the plaintiffs’ allegations of scienter were sufficient to meet the pleading requirements. The lawsuit, filed on behalf of investors who purchased Barclays American Depositary Receipts (ADR) in the United States, will now proceed.



On June 27, 2012, Barclays announced that it had entered settlements with regulators in the United States and the United Kingdom relating to the Libor-manipulation scandal. Barclays agreed to pay fines totaling more than $450 million and admitted for the first time that between August 2007 and January 2009 the bank had in its Libor submissions underreported the interest rates it was paying.


As discussed in greater detail here, on July 10, 2012, Barclays shareholders filed a securities class action lawsuit in the Southern District of New York, against Barclays PLC and two related Barclays entities, as well as the company’s former CEO, Robert Diamond; and its former Chairman Marcus Agius. (Former Group Chief Executive John S. Varley was added as a defendant later). The complaint, which can be found here, was filed on behalf of class of persons who purchased Barclays ADRs between July 10, 2007 and June 27, 2012.


The plaintiffs’ complaint alleges that the bank willfully misrepresented the bank’s borrowing costs between 2007 and 2009 and knowingly submitted false information for purposes of calculating Libor. The plaintiffs allege that by underreporting the bank’s interest rates, the bank misrepresented the bank’s financial condition. The plaintiffs also allege that the defendants misleadingly stated that the company had established adequate internal controls. (For a detailed background regarding the Libor rate setting process and the allegations regarding Libor’s alleged manipulation refer here.) The defendants moved to dismiss the complaint.


In a May 13, 2013 opinion (discussed here), Judge Scheindlin granted the defendants’ motion to dismiss.  The plaintiffs appealed. As discussed here, in an April 25, 2014 decision, the Second Circuit affirmed the dismissal ruling in connection with the allegedly misleading statements regarding the bank’s internal controls. However, with respect to the remaining allegations concerning  the alleged underreporting of the bank’s borrowing costs,, the appellate court vacated the district court’s dismissal based on her finding that the plaintiffs had not adequately pled loss causation. The appellate court said “While expressing no view on the ultimate merits of plaintiffs’ theory of loss causation, we hold that the court below reached these conclusions prematurely.” On remand to the district court, the defendants filed a renewed motion to dismiss.


The October 21 Order

In her October 21 order, Judge Scheindlin denied the defendant’s motion to dismiss, holding that the plaintiffs had adequately pled scienter as to Barclays and as to Diamond, and had adequately pled control person liability allegations as to Agius and Varley.


In concluding that the plaintiffs had adequately pled scienter as to the Barclays entities, Judge Scheindlin examined the plaintiffs’ allegations that Barclays submitted inaccurate Dollar Libor figures that underreported the bank’s borrowing costs. The plaintiffs also allege these inaccurate submissions were made at the direction of senior management. The plaintiffs’ allegations regarding the Libor submissions drew heavily on the factual recitals in the documents prepared in connection with the regulatory settlements.


Judge Scheindlin said that “Barclays’s repeated, long-term and knowing submission of false rates suggest far more than an intent to violate [British Banking Authority] rules. Rather the conduct constitutes strong circumstantial evidence of conscious misbehavior or recklessness.”(Citations omitted). The complaint’s allegations “are sufficient to give rise to a strong inference that the danger was either known to Barclays or so obvious that Barclays must have been aware of it.” (Citations omitted). She added that the complaint “also plausibly alleges Barclays’s motive – to counter negative perceptions about its borrowing costs and, more generally, its financial condition.”


Taken together, Judge Scheindlin said, the allegations, “give rise to a cogent and compelling inference that Barclays falsified the LIBOR submissions because it understood their likely effect on the market.” She rejected the innocent motive that the defendants sought to suggest – that is, that Barclays was merely attempting to correct a misrepresentation in the market about Barclays’s financial health. She said that the inference of scienter is “cogent and at least as compelling as the competing inference of innocent intent suggested by Defendants.”


Judge Scheindlin also found that the plaintiffs’ scienter allegations against Diamond were sufficient. The plaintiffs alleged that in October 2008, following a conversation with a Bank of England official, Diamond had ordered another executive to understate LIBOR submissions so that Barclays would not be an outlier on its reported interest rates among the rate setting banks. The plaintiffs also sought to rely on statements Diamond had made in an October 31, 2008 conference call with analysts about Barclays borrowing rates.


In concluding that the allegations regarding the instructions to the other executive to understate the bank’s LIBOR submissions met the Second Circuit’s “motive and opportunity” test for pleading scienter, Judge Scheidlin said that “the complaint’s allegations, including its historical context, provide a clear motive; the fact that Barclays made false LIBOR submissions following Diamond’s instructions evince opportunity.”  With respect to the statements in the analyst conference call, Judge Scheindlin noted that Diamond’s conversation with the Bank of England and instructions to the bank executive took place just two days before the conference call and his instructions to the bank executive, which she said is “inconsistent with the truth of either of the statements” Diamond allegedly made in the conference call on which the plaintiffs seek to rely.” The “inconsistency, together with the conduct alleged, creates a cogent and compelling inference that – at the very least – Diamond acted recklessly.”


With respect to the control person liability allegations against Agius and Varley, Judge Scheindlin noted that “while merely identifying the title of a corporate officer is insufficient to state a claim,” the Complaint “describes sustained and long-running misconduct that was known to management, including high-ranking corporate officers.” These allegations, Judge Scheindlin were sufficient to state a claim against Agius and Varley for control person liability.



Of the many different financial institutions caught up in the Libor scandal, Barclays is the only one that is involved in a Libor-scandal related securities class action lawsuit – most of the other banks involved in the scandal do not have securities that trade on the U.S. exchanges, and of the banks that have securities trading in the U.S, Barclays is the only one to be hit with a securities suit. (As noted here, one Libor-scandal claimant, the Charles Schwab Corporation, has filed an individual action in California state court seeking to recover damages from the Libor rate-setting banks on a number of theories, including under Section 11 of the ’33 Act.)


When this case was dismissed at the outset, it looked as if Barclays was going to be able to avoid any potential liability under the U.S. securities laws for alleged misrepresentations concerning its Libor submissions. However, when the Second Circuit reversed a portion of the dismissal ruling, it meant that the case was returning to the district court for further proceedings. In light of Judge Scheindlin’s latest order, the case will now be going forward as to all of the defendants.


The Libor-related litigation generally, including the consolidated Antitrust litigation pending in the Southern District of New York, has had many twists and turns, and this case is no exception. Discovery in this case will now go forward.  For securities litigation plaintiffs, the name of the game is to get past the dismissal motions stage with at least some portion of the case intact, which the plaintiffs here have accomplished. While the next procedural stage is discovery, the likely direction of the case undoubtedly reflect the fact that securities cases almost always settle, a fact on which the plaintiffs undoubtedly will be pushing as the case goes forward.


This case is not the only securities suit that Barclays is facing in the Southern District of New York. As discussed here, in July, Barclays was also named as a defendant in a securities class action lawsuit arising out of the bank’s “dark pool” private securities trading venue. Barclays is also one of the many defendants named in the “Flash Boys” high frequency trading securities class action lawsuit, as discussed here.


Russian Drivers: I am sure many readers saw the terrible story about the plane crash in Russia in which Total SA’s Chief Executive Officer Christophe de Margerie was killed, along with three of the plane’s crew members. According to news reports, the crash occurred after the business jet in which de Margerie was traveling struck a snow plow on a runway. The driver of the snow plow reportedly was drunk  — apparently along with the airport’s dispatchers, according to a detailed account on Fortune magazine’s website.


According to Wikipedia (here), Russians consume about 18 liters 4.8 US gal) of spirits a year, more than double the 8 liters (2.1 US gal) that the World Health Organization considers dangerous. All of that alcohol consumption has its consequences. In June 2009, the Public Chamber of Russia reported over 500,000 alcohol-related deaths annually.


As the tragic death of de Margerie shows, all too often the consumption of alcohol results in vehicle- related deaths. It is one thing to recite these statistics. It is another thing altogether to see what is actually happening on Russia’s roads. There is no way to know how many of the drivers shown in the following  video are under the influence of alcohol, but watch it and see if you think I am jumping to conclusions is suggesting that an awful lot of these drivers have been drinking . By the way, these videos exist because pretty much everybody in Russia has a dash camera as way of substantiating what has happened in the event of an accident (as you can tell from the video, accidents happen frequently).