WSJ: Libor Rate-Rigging Scandal to Spark Wave of Lawsuits

Monday, 27 Aug 2012 10:04 AM

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Banks that allegedly rigged the London Interbank Offered Rate (Libor) to keep the rate artificially low to profit on trades and water down borrowing costs during the 2007-09 financial crisis face a wave of lawsuits, The Wall Street Journal reported.

Clients are expected to file suits, and some already have, on grounds the low rate dampened interest on their investments, with suits climbing as high into the tens of billions of dollars, a Journal review of state and federal court filings found.

Allegations come from parties of all sizes, including bigger firms like brokerage Charles Schwab to smaller outfits such as hedge funds and even individual investors.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

Barclays settled with U.S. and U.K. regulators in June for over $450 million for its role in the scandal, which triggered the lawsuits.

Other banks probed include Bank of America, Citigroup and JPMorgan Chase, The Journal added.

“This is just the beginning,” said Michael Hausfeld, a lawyer at law firm Hausfeld LLP in Washington, D.C., who is representing plaintiffs in several cases, The Journal added.

“Scores of interested potential clients” have contacted his firm.

Sources close to the Libor investigation say it won’t be easy for the plaintiffs to win in court, even if more financial institutions settle with regulators, as the plaintiffs must prove that manipulation of the rate itself prompted losses.

The Libor sets interest rates for everything from credit card payments to derivatives, and U.K. regulators now want to overhaul the methodology.

“The existing structure and governance of Libor is no longer fit for purpose and reform is needed,” said Martin Wheatley, managing director of the Financial Services Authority, according to Reuters.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

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