Are Big Banks Winning the LIBOR Trials?

AMA4-1-13Fraud isn’t fraud if it’s done in the spirit of cooperation. That appears the be the message behind a ruling affecting the numerous lawsuits involving major US banks and charges of manipulating LIBOR (London interbank offered rates) daily ratings for fun and profit. This new ruling by a US District Court judge allows this group of institutions to escape charges of violating federal antitrust laws – because their false estimates (or, as the ruling says, “misrepresentations”) of daily interest rates did no harm to competition.

From the time of the housing collapse of 2008, major US banks including Citigroup, Bank of America and JP Morgan Chase have been under scrutiny for a variety of misleading and fraudulent behaviors aimed at making more money at the expense of – well, everybody. The careless granting of subprime mortgages set the stage for the crash. Afterward, when millions of homeowners defaulted, the wholesale processing of foreclosures set the stage for the “robosigning” scandal that saw paperwork processed without any oversight, with falsified signatures

and no checking of files at all.

Following complaints filed by attorneys general in every state, a multimillion-dollar settlement was reached. But that didn’t stop these banks and others – totaling 16 in all – from keeping up practices such as manipulating interest rates and deceiving investors in mortgage backed security transactions. Legislation such as the Dodd Frank act and various lawsuits backed by the government have attempted to create more accountability and impose punishments, with mixed success.

That’s amply demonstrated by two different rulings coming over the past week in lawsuits involving these 16 institutions. In one case filed by the Federal Housing Finance Agency (FHFA), the defendants filed motions in March 2013 aimed at quashing the case – a move that appeared to be headed for defeat as the judge in the case upheld an earlier ruling on discovery in the case. But at the end of March, 2013, the banks won a major victory in their numerous LI BOR related suits, when a US District Court agreed to dismiss charges of breaking federal antitrust laws.

Along with other charges of manipulating interest rates offered to borrowers and deceiving investors on mortgage backed securities, Bank of America and several other regular players in these lawsuits have been accused of rigging LIBOR ((London interbank offered rates) rates that set interest rates for short term loans worldwide. The outcome of these cases hinges in part on determining whether these banks violated federal laws in order to get more profits. But the key ruling coming just at the end of March asserted that the defendant banks had not in fact broken federal antitrust rulings.

According to the ruling, since LIBOR ratings are computed dally for different currencies that are submitted by a number of banks, the ruling says, the rate setting process is intended to be cooperative rather than competitive –so that even if Bank of America and its fellow lenders submitted false estimates, losses suffered by investors and other lenders came only as a result of those banks “misrepresentation” rather than attempts to harm competition.

Although numerous LIBOR related suits are still working their way through the courts and the Sweet 16 of major US banks still face legal battles on a variety of charges of “misrepresenting,” rates and fees to borrowers, financial experts point out that the District Court’s ruling weakens these cases. And that means borrowers, including investors following Jason Hartman’s investing strategies, may find themselves facing the fallout. (Top image: Flickr/rieh)


The American Monetary Association Team

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