Last month, we gave an overview of the recent Libor scandal which involves the world’s largest banks conspiring to fraudulently rig the London Interbank Offered Rate (Libor) – the primary financial benchmark that underpins approximately $550 trillion in loans, securities, and derivatives worldwide. Barclays Bank was the first domino to fall, having been fined an unprecedented $453 million by the Department of Justice and other authorities as the result of lengthy criminal investigations. And that appears to be the tip of the iceberg as 17 of the 24 largest banks are currently under investigation for intentionally manipulating the Libor, as well as the Euribor (Euro Interbank Offered Rate). Those pending investigations and the ensuing litigation are likely to reveal the most catastrophic banking fraud in history.

The disastrous effects of this scandal are staggering because the majority of our global financial market is tied to Libor and/or Euribor. Ominously, the insurance industry is already predicting record levels of exposure to financial institutions, particularly investment banks. Senior Vice-President and Chief Underwriting Officer for Torus Insurance, Jeff Grange, recently stated that Errors and Omissions coverage for investment banking “is very limited as the market just won’t take it; there have been too many scandals, even before 2008.” Going further, Grange said that there is already a “very thin capacity for financial institutions, and now there will be even less.” Grange predicts a least “three waves” of potential litigation:

• Claims against senior officers and directors for breaching their duty of care by allowing their banks to participate in the rate-fixing scheme;

• Claims by shareholders of the banks who participated in the fraud; and

• Claims by anyone adversely affected by the Libor/Euribor interest rate being fraudulently manipulated.

Again, the number of potential claimants is almost beyond measure as “literally millions of trades, contracts and other agreements” are tied to Libor/Euribor rates. If you have any information on the Libor rates scandal or believe that you have been impacted by the scandal, please contact Chad Stewart at Chad.Stewart@BeasleyAllen.com, Archie Grubb at Archie.Grubb@BeasleyAllen.com or Andrew Brashier at Andrew.Brashier@BeasleyAllen.com.

Source: Insurance Journal