The Second Circuit Court of Appeals has revived an antitrust lawsuit against 16 big banks, including Citigroup, JPMorgan Chase and Bank of America. It’s alleged the banks rigged the London Interbank Offered Rate (LIBOR). A three-judge Second Circuit panel ruled that Manhattan U.S. District Judge Naomi Reice Buchwald was wrong when she dismissed the complaints against the banks on the grounds that the Plaintiffs had failed to allege injury under antitrust law. The panel instead found that the proceedings should be reopened because antitrust law does not require that Plaintiffs show injury in order to effectively allege a conspiracy among market participants. The opinion, written by Judge Dennis Jacobs, reads:
Since the district court did not reach the second component of antitrust standing – a finding that appellants are efficient enforcers of the antitrust laws – we remand for further proceedings on the question of antitrust standing.
The Second Circuit panel said that the Plaintiffs had sufficiently alleged both a violation of antitrust law and antitrust injury in a series of complaints alleging that the 16 banks, including Barclays PLC, Credit Suisse AG and UBS AG, engaged in a wide-ranging, horizontal conspiracy to rig the LIBOR, a key benchmark interest rate that is used to set rates for everything from derivatives contracts to mortgage rates and credit card interest rates. Barclays, UBS and the Royal Bank of Scotland PLC all entered into criminal plea agreements with U.S. authorities over LIBOR manipulation claims. RBS is also a party to the litigation before the Second Circuit.
Prior to the alleged rigging of the rate coming to light, LIBOR was set by the British Bankers Association (BBA), which would collect borrowing cost estimates from participating banks and then calculate an average of the costs, eliminating the highest and lowest estimates. It should be noted that BBA no longer conducts the LIBOR calculations. The Plaintiffs alleged that the banks began in 2007 to lowball their borrowing costs in a bid to shield themselves from worries that they were being charged high rates to borrow money.
The fear was that, in the wake of the financial crisis, a higher borrowing cost reflected worries that a bank would be unable to repay any short-term debt they acquired, which could further destabilize their financial positions. The Second Circuit said that Judge Buchwald incorrectly ruled that the Plaintiffs failed to allege injury in the lower court’s March 2013 decision.
Although the market participants retained the power to negotiate financial contracts, the rates from which they negotiated were artificially set due to the banks’ actions to falsify their borrowing cost estimates, the opinion said. Because of that, the consumers, investors and municipalities on the other side of contracts with the banks were potentially harmed, the Second Circuit said. The opinion stated:
The Sherman Act safeguards consumers from marketplace abuses; appellants are consumers claiming injury from a horizontal price‐fixing conspiracy. They have accordingly plausibly alleged antitrust injury.
The panel also found that Judge Buchwald did not take stock of the question of whether the Plaintiffs would be an “efficient enforcer” of the antitrust statute, the second component that would need to be decided for the decision to move forward. The judges on the panel instructed Judge Buchwald to explore that question. Despite the clear win for the Plaintiffs in getting the case revived, the Second Circuit panel cautioned that it was not making a dispositive ruling that antitrust injury had occurred. Instead, the panel merely found that the Plaintiffs had met the bar for their claims to be heard in court. The opinion said further:
This decision is of narrow scope. The net impact of a tainted LIBOR in the credit market is an issue of causation reserved for the proof stage; at this stage, it is plausibly alleged on the face of the complaints that a manipulation of LIBOR exerted some influence on price. The extent of that influence and the identity of persons who can sue, among other things, are matters reserved for later.
This case as it goes forward will be watched closely. In any event, at this juncture, it’s a big win for the plaintiffs.
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