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From Antitrust Law Daily, August 6, 2015

Antitrust, consumer protection, RICO claims dismissed from LIBOR manipulation suit

By Jeffrey May, J.D.

Four years into multi-district litigation (MDL) against several major banks over alleged manipulation of the London Interbank Offer Rate (LIBOR), the federal district court in New York City has “finally been presented with a viable legal theory that provides a comprehensive remedy for injuries proven to be sustained from LIBOR manipulation.” However, that theory was not based on antitrust or consumer protection laws. The court rejected Sherman and New Jersey RICO Act claims, as well as state consumer protection law claims, leaving the individual plaintiffs with primarily fraud-based causes of action (In Re: LIBOR-Based Financial Instruments Antitrust Litigation, August 4, 2015, Buchwald, N.).

This latest opinion in the LIBOR litigation addressed claims by plaintiffs who did not seek to represent classes or to become class members. The claims specifically pertain to U.S. Dollar (USD) LIBOR. These plaintiffs included, among others, entities associated with Prudential Financial, Inc., the Federal Deposit Insurance Corporation, the National Credit Union Administration, and Federal Home Loan Mortgage Corporation, as well as individuals who traded LIBOR-based products and various public entities. Most of the plaintiffs alleged antitrust violations, and some sought to pursue consumer protection law and RICO claims, as well.

LIBOR is the most important benchmark for short-term interest rates. The defending banks allegedly submitted quotes that were below their true borrowing costs to the LIBOR administrator. As a result, LIBOR was consistently well below true inter-bank borrowing rates, allegedly to the detriment of investors and speculators.

Antitrust claims. Despite “new antitrust theories” raised by the some of the individual plaintiffs, the court reiterated its view that the federal and state antitrust laws were “the wrong vehicle for plaintiffs to obtain the damages they seek.” Previously, the court rejected on antitrust injury grounds the antitrust claims brought by class action plaintiffs, noting that “the process of setting LIBOR was never intended to be competitive.”

Some of the individual plaintiffs requested that partial judgment be entered on their antitrust claims so that they might appear in a pending appeal of that 2013 ruling. After granting the request, the court went on to consider the other individual plaintiffs’ assertions that they alleged new facts and new legal theories to support their federal antitrust claims.

Initially, the court ruled that the remaining antitrust plaintiffs did not plead the existence of a conspiracy to persistently suppress LIBOR and found only sporadic agreements to engage in trader-based manipulation. Even if the plaintiffs had alleged a conspiracy, the plaintiffs’ injuries were not of the sort that stem from anticompetitive conduct, the court decided.

“It was, and remains, our conclusion that plaintiffs’ injuries in this MDL followed immediately from false LIBOR quotes,” the court explained. “A conspiracy (if any existed) to submit these false LIBOR quotes was entirely fortuitous, as each bank separately had powerful incentives to manipulate LIBOR.”

Consumer protection and unfair business practices. The plaintiffs also failed to state claims pursuant to consumer protection and unfair competition statutes of New York and California. A theory that false LIBOR submissions “constituted a dissemination of false information to the public” in violation of the New York General Business Law was rejected because the conduct did not involve a consumer-oriented harm.

A California Unfair Competition Law (UCL) claim based on a Cartwright Act violation was dismissed on the ground that the complaint lacked substantial allegations of inter-bank conspiracy. Another plaintiff's UCL claim relating to misrepresentations in the sales of securities failed because an investor may not state a UCL claim for straightforward securities fraud.

RICO. Prudential's claim under New Jersey’s RICO statute was dismissed because it failed to plead legally viable predicates. Even if Prudential were able to satisfy the “enterprise” element of RICO—which was questionable—each predicate lacked either the requisite connection to New Jersey or the requisite connection to the “conduct of the LIBOR panel’s affairs,” the court explained.

Fraud. The individual plaintiffs did, however, adequately allege common law fraud. Among other theories, they contended that the defending banks lied and submitted false quotes to the LIBOR administrator. These false LIBOR submissions purportedly harmed investors who relied on the false information. Certain claims under the Commodity Exchange Act based on allegedly false LIBOR submissions also were allowed to proceed to the extent that they were timely.

The case is Case 1:11-md-02262-NRB.

Attorneys: Kevin P. O'Brien (Cotchett, Pitre & McCarthy) for City of Riverside and County of San Mateo. Jeffrey Louis Haberman (Law Office of Norman J. Finkelshteyn) for Joseph Amabile. Lisa Marie Kaas (Dickstein Shapiro LLP) for Federal Home Loan Mortgage Corp. Daniel Lawrence Brockett (Quinn Emanuel) for Salix Capital US Inc. Andrew Chun-Yang Shen (Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC) for National Credit Union Administration Board. Brendan Patrick Glaskin (Lieff, Cabraser, Heimann & Bernstein LLP) for Charles Schwab Corp. Paul Steel Mishkin (Davis Polk & Wardwell LLP) for Bank of America Corp. David R. Boyd (Boies, Schiller & Flexner LLP) for Barclays Bank PLC. Alan M. Wiseman (Covington & Burling, LLP) for Citibank NA. Andrew Corydon Finch (Paul Weiss Rifkind Wharton & Garrison LLP) for Deutsche Bank AG. Jeffery Li Ding (Simpson Thacher & Bartlett LLP) for JPMorgan Chase & Co. Andrea J. Robinson (Wilmer Cutler Pickering Hale & Dorr LLP) for RBS Citizens, N.A.

Companies: Prudential Financial, Inc., Federal Deposit Insurance Corp., National Credit Union Admin., Federal Home Loan Mortgage Corp., Bank of America Corp.; Barclays Bank plc; Citibank NA; Deutsche Bank AG; JPMorgan Chase & Co., Credit Suisse Group AG, UBS Securities, Inc.

MainStory: TopStory Antitrust StateUnfairTradePractices RICO NewYorkNews

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