At the time when several banks are already facing
regulatory probes for involvement in manipulating LIBOR rates,
a N.Y.-based realty firm - 7 West 57th Street Realty Co. -
has sued a group of global banking biggies over the same
issue. The firm has filed a lawsuit against
JPMorgan Chase & Co.
The Royal Bank of Scotland Group plc
Bank of America Corp.
), among others for the alleged roles of these in LIBOR rate
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In a case filed in a federal court in Manhattan, 7 West - led by
Sheldon H. Solow - claimed that these banks wrongly stated the
interest rates at which lenders themselves can borrow money on a
daily basis to the British Bankers Association (BBA). Hence, the
BBA quoted false LIBOR rates.
The plaintiff further accused the banks of conspiracy, breach of
a N.Y. state law governing the free exercise of business and
commerce, as well as infringement of federal antitrust laws.
Solow, who has assigned his claims with 7 West, had bought and
then pledged a portfolio of high-grade municipal bonds worth more
than $450 million as collateral for LIBOR denominated loans. As
LIBOR rates were falsely overstated, Citigroup declared this
portfolio insufficient as collateral.
Thereafter, Citigroup apprehended the portfolio and sold it at
relatively low price. Hence, Solow had to pay more than $100
million for having inadequate collateral. At that time, the firm
paid the money as it was unaware of the fact that the LIBOR rates
were being manipulated by the banks.
While many banks' role in LIBOR manipulations is under
investigation, a few of these have resolved the matter through
payment of fines. Earlier this month, Royal Bank of Scotland
announced that it would be paying a penalty of £390 million to
resolve charges for its involvement in the manipulation of LIBOR.
Last year, UBS finally conceded to paying a penalty of CHF 1.4
billion, while Barclays admitted to have paid a penalty of $450
million for rigging the LIBOR.
Though these settlements have put to rest the long drawn
investigations for these companies, many other individual firms
are expected to come up with lawsuits similar to the
abovementioned case. We believe that such lawsuits are likely to
continue spoiling the reputation of these banks and could also
hamper financial performances of these going forward.