LIBOR rate manipulation hurt government and not-for-profit entities in Iowa and across country
DES MOINES – Barclays Bank PLC and Barclays Capital Inc. will pay $100 million dollars nationally, including an undetermined amount to Iowa governmental entities, not-for-profit organizations and the state, in a 44-state settlement to resolve allegations of fraudulent and anticompetitive conduct involving the manipulation of a benchmark interest rate that affects financial instruments worth trillions of dollars.
The benchmark interest rate, called the London InterBank Offered Rate, or LIBOR, has a widespread impact on global markets and consumers. Many of the world’s banks use LIBOR to set short-term interest rates. LIBOR also serves as a benchmark rate for other loans, including adjustable-rate loans, mortgages, government and corporate bonds, credit card debt, student loans, and various financial products. LIBOR rates, which change daily, directly affect what consumers, investors, institutions and governments pay—or earn—in interest rates.
Multistate Investigation Identifies LIBOR Manipulation Schemes
A multistate investigation, led by attorneys general in New York and Connecticut, determined that Barclays manipulated LIBOR for its own benefit, through two different kinds of fraudulent and anticompetitive conduct.
First, at various times from 2005 to 2007 and continuing at least into 2009, Barclays’ traders asked Barclays’ LIBOR submitters to change their LIBOR rate settings in order to benefit their trading positions, and the submitters often agreed to the requests. At times, those requests came from traders outside the bank, and Barclays traders agreed to pass them along to Barclays’ submitters, thus colluding with other banks.
Barclays also believed that other banks’ LIBOR submissions likewise did not reflect their true borrowing rates, and that therefore, published LIBOR rates did not reflect the cost of borrowing funds in the market, as they were supposed to do.
The rate setting conduct was analogous to insider trading, where a company benefits financially from advanced knowledge of information that affects securities.
Second, during the financial crisis period of 2007-2008, Barclays' managers frequently told LIBOR submitters to lower their LIBOR rate settings in order to avoid the appearance that Barclays was in financial difficulty and needed to pay a higher rate than some of its peers to borrow money. The LIBOR submitters complied with the instructions and suppressed their LIBOR submissions during that period.
LIBOR Manipulation Affected Government, Non-Profits in Iowa and Nationally
Government entities and not-for-profit organizations in Iowa and throughout the country, including the Iowa Public Employees’ Retirement System (IPERS) and an unidentified Iowa-based police and fire fund, were defrauded when they entered into swaps and other investment instruments with Barclays without knowing that Barclays and other banks on the U.S. dollar (USD)-LIBOR-setting panel were manipulating LIBOR and colluding with other banks to do so.
The fraud cost investing entities millions nationwide.
Settlement Administrator to Notify Affected Entities
Governmental and not-for-profit entities that entered into LIBOR-linked swaps and other investment contracts with Barclays between 2005 and 2010 will be identified and notified within approximately three months if they are eligible to receive restitution from the $93.35 million settlement fund.
The balance of the fund will pay costs and expenses associated with the multistate investigation, and other uses consistent with state laws, including Iowa’s antitrust fund.
2012: Barclays Paid $453 Million Penalties in US-UK Settlements
In 2012, Barclays paid $453 million to U.S. and British authorities in coordinated civil settlements to settle allegations that it manipulated key interest rates. As part of the settlements, the U.S. Commodity Futures Trading Commission (CFTC) ordered the bank to pay a record $200 million penalty. Barclays paid $160 million to the U.S. Department of Justice, and $92.8 million to Britain's Financial Services Authority.
Additional Multistate Probes Ongoing
Barclays is the first of several USD-LIBOR-setting panel banks under investigation by state attorneys general to resolve the claims against it, and Barclays has cooperated fully from the outset. Information and evidence provided by cooperating corporations will help future civil enforcement efforts, including restitution for victims of benchmark rate manipulation schemes.
The multistate investigation into the conduct of several other USD LIBOR-setting panel banks is ongoing.