Barclays, Citi, and JPMorgan Must Face the Music In Rate-Fixing Case



Last week, a federal judge in Manhattan ruled that Barclays (NYSE:BCS), Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), and other major international financial institutions won’t be able to escape complaints that they violated the U.S. Commodities Exchange Act. The banks, which were initially sued in 2012 on behalf of Jeffery Laydon, have been accused of manipulating yen-denominated benchmark interest rates for at least the four-year period ended 2010.

The interest rates in question are the Euroyen Tokyo Interbank Offered Rate (TIBOR), the London Interbank Offered Rate for Japanese Yen (Yen-LIBOR), and Euroyen TIBOR futures contracts. Like the more well-known LIBOR, these rates are set by banking trade associations — in this case, the British Bankers Association and the Japanese Bankers Association — based on daily quotes submitted by a group of banks. These quotes are supposed to represent the rate at which the banks borrow funds, but Laydon’s class-action lawsuit claims that the banks systematically submitted false quotes, which led to losses for investors like him.

The ruling is something of a victory for regulators and for defendants in the class-action lawsuit, who are claiming losses as a result of the alleged rate fixing. Interest-rate manipulation has percolated to the surface at dozens of banks across the world, with some big names taking several financial blows for their bad behavior. A Japanese unit of UBS (NYSE:UBS) was slapped with a $100 million criminal fine after the firm pleaded guilty to wire fraud related to the manipulation of the Yen-LIBOR.

Britain’s Serious Fraud Office (SFO) has charged at least three former Barclays employees in relation to a previous rate-fixing investigation. Moreover, Barclays has already paid more than $450 million to U.S. regulators alone to settle charges, and the ordeal catalyzed former CEO Bob Diamond’s and former Chairman Marcus Agius’s exit from the company.

It’s worth pointing out that while a U.S. federal judge in Manhattan ruled that Laydon had no grounds to sue the banks based on alleged antitrust violations, Weko, the Swiss competition regulator, recently opened an investigation on those grounds. Weko is investigating whether banks including JPMorgan, Barclays, Citigroup, RBS (NYSE:RBS), and Credit Suisse (NYSE:CS) violated antitrust rules when they allegedly collaborated on setting benchmark rates.