Schwab sues banks for manipulating Libor rates

Schwab sues banks for manipulating Libor rates
Charles Schwab has sued Bank of America Corp., Citigroup Inc. and other banks. The reason? The brokerage claims they conspired to depress Libor rates by understating their borrowing costs. That, in turn, lowered the interest rates on short-term paper that Schwab mutual funds bought from the banks, the suit alleges.
MAR 07, 2012
Eight Schwab mutual funds and related entities are the latest plaintiffs to sue a number of global banking institutions over alleged manipulation of the London interbank offered rate. In a suit filed August 23 in U.S. district court in San Francisco, the funds allege that from the beginning of 2007 through about March of this year the banks' manipulation of Libor allowed them to pay lower interest rates on short-term paper that the funds purchased from the banks as well as from other entities. About a dozen similar suits have reportedly been filed by investment funds in recent months as global regulators have launched investigations into the alleged rate manipulation. The banks “reaped hundreds of millions, if not billions, of dollars in ill-gotten gains,” Schwab said in its claim. The Schwab suit seeks unspecified damages, which may be tripled under antitrust law. It also includes claims for racketeering and securities fraud. Named in the suit are Bank of America and Citigroup Inc., along with a long list of other large institutions. “We believe the suit is without merit,” Danielle Romero-Apsilos, a spokeswoman for Citigroup, said in an e-mail. Lawrence Grayson, a spokesman for Bank of America, declined to comment. In July, UBS, another defendant in the Schwab suit, said it had been granted partial immunity from a Libor probe by the U.S. Department of Justice on condition that it continue to aid regulators. Concerns about the potential manipulation of the Libor rate arose in 2008 when the Wall Street Journal reported on questionable Libor quotes submitted by banks. The Journal this March reported that an analysis by a group of academics and market experts failed to find hard evidence of fraud. The analysis found some "anomalous [Libor] quotes," according to the group, "but the evidence is inconsistent with a material manipulation." Greg Gable, a Schwab spokesperson, declined to comment. A UBS spokesperson was not available for comment. --Bloomberg News-- (Additional reporting by InvestmentNews' Dan Jamieson)

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