Sixteen of the world's largest banks including J.P. Morgan Chase and Citigroup must face antitrust lawsuits accusing them of hurting investors who bought securities tied to LIBOR by rigging an interest-rate benchmark, a ruling that an appeals court warned could devastate them.
The appellate judges reversed a lower-court ruling on one issue — whether the investors had adequately claimed in their complaint to have been harmed — while sending the case back to consider another issue: whether the plaintiffs are the proper parties to sue, in part because their claim if successful provides for triple damages that could overwhelm the banks.
"Requiring the banks to pay treble damages to every plaintiff who ended up on the wrong side of an independent LIBOR-denominated derivative swap would, if appellants' allegations were proved at trial, not only bankrupt 16 of the world's most important financial institutions, but also vastly extend the potential scope of antitrust liability in myriad markets where derivative instruments have proliferated," the U.S. Court of Appeals in New York said in the ruling.
Bank of America, HSBC Holdings, Barclays, Credit Suisse Group, Deutsche Bank, Royal Bank of Canada and Royal Bank of Scotland Group are also among the defendants sued in Manhattan.
About a dozen firms have paid almost $9 billion in fines to resolve government investigations around the world into rigging of the key benchmark. LIBOR is used to set interest rates for myriad financial instruments, every business day. The ruling by a three-judge panel opens the possibility of billions more in damages from the lawsuit.
The appeals court overturned a 2013 ruling by U.S. District Judge Naomi Reice Buchwald who said the investors had failed to show an antitrust injury that would permit them to sue under U.S. law.
In their lawsuit, the plaintiffs claim that beginning in 2007 the banks colluded to depress the LIBOR rate to minimize the amount they had to pay out on investments linked to the rate. The LIBOR-tied investments included asset swaps, collateralized debt obligations and forward rate agreements.
The ruling was unanimous, although only two appeals court judges joined the portion that instructed Ms. Buchwald to consider whether the plaintiffs are appropriate parties to sue.
The two judges pointed to numerous enforcement actions involving LIBOR as they returned the case to Ms. Buchwald.
“There are many other enforcement mechanisms at work here,” the two judges said. “In addition to the plaintiffs in the numerous lawsuits consolidated here, the banks' conduct is under scrutiny by government organs, bank regulators and financial regulators in a considerable number of countries.”
Lawrence Grayson, a spokesman for Bank of America; Andrew Gray, a spokesman for J.P. Morgan; and Danielle Romero-Apsilos, a Citigroup spokeswoman, declined to comment on the ruling. Representatives of HSBC and RBC declined to immediately comment.