Although a federal court has recently dismissed about two dozen private suits based on similar allegations of wrongdoing, the Federal Home Loan Mortgage Corporation (“Freddie Mac”) has likewise filed suit (3/14/13) in federal court for the Eastern District of Virginia against fifteen banks, including JPMorgan Chase Bank, Bank of America and Citigroup, claiming that the banks acted together to suppress the U.S. Dollar LIBOR interest rate (“USD LIBOR”) to hide financial problems and to boost profits from August, 2007 through May, 2010. Also named as defendants are banks from the United Kingdom, Germany, Japan, Canada, and Switzerland.
Trillions of dollars of loans around the world are indexed to LIBOR (short for “London Interbank Offer Rate”), including loan swaps, interest rate charges, and retail products. The USD LIBOR is the average interbank interest rate at which a large number of banks on the London money market lend one another unsecured funds denominated in US Dollars. The rate is available today in various maturities from overnight to one year.
Freddie Mac claims it relied on the defendant banks’ misrepresentations when it entered into financial transactions tied to USD LIBOR, including the purchase of billions of dollars of mortgages and mortgage-backed securities where payment coupons or the underlying collateral were tied to USD LIBOR. Freddie Mac also alleges that, in 2008 alone, it entered into hundreds of interest rate swap transactions tied to LIBOR, likewise worth billions. The complaint does not put a dollar value on the damages claimed, but instead indicates that the amount will change during the discovery phase of the litigation.
Like the failed antitrust suits filed in New York, Freddie Mac’s complaint purports to detail a vast conspiracy between representatives of the named defendants regarding the published LIBOR rates, including private discussions and internal email correspondence admitting to “false and dishonest submissions” in order to manipulate LIBOR rates. According to Freddie Mac, the defendants raised the price of financial products tied to USD LIBOR, while diminishing the quality of financial products tied to LIBOR, in order to bolster their reputations, allowing the defendants to artificially increase their ability to charge higher underwriting fees and obtain higher offering prices for financial products to the detriment of Freddie Mac. The complaint cites to findings of the U.S. Department of Justice, and numerous investigative reports, such as one published by the Wall Street Journal, to support its claims of conspiracy and fraud.
The complaint brings specific counts for violation of the Sherman Act, breach of contract claims for contracts entered into between Freddie Mac and various defendants, common law fraud as to all defendants, and tortious interference with contract as to all defendants. Freddie Mac requests economic damages, punitive damages, treble damage for violations of the Sherman Act, and attorneys’ fees and costs.