D&O carriers and brokers will want to keep October 2013 on their calendars. At a hearing three weeks ago, a UK High Court judge set that month as the date for trial in Graiseley Properties Limited v. Barclays Bank PLC. It is the first civil suit against a major UK bank concerning manipulation of the London Interbank Offered Rate to be allowed to proceed. Apart from serving as the LIBOR test case, disclosure in the matter could lead to the appearance of sensitive documents that might show what Barclays’ senior executives knew about the alleged rate-rigging effort.
Earlier this year, Barclays admitted to certain conduct with regard to how it set LIBOR, and paid fines to both US and UK regulators that totaled some $450 million. Some of Barclays’ traders allegedly induced the bank to underreport its rates to benefit the bank’s own financial positions. The matter is of particular interest to financial regulators because LIBOR serves as a major benchmark for a global derivatives market worth up to $350 trillion.
A group of nursing homes under the umbrella of Britain’s Guardian Care Group first filed the Graiseley Properties lawsuit against Barclays in April, seeking up to £38 million for being sold certain swap and collar derivative products based on the reported LIBOR rate. Those derivative products were used to refinance two other loans that Barclays had issued. Barclays has strongly contested the allegations in the suit. A copy of the amended statement of claim is available here, and a copy of Barclays’ defense is available here.
Based on statements published by regulators in the US and the UK, the claimants sought to add an additional allegation to the effect that Barclays falsely and fraudulently misrepresented the LIBOR rates. At the October 29 hearing setting the trial date, the High Court allowed the amendment. News reports state that the judge – Justice Julian Flaux – said that it was fully arguable that Barclays’ senior management would have the same level of knowledge as the derivative traders of the impact that Barclays’ rate-fixing would have on the market. The court also said that it was arguable that the bank still authorized those products to be issued, with knowledge of the rate-fixing.
Justice Flaux set the matter down for further hearings this month, to determine whether Barclays would have to disclose to the Graiseley Properties claimants all of the documents that the bank previously submitted to its regulators, including details of which individuals were involved in the rate-fixing scandal. The contents of those documents will undoubtedly be of interest to insurers who wrote Barclays’ D&O insurance program, which reports suggest could total as much as £250 million.