In re: LIBOR-Based Financial Instruments Antitrust Litigation (US District Court, S.D.N.Y., Mar. 29, 2013)

A US District Court in New York is the site of consolidated proceedings regarding antitrust and securities claims arising from the alleged conspiracy among reporting banks to depress the LIBOR interest rate index. The court dismisses many claims on the merits and allows certain to survive to discovery. The securities claims survive a challenge based on the claim that the plaintiffs are seeking improperly to apply US securities fraud laws extraterritorially; the RICO claims are, however, independently barred on that basis.

Facts

Defendant banks, on a daily basis, provide information on expected borrowing costs to the British Bankers Association, which in turn applies a formula to create daily London InterBank Offered Rate (“LIBOR”) figures. The banks are alleged to have agreed among themselves to report reduced interest rates, which, in turn, led to the publication of artificially depressed LIBOR numbers. The LIBOR index is used as a pricing and interest-rate index in countless financial agreements worldwide. The plaintiffs seek to represent a class of customers that were injured as a result of the “false” LIBOR having been published.

Analysis

Jurisdictional arguments are raised as alternative defenses by the banks. First, the banks argue that claims under Section 9(a) the Commodity Exchange Act (“CEA”) for the alleged manipulation of Eurodollar futures contracts traded in the US should be dismissed because the statute does not apply extraterritorially, and the alleged conspiracy occurred entirely outside the US. The court agrees that Section 9(a) has only domestic application, but rules that this does not foreclose the plaintiffs’ claims because the alleged conspiracy would have affected the price of the futures contracts in the US. The court also rejects the defendants’ claims that the alleged conspiracy would have manipulated only the price of the underlying commodity on which the futures contract was based, finding that LIBOR “was directly incorporated into the price of Eurodollar futures contracts.”

With respect to RICO, the defendants argued that the statute only had domestic applicability, and that the RICO claim should be dismissed because the alleged “enterprise” was located entirely outside the United States. The court agreed with this analysis, acknowledging that other courts have focused not on the location of the “enterprise” but the “pattern of racketeering activity,” which would have included the US. In determining the location of the alleged enterprise, the court noted that the traditional “nerve center” test was of little value in connection with a scheme allegedly so diffuse and engineered electronically as alleged here. Rather, it asked where the alleged “collective” activity physically occurred, and concluded in this case that pointed to the submission of allegedly false interest rate information in England.

[Editor’s note: The Chao Fan Xu and Mitsui O.S.K. Lines, Ltd. cases, discussed in this issue, also address the focus of RICO. The three cases do not reach the same conclusions.]