Sonoma County, CA is suing Citigroup (C), JPMorgan (JPM), Bank of America (BAC), UBS (UBS), Barclays (BCS), and a number of other former and current LIBOR members over the infamous international-rate fixing scandal that it claims caused it to suffer substantial financial losses. The County’s securities lawsuit contends that the defendants made billions of dollars when they understated and overstated borrowing costs and artificially established interest rates.
Sonoma County is one of the latest municipalities in California to sue over what it claims was rate manipulation that led to lower interest payments on investments linked to the London Interbank Offered Rate. Also seeking financial recovery over the LIBOR banking scandal are the Regents of the University of California, San Mateo County, San Diego Association of Governments, East Bay Municipal Utility District, City of Richmond, City of Riverside, San Diego County, and others.
The County of Sonoma is alleging several causes of action, including unjust enrichment, fraud, and antitrust law violations involving transactions that occurred between 2007 and 2010, a timeframe during which Barclays already admitted to engaging in interest manipulation. The county invested $96 million in Libor-type investments in 2007 and $61 million in 2008. Jonathan Kadlec, the Assistant Treasurer at Sonoma County, says that an investigation is ongoing to determine how much of a financial hit was sustained. Kadlec supervises an investment pool that is valued at about $1.5 billion for the county. He said that LIBOR-type investments, which involve floating securities with interests that are index-based, make up a small portion of the pool.
Already, three LIBOR members have paid over $2.5 billion in penalties over the LIBOR rate-fixing debacle. Earlier this year, Royal Bank of Scotland (RBS) consented to pay $610 million, and last year, UBS consented to pay over $1.5 million while Barclays said it would pay $450 million.
The London Interbank Offered Rate is the global benchmark interest rate for establishing short-term interest rates on financial instruments ranging from sophisticated municipal derivative investments to car loans. The British Banker’s Association sets LIBOR daily. The benchmark interest rate is determined according to the average of the interest rate that each LIBOR member bank says it can borrow from the other bank members. Until the manipulation among LIBOR members was discovered, a member bank’s interbank borrowing rate was considered a mirror of its credit worthiness.
In 2011, regulators from the US, UK, Japan, and Switzerland said they would investigate LIBOR rate manipulation influencing financial markets globally. Banks that were members of LIBOR were accused of manipulating LIBOR to up their profits and report borrowing rates that were suppressed to make them appear to be in greater financial health.
Sonoma County joins suit over LIBOR rate setting, North Bay Business Journal, June 28, 2013
The County of Sonoma, California Files Lawsuit Against Major Banks for Libor Interest Rate Manipulation, County of Sonoma, June 28, 2013
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