libor manippulation litiggation: latest trends and...

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LIBOR Manipulation Litigation: p gLatest Trends and DevelopmentsPursuing and Defending Individual and Class Action LIBOR‐Related Actions

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

THURSDAY, JULY 11, 2013

Today’s faculty features:

Brian Murray, Partner, Glancy Binkow & Goldberg, New York

Daniel L. Brockett, Partner, Quinn Emanuel Urquhart & Sullivan, New York

Thomas A. Dubbs, Partner, Labaton Sucharow, New YorkThomas A. Dubbs, Partner, Labaton Sucharow, New York

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LIBOR MANIPULATION LITIGATION: LATEST TRENDS & DEVELOPMENTS: PURSUING AND DEFENDING INDIVIDUALDEVELOPMENTS: PURSUING AND DEFENDING INDIVIDUAL

AND CLASS ACTION LIBOR‐RELATED ACTIONS

Brian P. Murray, Esq.GLANCY BINKOW & GOLDBERG LLP122 East 42nd Street, Suite 2920122 East 42 Street, Suite 2920New York, New York 10168

212‐682‐5340BMURRAY@[email protected]

WHAT IS LIBOR?WHAT IS LIBOR?• LIBOR is published under the auspices of the British Bankers’ Association (“BBA”), a trade association with over 200

member banks that addresses issues involving the United Kingdom banking and financial services industries. The BBA d fi LIBORdefines LIBOR as:

The rate at which an Individual Contributor Panel bank could borrow funds, were it to do so by asking for and then accepting inter‐bank offers in reasonable market size, just prior to 11:00 [a.m.] London time.

This definition has been in place since approximately 1998

• LIBOR is calculated for ten currencies. The LIBOR for a given currency is the result of a calculation based upon submissions from a panel of banks for that currency (the “Contributor Panel”) selected by the BBA. Each member of the Contributor Panel submits its rates every London business day through electronic means to Thomson Reuters, as an agent for the BBA, by 11:10 a.m. London Time. Once each Contributor Panel bank has submitted its rate, the contributed rates are ranked. The highest and lowest quartiles are excluded from the calculation, and the middle two quartiles (i.e., 50% of the submissions) are averaged to formulate the resulting LIBOR “fix” or “setting” for that particular currency and maturity

• The LIBOR contribution of each Contributor Panel bank is submitted to between two and five decimal places, and the LIBOR fix is rounded, if necessary, to five decimal places. In the context of measuring interest rates, one “basis point” is one‐hundredth of one percent (0.01%)

• Thomson Reuters calculates and publishes the rates each business day by approximately 11:30 a.m. London Time. Fifteen maturities ( or “tenors”) are quoted for each currency, ranging from overnight to twelve months. The published rates are

d il bl ld id b Th R t d th d t d th h l t i d th h i t fmade available worldwide by Thomson Reuters and other data vendors through electronic means and through a variety of information sources. In addition to the LIBOR fix resulting from the calculation, Thomson Reuters publishes each Contributor Panel bank’s submitted rates along with the names of the banks

• Futures contracts settle on Int’l. Money Market dates, 3rd Wed. of March, June, Sept. & Dec. Settlement price calculated by lowest rate 2 days prior (Monday)

6

BIGGEST CASE EVER?BIGGEST CASE EVER?

S b d hi k S E hibi A• Somebody thinks so. See Exhibit A

• Somebody thinks not. Just ask Judge Buchwald. See Exhibit W.

I i ?• Is it a zero‐sum game?

7

WHAT IS SIZE OF THE LIBOR‐RELATED MARKET?

• OTC derivative contracts 1st half of 2011: $554 trillion short term interest rate contracts traded in London 2011:

• Mortgage Market adjustable rate mortgages can be reset tied to LIBOR rate (Berkshire case) (Ex. B) (assumes LIBOR was deflated and lenders were harmed)

• Bond Market – dividend rates can be tied to LIBOR (Gelboim case) (Ex. C)

• Stock Market – preferred dividend rates can be tied to LIBOR (Lieberman case) (Ex D)Stock Market preferred dividend rates can be tied to LIBOR (Lieberman case) (Ex. D)

• Eurodollar futures on Chicago Mercantile Exchange in 2011: $564 trillion (Exchange‐Based Plaintiff Action) (Ex. E)

• Eurodollar future contract: the contract that would be paid on a Eurodollar deposit of $1 million for a term of 3 months. Settlement price of 3 month contract is 100 minus 3 month $ LIBOR on settlement date

• LIBOR‐Based Derivatives (Baltimore case) (Ex. F)

• Any security tied to LIBOR that paid an artificially low return (Schwab case‐ non‐class action) (Ex. G)

• Mortgage Market ‐ adjustable rate mortgages with LIBOR reset (Adams case) (Ex. H) (assumes LIBOR was inflated and borrowers were harmed)

• Interest Rate Swaps (Salix Capital case‐non‐class action) (Ex. Z) (contractual claims directly against corporation).

8

SMOKESMOKE

• April 16, 2008 ‐WSJ Article (Ex. I) (LIBOR Fog: Bankers Cast Doubt on Key Rate Amid Crisis)

• April 28, 2008 ‐WSJ Article (Ex. J) (LIBOR Surges After Scrutiny Does Too)

• May 29, 2008 ‐ Bloomberg Article (Ex. L) (stating banks submitted lower rates to avoid bad market perceptions)perceptions)

• May 30, 2008 ‐WSJ Analysis (Ex. K)

• April 10, 2008 ‐ Citibank Report (Ex. M) (stating LIBOR at times no longer represents level at which banks t d l t th )extend loans to others)

• Feb. 22, 2009 – LIBOR left in Limbo: A Call for More Reform (Ex. DD)

• April 2, 2010 ‐ Snider & Youle Article “Does the LIBOR Reflect Banks’ Borrowing Costs?” (Ex. N)

• March 18, 2011 – WSJ Article “U.S. LIBOR Probe Includes BofA, Citi, UBS” (Ex. O)

9

FIREUnited States Department of Justice Non‐Prosecution Agreement with Barclay’s (June 26, 2012)

(Exhibit P)

Penalty of $160 million dollarsPenalty of $160 million dollars

Statement of Facts

• Department of Justice Appendix A 7 ¶ 16, ¶ 19: traders asked for a higher submission on LIBOR

• Department of Justice Appendix A 10 ¶ 23: Barclays traders communicated with other Contributor Panel Banks regarding LIBOR & EURIBOR

• Department of Justice Appendix A 12 ¶ 28: Barclays traders communicated with EURIBOR contributor banks

• Department of Justice Appendix A 22 ¶ 49: Barclays submitted low Yen & Sterling LIBOR rates• Department of Justice Appendix A 22 ¶ 49: Barclays submitted low Yen & Sterling LIBOR rates

• Barclays made LIBOR and Eurodollar submissions which took into account requests by interest rate derivatives traders, including traders at other banks, motivated by profit & to benefit Barclay’s trading positions from June 2005 to September 2007, and “occasionally thereafter through 2009.” (May 2009)

• Barclay’s attempted to influence other bank’s submissions from August 2005 through May 2008

• 8/07 ‐> 1/09 Barclays made LIBOR submissions which took into account negative media perceptions of Barclay’s LIBOR submissions (i.e. – Barclay’s was higher than other banks & having problems)

10

FINANCIAL SERVICES AUTHORITY FINAL NOTICE 6/27/12(E hibit Q)(Exhibit Q)

• £ 59 5 fine under Section 206 of Financial Services and Markets Act of 2000• £ 59.5 fine under Section 206 of Financial Services and Markets Act of 2000• Settled early – 30% (Stage 1) discount (full penalty would have been £ 85 million)

• Findings:

What’s not in Department of Justice SOF:

• 1/05 ‐> 6/10 Barclay’s had inadequate risk management systems in relation to LIBOR and EURIBOR submissions

• Barclay’s internal compliance department failed to address issuesBarclay s internal compliance department failed to address issues

• Traders attempted to influence submissions from January 2005 through July 2008 (slightly different than Department of Justice findings) (8/05 to 5/08)

f “ d ” l / / ( l h l d ff f f [ /• Dates for “media perception” claims 9/07 to 5/09 (slightly different from Department of Justice [8/07 to 1/09])

11

COMMODITY FUTURES TRADING COMMISSION FINDINGS(Exhibit R)

G ll f D f J i d Fi i l S i A h i• Generally same facts as Department of Justice and Financial Services Authority

12

COURT OF ONTARIO ORDER TO PRODUCE RECORDSORDER TO PRODUCE RECORDS

(May 18, 2011) (Exhibit S)

• Cooperating Party (Unnamed)• Cooperating Party (Unnamed)

• Documents requested from HSBC, Royal Bank of Scotland, Deutsche Bank, JP Morgan, and Citibank

• Cooperating Party stated others entered into agreements to submit high and/or low LIBOR Yen bids

13

ANOTHER COUNTRY HEARD FROM:SINGAPORE JOINS THE FRAY

(Exhibit T)

14

ET TU, JAPAN ?(Exhibit U)

• Yen‐LIBOR rates alleged to be inflated.

• Serious Fraud office in UK charges banker with conspiring with other employees at UBS Japan, Deutsch Bank, RBS, JP Morgan Chase, and others from Aug. 8, 2006 through Sept. 2010.

15

NYS INVESTIGATION

7 banks initially questioned, later expanded to 16.

16 banks subpoenaed: Barclays, Citigroup, HSBC, JP Morgan, RBS, UBS, BOA, Credit Suisse, Soc Gen. RBC,Rabobank, Norinchukin Bank, Lloyd’s Banking Group, Bank of Toyko Mitsubishi, West LB

Joint investigation with Connecticut.

16

FINED ASSESSED

• UBS ‐ $1.5 billion (Dec. 2012) (Ex. AA)

• RBS ‐ $615 million (Feb. 2013)See Deferred Prosecution Agreement (Ex. Y)

• Barclays ‐ $453 million (June 2012)Barclay’s DOJ Criminal Non‐Prosecution Agreement (Ex. P)

Focus has shifted from the banks doing it to look good to doing it to make money on trades. In other words, it’sg g g y ,not just about reputational harm, it’s about cheating to make money.

17

BUCHWALD HAS HER SAY(Exhibit W)

• LIBOR setting process was never intended to be competitive (p. 31)

• “the alleged collision occurred in an arena in which Defendants never did and never were intended to compete” (p. 33)

• Lying about interest rates – “This theory is one of misrepresentation, and possibly of fraud, but not of failure to compete” (p. 34)

• Conduct alleged is consistent with rational self‐interest as apposed to price‐fixing which it is suicidal to raise prices babsent an agreement

• Other issues discussed: extra‐terratoriality, statute of limitations

• Commodities claim upheld, but difficulties will persist in proving damages.p , p p g g

• RICO claims dismissed

• Read the Conclusion: (pp. 157‐160)

18

CONDUCT

RBS – pleads guilty to wire fraud in Japan, admits to attempting to fix rates to boost profits, acknoweldgesserious failure in internal controls. 21 employees left bank or were disciplined, 2 managers dismissed.

Barclays – admits to manipulating rate to make bank appear stronger and to benefit trading positions.Chairman, CEO dismissed.

UBS – found to attempt to rig rates hundreds of times over 10 years. Made corrupt payments to outsidebrokers for help. 2 former UBS Traders face criminal charges in US. UBS is alleged to have conspired withICAP PLC. ICAP brokers were allegedly compensated by UBS for helping to manipulate LIBOR rates.

19

THE AMENDED COMPLAINTS(E hibit V)(Exhibit V)

What’s new?

• “Defendants are competitors.” Competed to attract funds and clients. “Horizontal competitors across a broad spectrum of p p p pbanking, trading, and brokerage services.”

• More emphasis on financial incentives to cheat.

• Consulting expert’s analysis of management directives finding it supports collusion.

• More expert analysis.

• Info from RBS, UBS, and Barclay’s settlements.

What to do about Statute of Limitations?

• BBA gave a clean bill of health in 2008.

• Gov’t still used LIBOR after 2008.

• FSA was in the dark until mid‐2009.

• Defendant banks’ stock was unaffected in 2008 so market didn’t think there was manipulation of LIBOR.

• No one could really know until 2011.

20

BUT THE EMPIRE STRIKES BACK(Exhibit BB)

One example of a motion to Dismiss

21

THE FINAL FRONTIER(Exhibit X)

• Stockholder Litigation Directly Against Banks . Barclay’s shareholders brought suit against the bank for fraud regarding their Barclay’s shares. Judge Scheindlin wasn’t convinced.

22

WHAT IS THE FUTURE ?(Exhibit Z)

• Brockett Man!

• Direct Actions Against Banks for Breach of Contract.

23

Libor Litigation:R t D l tRecent Developments

D i l L B kDaniel L. Brockett212‐849‐7000

[email protected]

Current Litigation

Many Cases Consolidated Cases in New York District CourtClass Actions Alleging:

Antitrust Violations

RICO Violations

Unjust Enrichment

Salix Capital CaseContract and Fraud Claims

Many Others (Schwab; FHFA; municipalities)

Cases Stayed Pending Resolution of Lead Class Action’s Pleading Stage

Plaintiffs Have Tried Suing ElsewherePlaintiffs Have Tried Suing ElsewhereState‐Filed Cases Being Removed on Edge Act and Other Grounds, Then Transferred to New York

Plaintiffs Have Began Seeking RemandPlaintiffs Have Began Seeking Remand

25

Important Order on Motion to Dismiss

In March, Judge Buchwald Issued Order on Motion to Dismiss in Lead CaseLead Case

Dismissed Antitrust Claims (No Antitrust Injury)

Dismissed RICO Claims (Statutorily Barred)Dismissed RICO Claims (Statutorily Barred)

Allowed Some CEA Claims

Ruling on statute of limitations—plaintiffs on notice at least by May 2008,Ruling on statute of limitations plaintiffs on notice at least by May 2008, when Wall Street Journal began reporting on odd behavior of Libor

Courts Suggested Fraud and Contract Theories Fit Facts Better

Even With Possibility of Changing Mind on Amendment, Appeal, or Other Judges Disagreeing, Likely to Shape of Cases Filed Going Forward

26

Judge Buchwald: On Antitrust Claims

Antitrust Claims Were the Core of Initial Complaints p(treble damages)

Basic Theory Was Banks Colluded to Set Libor Rates

But Judge Buchwald Dismissed ClaimsBut Judge Buchwald Dismissed Claims

Libor‐Setting Process Was Not “Competitive”

Claims Dismissed Because No “Antitrust Injury”

27

Judge Buchwald: On RICO Claims

Schwab and Certain Other Plaintiffs Asserted Federal RICO Claims

But Judge Buchwald Ruled that Federal RICO Claims Cannot Be Predicated On Securities FraudPredicated On Securities Fraud

Court Gave Broad Reading to This Prohibition

Dismissed Even Claims Based on Non‐Securities, Because the Acts TouchedDismissed Even Claims Based on Non Securities, Because the Acts Touched Other Instruments That Were Securities But State RICO May Differ (e.g., New Jersey)

Also Ruled that Federal RICO Claims Were Improper Because the Focus of theAlso Ruled that Federal RICO Claims Were Improper Because the Focus of the “Enterprise” Was Located Outside of United States, and Thus Violated Extra‐Territorial rule of Morrison

28

Judge Buchwald: Statute of Limitations

Ruled that Plaintiffs “On Notice” At Least By May 2008

Suggested That Claims Contracts/Purchases Entered Into After May 2008 Could Still Be Timely

Claim Could Not Accrue Before Injury Felt (i.e., Purchase Made)

Investors in Post‐2008 Instruments May Not Have Been On Lookout for “Old” Journal Reports So Issue of Factfor Old Journal Reports, So Issue of Fact

Reasonable Reliance May Be Uphill

Rejected Arguments of Fraudulent Concealment and ThatRejected Arguments of Fraudulent Concealment, and That Banks’ Denials Negated the Relevance of the Journal Reports

Even if Believed to Be Erroneous Ruling, Likely Will ShapeEven if Believed to Be Erroneous Ruling, Likely Will Shape Scope of Cases Brought Going Forward

29

Pleading Fraud In Light of Buchwald’s Decision

Privityy

Strong Claim If Direct Contact With Panel Bank

No Privity

False Statement Made Through Intermediary ActionableFalse Statement Made Through Intermediary Actionable

Panel Banks Made Submissions To BBA

BBA Acted As Intermediaryy

Investors Relied On Libor Published By BBA

30

Pleading Fraud In Light of Buchwald’s Decision

Primary Hurdle Is Statute of Limitations y

Court Held That Plaintiffs On Notice of Claims By Mid‐2008

Claims Governed By Many States’ Laws Untimely Under That Ruling

Federal Statutory Claims Arising Prior To July 2008 Likely Time Barred (Statute of Repose) Maybe MoreTime‐Barred (Statute of Repose), Maybe More

Some Hope Claims “Saved” By American Pipe, Continuing‐Wrong, or Combination of Tolling Doctrines

31

Pleading Contract Claims In Light of Buchwald’s DecisionDecision

Many Contracts Require Calculation of Payment y q yBased on Libor (Interest‐Rate Swaps, etc.)

If Contract With A Panel Bank Or Its Affiliate, Calculating Payments Based On Manipulated Figure Is a Breach

Contracts Often Require Calculations To Be Done In Commercially Reasonable Manner

States Often Impose Duty Of Good Faith And Fair Dealing

32

Pleading Contract Claims In Light of Buchwald’s DecisionDecision

One Hurdle is the Statute of Limitations

Many States Have Short Periods That Begin at the Breach—Potentially Limiting Damages to “Late” Suppression

Some Hope Claims “Saved” By Various Tolling DoctrinesSome Hope Claims Saved By Various Tolling Doctrines

Damages May Be Comparatively Limited if Only Contract Claims Are Brought

If Only Contract Claims Involved, Likely Not Able to Hold Banks Accountable for Losses on Contracts They Were Not Party To33

Salix Complaint Brought Post-Ruling

Example of Type of Suit That Remains Viable Even Under Judge Buchwald’s RulingBuchwald s Ruling

Filed By Funds That Lost Money on “Base‐Point Trades”

Libor Suppression Lowered Payments Being Received Under Interest‐Rate SwapsLibor Suppression Lowered Payments Being Received Under Interest‐Rate Swaps

Libor Suppression Unjustly Defeated Funds’ Hedging Strategy on Bonds Simultaneously Purchased at Time of the Swaps

Core of Suit is Contract Claims Against Counterparty Panel Banks, For Miscalculating Payments Due Under the Swaps.

Timely Under State Law Regardless of May 2008 Date

Also Brings Fraud Claims to Hold Banks Accountable for All Losses

Timeliness May Turn on Choice of Law and Availability of Tolling Doctrines

34

What’s Next?

More Plaintiffs Likely To File Targeted Complaints

Core Built Around Breaches of Contract

Fraud Claims Added In, If Appropriate on Statute of Limitations

Investors Should Analyze Portfolios

What Statute of Limitation Likely to Govern Potential Fraud Claims? Contract?Contract?

Choice‐of‐Law Provisions May Not Control Statute of Limitation

How Much of the Losses Can Be Brought As Breach of Contract Claims?

Claims Subject to Any Potential Tolling Doctrines? Part of Class Actions?

Analyze Investment Portfolio On “Net” Damages Basis

35

LIBOR Manipulation Litigation: Latest Trends and DevelopmentspProsecuting and Defending LIBOR-related Actions

Presented by Thomas A. Dubbs

July 11, 2013 © 2013 Labaton Sucharow LLP. All rights reserved.

Presented by Thomas A. Dubbs

Overview: Shifting Litigation Landscape

• Forms of LIBOR Manipulation – relevant to statute of limitations considerations

• U.K. Serious Fraud Office Indicts Trader Tom Hayes (of UBS and Citigroup)

• In re LIBOR Decision Puts Spotlight on Key Issues:

– Statutes of Limitation

Damages Calculation– Damages Calculation

– New cases grapple with these issues

• Dismissal of Securities Class Action against BarclaysDismissal of Securities Class Action against Barclays

• U.K. Civil Suits on Appeal

37© 2013 Labaton Sucharow LLP. All rights reserved.

Forms of LIBOR Manipulation

• Distinct forms of LIBOR manipulation in two different periods:

– Prior to 2008 financial crisis, traders requested that LIBOR be inflated or suppressed to profit from rate resetting

f f• Trader-specific manipulation first discussed in connection with Barclays’ July 2012 settlement with regulators

– During and after the financial crisis banks sought to concealDuring and after the financial crisis, banks sought to conceal liquidity risk by collusively suppressing LIBOR

• Reliability of LIBOR first discussed in media reports in April and May 20082008


Hayes Charges

• U.S. DOJ Criminal Complaint– December 12, 2012: Tom Hayes, ex-UBS and Citigroup trader and a

British national who worked in Tokyo, and Roger Darin, a UBS trader and Swiss national, are charged with conspiracy by the DOJ in a criminal complaint unsealed in December 2012• Manipulation of Yen LIBOR from September 2006 through August 2009 (on 335Manipulation of Yen LIBOR from September 2006 through August 2009 (on 335

of the 738 trading days during this period, at times daily) at UBS, and from December 2009 through September 2010 at another bank

• Charges of conspiracy to commit wire fraud, wire fraud, and antitrust violations

• U.K. SFO Indictment – June 18, 2013: SFO charges Hayes with eight counts of conspiracy to

defraud• Prosecutors allege Hayes conspired with employees of London-based interdealer

brokers ICAP PLC, Gullet Prebon PLC, and R.P. Martin Holdings Ltd.

• Hayes was reportedly “Trader A” mentioned repeatedly in UBS settlement documents


documents

In re LIBOR Motion to Dismiss Decision

In re LIBOR-Based Financial Instruments Antitrust Litigation, No. 11-md-2262 (S.D.N.Y.) (Buchwald, J.)( ) ( )

– March 29, 2013: Motion to Dismiss Granted in Part, Denied in PartSee In re LIBOR, No. 11-md-2262,slip op. (S.D.N.Y. Mar. 29, 2013)

– Antitrust Claims dismissed with prejudice

– Commodity Exchange Act Claims dismissed in part

Charles Schwab Plaintiffs’ RICO Claims (coordinated with In re LIBOR)– Charles Schwab Plaintiffs RICO Claims (coordinated with In re LIBOR) dismissed

– California Cartwright Act claims dismissed

– New York law claims for unjust enrichment dismissed for failure to demonstrate required quasi-contract relationship

– All other state law claims dismissed – court declined to exercise


supplemental jurisdiction

Implications of In re LIBOR Decision

• Decision Puts New Focus on Statutes of Limitation & Tolling

– Concludes media reports issued May 29, 2008 put Plaintiffs on inquiry notice as to LIBOR’s accuracy for purposes of CEA claims

• Rejects arguments that news reports did not provide notice because they were speculative and/or did not indicate intentional collusive misconduct


Approaches to SOL in wake of In re LIBOR Decision

– Continuing Violations Doctrine

• “[D]elays the triggering of a statute of limitations where a continuing violation is occasioned by continual unlawful acts, not continual ill effects from a single violation” gIn re Comverse Tech., Inc. Sec. Litig., 543 F. Supp. 2d 134, 155 (S.D.N.Y. 2008)

• Argument:

– Defendants’ suppression of LIBOR during financial crisis was not limited to a few isolated acts, but was a sustained effort over a multi-year period


Approaches to SOL in wake of In re LIBOR Decision (cont’d)

– Fraudulent Concealment Doctrine• Tolling available if plaintiff demonstrates• Tolling available if plaintiff demonstrates

(1) defendant wrongfully concealed material facts relating to defendant’s wrongdoing;

(2) the concealment prevented plaintiff's discovery of the nature of the claim within(2) the concealment prevented plaintiff s discovery of the nature of the claim within the limitations period; and

(3) plaintiff exercised due diligence in pursuing the discovery of the claim during the period plaintiff seeks to have tolled Koch v. Christie’s Int’l PLC, 699 F.3d 141, 157 (2nd. Cir. 2012)

• Second Circuit law unsettled as to whether due diligence requires a showing that:showing that:(1) plaintiff’s ignorance of the claim was not the result of lack of diligence; and

(2) plaintiff exercised due diligence in pursuing discovery of the claimS E C v Wyly 788 F Supp 2d 92 104-05 (S D N Y 2011)


S.E.C. v. Wyly, 788 F. Supp. 2d 92, 104 05 (S.D.N.Y. 2011)


– Arguments for Fraudulent Concealment:• Defendants, in conjunction with the BBA, engaged in a campaign of

misinformation

• On March 5, 2008, Barclays falsely responded to an FSA inquiry of the bank’s loan rate

St ti ti ll i ifi t l i i LIBOR t d b 11 f 16 b k• Statistically significant, anomalous rise in LIBOR reported by 11 of 16 banks following April and May 2008 news reports demonstrates efforts to conceal fraud

• Manipulation involved undocumented, oral communications

Creation and expansion of liquidity and bailout facilities made it difficult or• Creation and expansion of liquidity and bailout facilities made it difficult or impossible to discern signs of manipulation

– Such arguments largely rejected in In re LIBOR decision, but Judge B h ld t d th t CEA ti i t l th th fBuchwald noted that CEA notice requirements are lower than those for claims under Securities Exchange Act of 1934• Discovery of the Injury Standard under the CEA

T i d f CEA l i if i t ld h t d t


– Triggered for CEA claims if circumstances would have suggested to a person of ordinary intelligence the probability that LIBOR had been manipulated


– American Pipe Tolling• Provides for tolling where “the commencement of a class action suspends the

li bl t t t f li it ti t ll t d b f th l h ldapplicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action”American Pipe & Construction Co. v. Utah, 414 U.S. 538, 554 (1974)

• Does not apply to statute of repose provided by Section 13 of the Securities ActDoes not apply to statute of repose provided by Section 13 of the Securities Act of 1933

– Addressed in Police and Fire Ret. Sys. of the City of Detroit v. IndyMac MBS, Inc., No. 11-cv-2998-L, 2013 WL 3214588 (2d Cir. June 27, 2013), after motions for intervention were brought to revive dismissed claims well after expiration of statute of repose

• If tolling is “equitable,” the 3-year cut off represented by the statute of repose is inconsistent with tolling, Lampf v. Gilbertson, 501 U.S. 350, 363 (1991)

• If tolling is “legal,” Section 13 creates a substantive right, and permitting a plaintiff to file a complaint or intervene after the repose period has run would necessarily enlargefile a complaint or intervene after the repose period has run would necessarily enlarge or modify a substantive right and violate the Rules Enabling Act

• Accordingly, American Pipe tolling may no longer be applied to 5-year statute of repose provided by Section 1658(b) of the Exchange Act and to opt-outs

• May call into question enforceability of private agreements to toll statutes of repose


• May call into question enforceability of private agreements to toll statutes of repose


• Potential Implications of IndyMac MBS

U l ff S i i A Cl i– Unclear effect on non-Securities Act Claims

– Unclear effect on statutes of limitation – opinion distinguishes between statutes of repose, designed to extinguish a right, and statutes of limitation, which are often subject to tolling principles:

• “Statutes of limitations limit the availability of remedies and, accordingly, may be subject to equitable considerations, such as tolling, or a discovery rule. In contrast, statutes of repose affect the underlying right, not just therule. In contrast, statutes of repose affect the underlying right, not just the remedy, and thus they run without interruption once the necessary triggering event has occurred, even if equitable considerations would warrant tolling or even if the plaintiff has not yet, or could not yet have, discovered that she has a cause of action.”


New Cases Grapple with SOL Issues

• Charles Schwab Files Complaint in California State Court– Charles Schwab Corp. v. Bank of America Corp., No. CGC-13-531016 (Cal. Super. Ct., San

Francisco County filed Apr. 29, 2013), removed, Charles Schwab Corp. v. Bank of America Corp., No. 13-cv-2244 (N.D. Cal. May 16, 2013)

– Complaint asserts: • State law claims: Fraud, deceit and concealment; unfair business

practice; interference with prospective economic advantage; breach of implied covenant of good faith and fair dealing; violations of California securities fraud statutes; rescission; unjust enrichmentsecurities fraud statutes; rescission; unjust enrichment

• Federal claims: Securities Act §§ 11, 12(a)(2), 15

– Brought with regard to all LIBOR-based securities (such as fixed-rate instruments) Plaintiffs purchased in or traceable to offerings thatinstruments) Plaintiffs purchased in, or traceable to, offerings that took place between August 2007 and May 2010

– References to "LIBOR" in those documents constitute affirmative misstatements


misstatements

New Cases Grapple with SOL Issues (cont’d)

– Schwab’s Statute of Limitations Arguments

• Defendants’ conduct constitutes “continuing violation”

• Apparent halt in LIBOR suppression following news reports demonstrates efforts to conceal frauddemonstrates efforts to conceal fraud

• Equitable tolling applies



• Regents of the University of California Suit– Regents of the Univ. of Cal. v. Banc of America Securities LLC, g

No. 13-cv-2921 (N.D. Cal. filed June 25, 2013)

– Individual action brought by administrator of University of California public trust alleging fraudulent rate submissions caused losses onpublic trust, alleging fraudulent rate submissions caused losses on LIBOR-linked derivatives and related payments; and that defendant banks made false statements directly to Regents in connection with LIBOR-linked transactions in which Defendants were counterparties

– Regents argues that claims were tolled prior to March 2011 due to:

• Inherent self-concealing nature of conduct;Inherent self concealing nature of conduct;

• BBA and Defendants’ statements to deflect concerns; and

• American Pipe



• Salix Capital Suit– Salix Capital US, Inc. v. Banc of America Securities LLC, No. 651823/2013 (N.Y. Sup. Ct. MaySalix Capital US, Inc. v. Banc of America Securities LLC, No. 651823/2013 (N.Y. Sup. Ct. May

20, 2013), removed, Salix Capital US, Inc. v. Banc of America Securities LLC, No. 13-cv-4018 (S.D.N.Y. June 12, 2013) (Buchwald, J.)

– Action brought by related investment funds and on assigned claims

– Defendant banks sold Plaintiff funds fixed-for-floating interest rate swaps as part of a “basis package,” a combination of (1) a fixed-rate corporate bond, (2) a credit default swap, and (3) an interest rate swap

– Alleges Defendants’ suppression of LIBOR caused Plaintiffs to improperly overpay Defendants under the interest rate swap component

– Salix’s statute of limitations arguments:Salix s statute of limitations arguments:• Defendants’ conduct constitutes “continuing violation”

• Defendants actively concealed the fraud

C f di f t l d d di


• Confounding factors precluded discovery

Damages Calculation & Netting Issues

• In re LIBOR Opinion Also Highlights Challenges of Damages Calculation

– Plaintiffs adequately pleaded actual damages, but must ultimately demonstrate “net loss” to recover

– To recover, Plaintiffs would be required to show that they sold or settled their Euro-dollar contracts at a loss and that this loss resulted from Defendants’ misconduct

• “Plaintiffs could have suffered actual damages only if the price of their Eurodollar contracts decreased over the period during which they owned the contracts; otherwise, plaintiffs would have either broken even or profited. To the extent that defendants are liable for the decrease in the price of plaintiffs’ Eurodollardefendants are liable for the decrease in the price of plaintiffs Eurodollar contracts, it must be because LIBOR increased over the time during which plaintiffs owned the contracts and the trading prices of Eurodollar contracts were correlated with the LIBOR fixes.”


Barclays Dismissal Suggests Other Hurdles

• Barclays Securities Class Action– Gusinsky v. Barclays PLC, No. 12-cv-5329 (S.D.N.Y. filed July 10, 2012) (Scheindlin, J.)

– Barclays U.S. Securities Fraud Class Action

– Class Definition: Purchasers of Barclays-sponsored ADRs on an American securities exchange between July 10, 2007 and June 27, 2012, inclusiveg y , , ,

– Claims: Sections 10(b) and 20(a) of the Securities Exchange Act of 1934; SEC Rule 10b-5

All ti Pl i tiff ll th t B l d f l d i l di t t t– Allegations: Plaintiff alleges that Barclays made false and misleading statements regarding: (1) its compliance with laws and regulations; (2) its LIBOR submissions, and by extension its financial condition; and (3) the sufficiency and use of its internal controls

– Defendants: (1) Barclays PLC; (2) Robert Diamond (CEO between January 1, 2011, and July 3, 2012); and (3) Marcus Agius (Chairman of the Board of Directors)


Barclays Dismissal Suggests Other Hurdles (cont’d)

– May 13, 2013: Dismissed Second Amended Complaint with prejudice (Dkt. No. 73)

• 4 categories of alleged misrepresentations: (1) risk management, corporate responsibility, and legal compliance statements in financial statements; (2) CEO Diamond’s statement that Barclays paid higher LIBOR than other banks; (3) LIBOR submission rates; and (4) failure to disclose contingent liabilities required by Int’lsubmission rates; and (4) failure to disclose contingent liabilities required by Int l Accounting Standards Board and SEC

– Defendants’ statements regarding “business practices” were insufficiently particular to be actionable misstatements – either non-actionable puffery or not connected to LIBOR

tipractices

– Duty to disclose contingent liability did not begin at the time illegal conduct began

• Plaintiffs failed to demonstrate causation between their losses and Defendants’ LIBOR submissions and CEO Diamond’s statements because they do not allege that the LIBOR submissions between 2009 and 2012 (after manipulation from 2007 to 2009) were also false and misleading such that the ADS price would have remained artificially inflated


U.K. Civil Litigation

• Graiseley Properties Ltd. v. Barclays Bank PLC[2013] EWHC 67 (Comm), No: 2012 FOLIO 1259

– Plaintiffs allege that Barclays sold them two multi-million-pound hedges without sufficient disclosure of risks inherent in the complex derivatives

– Part of broader interest rate hedge-selling scandal in the U.K.; first suit to g ginclude LIBOR-related claims

– Demands:• Rescission of agreements based on (1) misrepresentations; (2) breach of duty ofRescission of agreements based on (1) misrepresentations; (2) breach of duty of

reasonable care or implied warranty; or (3) finding that Defendants are in repudiatory breach, which Plaintiffs would accept, terminating the agreements

• Declaration that agreements are void due to duress and/or mistake

• Declaration that certain agreements are void for want of consideration

• Restitution for payments made under the agreements

• Damages for negligent advice and/or breach of contract


• Interest and costs

U.K. Civil Litigation (cont’d)

– October 2012: Plaintiff seeks to amend claims to include allegations that “implied representations” made by Barclays were false and fraudulent in light of the LIBOR rigging scandal

– October 29, 2012: Court concludes that the proposed allegations of implied fraudulent misrepresentation against Barclays on basis of LIBOR-riggingfraudulent misrepresentation against Barclays on basis of LIBOR rigging scandal have sufficient prospects of success to be allowed to proceed to trial and be tested

April 29 2013: High Court postpones trial from October 2013 to April 2014– April 29, 2013: High Court postpones trial from October 2013 to April 2014 to hear Barclays’ appeal of October 29, 2012 ruling


U.K. Civil Litigation (cont’d)

• Deutsche Bank AG v. Unitech Global Ltd.[2013] EWHC 471 (Comm), No. 2011 Folio 1199; 2012 Folio 464

– Actions concerning a credit facility agreement and a related interest rate swap agreement

– Following amendment in Graiseley Properties, Unitech sought similar g y p gamendment to include very similar allegations in relation to LIBOR rigging against Deutsche Bank

– Court denied amendment: “I am unable to see how, on the basis of the two ,factors relied on by [Unitech], any such representation could be spelt out.” (Cooke, J.)

– Unitech’s appeal is scheduled to be heard between July and December pp y2013; likely to be considered with Graiseley Properties appeal

• At issue is the application of the legal test for determining whether or not an implied representation has been made. The legal test considers what a reasonable person would have thought was being implicitly represented by a


reasonable person would have thought was being implicitly represented by a representor’s words or conduct.

Questions & Comments

• Thomas A. [email protected]
