Whats Next After the Barclays Settlement – NYTimes.com

by peterjukes

The statement of facts released as part of the settlement recounts a number of internal Barclays e-mail messages about manipulating Libor. They could be the basis for prosecuting individual defendants under the federal wire fraud statute, which carries a maximum term of 30 years in prison if a financial institution is affected by the violation.The Libor investigation is likely to continue on two fronts in the coming months. First, the criminal investigation will focus on other banks and individuals that were contributors to Libor to determine their role in submitting false interest rate data for setting the benchmark.The Libor U.S. dollar panel in 2007 had 16 banks, including Citigroup, JPMorgan Chase and Bank of America. In a statement issued with the settlement, Lanny A. Breuer, the assistant attorney general for the criminal division, said Barclays had “substantially assisted the criminal division in our ongoing investigation of individuals and other financial institutions in this matter.”For the banks, the Barclays settlement provides a template for the type of cooperation the Justice Department expects, and the range of monetary penalties they may have to pay. A nonprosecution agreement is the most likely resolution because a criminal conviction can risk a bank’s ability to operate in the United States, so prosecutors will want to avoid the “Arthur Andersen effect” of putting a large operation out of business.The Justice Department will also want to hold individuals responsible for their roles in manipulating Libor if it can. While there have been a few civil cases arising from the financial crisis against large banks, including Goldman Sachs and Citigroup, prosecutions of individuals have been few and far between.The Libor case gives federal prosecutors a chance to go after executives who countenanced misconduct that resulted in abuse of one of the most important financial benchmarks in the world.The second front will be private lawsuits against the banks for manipulating Libor and its counterparts, Euribor and Tibor, for European and Japanese interest rate benchmarks. Settlements with the Justice Department require an admission of misconduct, not the more typical resolution in civil enforcement actions that come without any acknowledgment of violations. Those admissions can prove to be quite useful to plaintiffs in pursuing their own cases.Manipulating Libor is like poisoning the water supply for the world’s financial system. Changing the rates by even a few basis points can have an enormous effect on a number of sectors, so there is a vast pool of potential victims who can seek compensation.Two powerful tools in United States law for pursuing cases are the Sherman Antitrust Act and RICO – the Racketeer Influenced and Corrupt Organizations Act. Both allow for the award of triple damages for a violation, and in addition RICO allows the recovery of legal fees, which is music to the ears of the plaintiffs’ class action bar.RICO requires proof of a “pattern of racketeering activity” involving violations of federal or state law. One common basis for bringing a RICO action is to charge multiple violations of the wire fraud statute; the Barclays statement of facts can provide a nice starting point to pursue the case because of the numerous e-mails recounted there. As more banks reach settlements with the Justice Department, we can expect to see those incorporated into ever-larger RICO and antitrust complaints.One benefit of pursuing a RICO case is that it allows a plaintiff to bring together a number of companies as defendants under the umbrella of a RICO “enterprise,” which can be shown as an “association in fact” through which different banks acted together without any formal organization. If found to be part of such an enterprise, then each participant can be held liable for the entire amount of damages suffered by the plaintiffs. RICO can be a powerful lever to extract a settlement because of the risk of a crippling damages award if the case goes to a jury.In February, Charles Schwab & Company filed an antitrust and RICO lawsuit against the banks contributing to Libor, claiming that they set the benchmark interest rate at an artificially low level. More lawsuits like this can be expected in the next few months as lawyers start circling the banks involved with setting Libor, cases that will receive a significant boost from the Justice Department if more settlements are announced

via Whats Next After the Barclays Settlement – NYTimes.com.