AG Jepsen: States Reach $100M Settlement with Barclays for LIBOR Manipulation
Under a $100 million multistate settlement agreement, Barclays Bank PLC and Barclays Capital Inc. will pay $93.35 million in restitution to government and nonprofit entities for its manipulation of a benchmark interest rate in the lead up to and early days of the financial crisis, Attorney General George Jepsen announced today.
Barclays has agreed to pay a total of $100 million to resolve a 44-state multistate investigation – which was led by the states of Connecticut and New York – that revealed that Barclays manipulated the London Interbank Offered Rate, also known as LIBOR, through two different kinds of alleged fraudulent and anticompetitive schemes at various times from 2005 through at least 2009.
"Our investigation has developed significant evidence that some banks, like Barclays, that were responsible for setting LIBOR rates intentionally manipulated LIBOR in order to protect their public image and to help the business side of their operations be more profitable," said Attorney General Jepsen. "This conduct was improper and unlawful, and my office, working with our partners in other states, will continue with this investigation in order to hold accountable those other banks which harmed consumers in Connecticut and across the country. I appreciate and commend Barclays' cooperation in our investigation and in reaching this agreement to fully resolve our concerns against it."
Government and nonprofit entities with LIBOR-linked swaps and other investment contracts with Barclays will receive notice if they are eligible to receive restitution from the $93.35 million settlement fund. In Connecticut, the state will be eligible to receive approximately $529,000 in restitution, primarily for losses incurred by state pension funds, and Wesleyan University will be eligible to receive approximately $2,208,000 from the settlement fund.
The $6.35 million balance of the settlement funds will be used to pay costs and expenses of the investigation, which remains active and ongoing. Barclays is the first of several LIBOR-setting banks under investigation by state attorneys general to resolve the claims against it, and Barclays has cooperated fully in the investigation.
LIBOR is a benchmark interest rate that affects financial instruments – including swaps, options and bonds – that are worth trillions of dollars; it has a widespread impact on global markets and consumers, including government and not-for-profit entities. The rate is calculated daily in multiple currencies, including the U.S. dollar, by a panel of banks, and submissions by the individual contributing banks are governed by several criteria designed to maintain the integrity of the rate.
The states' investigation found that during the financial crisis period of 2007 and 2008, Barclays' managers frequently instructed LIBOR rate submitters to artificially lower their LIBOR submissions in order to avoid the appearance that Barclays was experiencing financial difficulty and needed to pay a higher rate than some of its peers to borrow money. The LIBOR submitters complied with the instructions and suppressed their submissions during that period.
The states' investigation also found that, at various times from 2005 to 2007 and continuing until at least 2009, Barclays' traders asked Barclays' LIBOR submitters to change their LIBOR submissions in order to benefit their trading positions and that the submitters often agreed to these requests. The investigation found that, at times, these requests came from traders outside of the bank, and Barclays' traders agreed to pass those requests along to Barclays' submitters, thereby colluding with other banks to manipulate the benchmark rate. Barclays also believed that other banks’ LIBOR submissions likewise did not reflect their own true borrowing rates and that, therefore, published LIBOR did not reflect the cost of borrowing funds in the market, as it was supposed to do.
Both types of conduct were contrary to expressed requirements for LIBOR rate submissions. The attorneys general alleged that government entities and nonprofit organizations in Connecticut and throughout the country were defrauded of millions of dollars when they entered into swaps and other investment instruments with Barclays without knowing that Barclays and other banks on the U.S. dollar LIBOR-setting panel were manipulating the interest rate and colluding with other banks to do so.
The multistate working group of 44 states, led by the attorneys general of Connecticut and New York, includes the attorneys general from Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, the District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.
Assistant Attorneys General Christopher Haddad and Michael Cole, chief of the Antitrust and Government Program Fraud Department, are assisting the Attorney General in this investigation.