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Judge Appoints Interim Counsel In Trillion Dollar Libor Class Action

December 5, 2011

Class action litigation is beginning to take shape over allegations that major banks manipulated Libor, the benchmark rate used to calculate interest on trillions of dollars in securities globally. On Monday the federal district court judge hearing the litigation consolidated 20 class complaints, and appointed interim class counsel.

Michael Hausfeld of Hausfeld LLP, one of the firms selected by the judge, said the litigation could have unfathomably large damages. "There was a period of time when I thought $100,000 was large," he said. "Then a million became large. Then a billion. Here, the market is trillions."

The ruling by Judge Naomi Reice Buchwald was the latest development in coordinated antitrust litigation against the banks that belong to the panel that sets the London Interbank Offered Rate. Libor is the rate that banks charge to lend to other banks in the London wholesale money market for maturities, and is used by a number of financial institutions around the world to set their own interest rates.

Judge Buchwald, who presides in the Southern District of New York, appointed Hausfeld LLP and Susman Godfrey as interim class counsel for over-the-counter or direct purchasers of securities affected by Libor. She also selected Kirby McInerney and Lovell Stewart Halebian Jacobson as counsel to exchange-based or indirect purchasers.

Buchwald picked Hausfeld and Susman over Grant & Eisenhofer and Robbins Geller Rudman & Dowd, which had likewise sought to represent the direct purchasers. Hausfeld and Susman's named plaintiff client, the city of Baltimore, had "by far the greatest economic interest" after entering into "hundreds of millions of dollars" of interest rate swaps with the banks that allegedly manipulated Libor, Buchwald said.

The lawsuits have come fast and furious since March, when the news first emerged that government agencies in the United States and Europe were investigating possible antitrust violations by the Libor banks. Barclays PLC, HSBC Holdings plc, and UBS AG are some of the banks that have made public disclosures about the government probes. According to an August regulatory filing by Barclays, the list of investigating authorities includes the U.S. Department of Justice, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the U.K. Financial Services Authority, and the European Commission.
While many of the private suits are class actions, some plaintiffs, such as Charles Schwab Corporation, have chosen to go it alone with individual suits. The lawsuits have generally accused the banks that made up the U.S. dollar panel of the British Bankers Association from 2006 to 2009 of colluding to artificially suppress Libor by underreporting the rates that they used when borrowing from each other. Members of the panel (which included 16 banks until February 2011, when the membership was expanded to 20) sent data daily Thomson Reuters Group, which then calculated an average rate after excluding the four highest and four lowest rates.

Underreporting rates benefited the banks' own derivatives positions, the plaintiffs claim. Those positions were primarily in interest rate swaps, which has a market value of more than $300 million, according to papers filed by Hausfeld and Susman in support of their appointment.

The banks have lawyered up to respond to the class actions and other lawsuits that have followed those investigations. The defense now includes Locke Lord for HSBC; Simpson, Thacher & Bartlett and Schiff Hardin for JPMorgan Chase & Co.; Davis Polk & Wardwell for Bank of America Corporation; Paul, Weiss, Rifkind, Wharton & Garrison for Deutsche Bank AG; McDermott, Will & Emery for Citigroup Inc.; Gibson, Dunn & Crutcher for UBS; Milbank, Tweed, Hadley & McCloy for Rabobank Group; Hogan Lovells for Lloyds Banking Group plc; Hughes Hubbard & Reed for WestLB AG; Sidley Austin for The Norinchukin Bank; and Katten Muchin Rosenman for Royal Bank of Canada.

Hausfeld credited his firm's selection co-interim class counsel to having a London office, a factor that Judge Buchwald noted. "Given that the case appears to involve extremely complicated factual issues, we believe that having dedicated and locally trained attorneys at the site of the core operative facts could prove extremely beneficial," she wrote.

Hausfeld said the decision affirmed his decision to open a London office, which launched in February 2009 with partners from Cohen Milstein Hausfeld & Toll, Hausfeld's former firm. Cohen Milstein itself had only opened a year earlier in London, where class actions are not possible. Hausfeld said that most people assume a firm opens a London office just for business there. "This is a case that proves the value," he said.
This article originally appeared in The AmLaw Litigation Daily.

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Practice Areas: Antitrust / Competition, Securities and Financial Services


Supporting Documents

» Order Appointing Interim Co-Lead Counsel (PDF)