Barclays Bank and Barclays Capital this week announced it would pay $100 million to settle with 44 states over its manipulation of interest rates.
New York and Connecticut lead the group of state attorneys general who investigated Barclays over its manipulation of U.S. dollar London Interbank Offered Rate (LIBOR). They charged that Barclays manipulated its USD LIBOR submissions to conceal its own financial difficulties, thereby defrauding U.S. government entities and not-for-profits of millions of dollars.
“There has to be one set of rules for everyone, no matter how rich or how powerful, and that includes big banks and other financial institutions that engage in fraud or impair the fair functioning of financial markets,” New York Attorney General Eric T. Schneiderman said in a statement. “As a result of Barclays’ misconduct, government entities and not-for-profits were defrauded of funds that otherwise could have been used to benefit the people of New York.”
A panel of 16 banks made USD LIBOR submissions that were supposed to reflect borrowing rates in the interbank market. The daily LIBOR rate was calculated by averaging the middle eight submissions. The attorneys general said that from roughly 2007 to 2009, Barclays managers told LIBOR submitters to lower their LIBOR ratings in order to avoid the appearance that Barclays might be having financial difficulty and needed to pay more than some of its competitors to borrow money.
Further, Schneiderman’s statement said, Barclays’ traders sometimes asked Barclays’ LIBOR submitters to change their LIBOR settings to benefit the traders’ positions, rather than setting the LIBOR based on Barclays’ borrowing costs. The LIBOR, therefore, did not reflect the true cost of borrowing funds in the market.
Ultimately, American government entities and nonprofit organizations were defrauded of millions of dollars when they entered into swaps and other financial contracts with Barclays, since they did not know that Barclays and other banks on the panel were manipulating the LIBOR.
Barclays is the first of several USD-LIBOR-setting panel banks under investigation by the state attorneys general, and Schneiderman said that Barclays cooperated with the investigation from the outset.
These entities with LIBOR-linked swaps and other investment contracts with Barclays will be notified if they are eligible to receive restitution from a settlement fund of $93.35 million. The balance of the settlement fund will be used to pay expenses of the investigation and for other uses consistent with state law.
