Massachusetts nonprofit and governmental entities have received $32 million as part of a settlement with Barclays Bank PLC and Barclays Capital Inc., including $25 million for the state’s General Fund, Attorney General Maura Healey announced this week.
“Our office’s work protects taxpayers while generating revenue for the state through our many settlements,” Healey said in a statement. “Following a year of record returns, the Barclays settlement will return $25 million to the General Fund and millions more to state entities harmed by its practices.”
The AG’s office recovered $79.56 million to the state’s General Fund in fiscal year 2017. In the first month of fiscal year 2018, the AG’s Office has had several major recoveries to the fund, including $25 million from the Barclays settlement, and from a settlement with LAZ Parking Limited LLC announced earlier this week in which $1.1 million went to the fund over claims LAZ failed to detect and deter theft of millions of dollars of cash revenue belonging to the MBTA.
The settlement with Barclays resolved allegations that the company manipulated interest rates and defrauded governmental and non-profit entities in Massachusetts and across the nation. The distribution of proceeds from the case has now been completed and approximately a dozen Massachusetts schools, pension funds, and government entities received payments.
The investigation, conducted by Healey and more than 40 other state attorneys general, found that Barclays engaged in fraudulent conduct by manipulating LIBOR (London Interbank Offered Rate) to set deflated interest rates, and deceiving counterparties about LIBOR-based transactions.
LIBOR is calculated through submissions of interest rates by major banks across the world and has a widespread financial impact as many financial institutions set their own rates relative to it.
Based on the investigation, the AG’s office alleged that during the financial crisis period of 2007-2009, Barclays’ managers frequently told its LIBOR submitters to lower their LIBOR rate settings in order for Barclays to appear more creditworthy than it was, and to avoid the appearance that the bank was in financial difficulty. Barclays’ LIBOR submitters allegedly complied with the instructions and suppressed LIBOR submissions during that period.
The AG’s office also alleged that at various times from 2005 to 2007, and continuing at least into 2009, Barclays’ traders asked Barclays’ LIBOR submitters to change their LIBOR submissions in order to benefit their trading positions, and the submitters often agreed to the requests.
Because of these falsely-deflated rates, government entities and nonprofit organizations in Massachusetts and throughout the U.S. were allegedly defrauded of millions of dollars when they entered into interest rate swaps and other investment contracts with Barclays, often causing incoming payments to be smaller than they should have been.
The LIBOR activities of certain other banks involved in setting the LIBOR rates are still under active investigation.
