UC files lawsuit against banks alleging manipulation of Libor interest rate benchmark

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The University of California filed a lawsuit against Bank of America, Barclays and 20 other global financial institutions on Tuesday, alleging the university suffered financial damages when the banks manipulated an interest rate benchmark, known as the London Interbank Offered Rate, or Libor, that affects trillions of dollars of investments worldwide.

The 236-page lawsuit charges the banks with fraud, deceit and violating antitrust laws, all of which were allegedly part of a conspiracy to lower the Libor. Although the scale and scope of the damages to the university’s $80 billion portfolio of investments have yet to be determined, UC spokesperson Brooke Converse said the university’s retirement pool was negatively affected by the manipulation of rates.

“We have a pretty strong case in terms of the evidence that’s out there, and we have a responsibility given that we incurred losses to our investment pool,” Converse said. “We have a duty to recover those losses.”

Libor determines the benchmark rate at which many of the world’s largest banks are able to borrow money by surveying representatives from 18 major global banks. The rate impacts short-term interest rates for a wide variety of financial instruments and investments, some of which the UC system invests in. The lawsuit claims the defendants colluded to artificially suppress Libor for the benefit of individual traders.

Bank of America, listed first in the university’s lawsuit, declined to comment on the case. UBS, Barclays and The Royal Bank of Scotland, each indicted in the suit, were fined a total of about $2.5 billion in the past year for manipulating Libor and similar benchmarks.

The law firm Cotchett, Pitre & McCarthy is representing the university and several other California civic bodies, including San Diego County, the city of Richmond and the East Bay Municipal Utility District, in similar lawsuits against the banks. Some banks are also facing an array of class action lawsuits from groups around the country.

Nanci Nishimura, an attorney with the firm, said although the wide scope of the Libor scandal is difficult to understand, everyone, from homeowners to students, is affected through the interest rates on student loans, mortgages and credit card payments.

“People need to know they’re being taken advantage of,” Nishimura said. “This is in the paper almost every day, and people think it isn’t sexy — but it’s affecting us every single day.”

But the university’s suit, filed in the U.S. District Court in San Francisco, may not even be heard. In March, most of the claims in a similar suit filed in the Manhattan District Court were dismissed.

Even if the complaint is thrown out, however, Nishimura says filing the university’s case has the potential to shed light on abuses in the financial sector.

“Even if this complaint were thrown out on a technicality, even if not all the claims survive,” Nishimura said, “there have been wrongs, and we’ve got to get justice.”

Contact Chris Yoder at [email protected] and follow him on Twitter @christiancyoder.

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