Originally published in Metropolitan Corporate Counsel magazine (August 22, 2012)
On June 27, Barclays Plc agreed to pay $448 million in fines to UK regulators over allegations that it improperly manipulated Libor and Euribor, the London interbank offered interest rate and Euro interbank interest rate applicable to loans made between banks and large corporations. Recent reports indicate that Barclays and other Libor banks are the subject of government civil and criminal investigations in the U.S., and class actions suits for violations of antitrust and securities laws have followed. One analyst has estimated that the costs related to only pending class actions could be in the region of $6 billion, in addition to the costs of resolving any regulatory investigations.
Insurance claims seeking coverage for the Libor-related suits and investigations are likely to implicate many of the coverage issues faced by any policyholders facing these kinds of large exposures. Coverage for these kinds of large exposure claims is likely to be hotly contested, and policyholders should pursue their claims early and aggressively.
The Libor-Related Exposures
Due to the allegations of Libor rate manipulation, financial institutions have become the subject of a number of proceedings.
Civil and criminal investigations are being conducted by regulators in various countries, including the U.S., UK, Japan, Switzerland and Canada. Class action suits are being brought by institutional investors who purchased Libor-linked derivatives, asserting violations of antitrust, racketeering and securities laws based on the allegation that the manipulation of the Libor rate reduced returns on investments. Shareholder derivative actions have been instituted against former and current directors and officers of Bank of America and Citigroup, alleging breaches of fiduciary duty. Banks have fired or suspended employees suspected of involvement in manipulating rates, which has led to at least one wrongful termination action by a trader at the Royal Bank of Scotland, who was fired after RBS conducted an internal probe of Libor-related wrongdoing. In the wrongful termination action, filed in the Singapore High Court, the trader claimed it was common practice for RBS traders to request a higher or lower rate from RBS's Libor rate-setters, and that senior management knew of this conduct. As the various governmental investigations come to their conclusion, it is likely that similar...