Freddie Mac Sues Multiple Banks Over Libor Manipulation

Freddie Mac (FMCC) sued Bank of America
Corp.
, UBS AG (UBSN), JPMorgan Chase Co. (JPM) and a dozen other banks over
alleged manipulation of the London interbank offered rate,
saying the mortgage financier suffered substantial losses as a
result of the companies’ conduct.

Government-owned Freddie Mac accuses the banks of acting
collectively to hold down the U.S. dollar Libor to “hide their
institutions’ financial problems and boost their profits,”
according to a complaint filed in federal court in Alexandria,
Virginia.

“Defendants’ fraudulent and collusive conduct caused USD
LIBOR to be published at rates that were false, dishonest, and
artificially low,” Richard Leveridge, a lawyer for Freddie Mac,
said in the complaint, which was made public yesterday.

Manipulation of interest rates by some of the world’s
biggest banks has spawned probes by half a dozen agencies on
three continents in what has become the industry’s largest and
longest-running scandal. More than $300 trillion of loans,
mortgages, financial products and contracts are linked to Libor.

Libor is calculated by a poll carried out daily by Thomson
Reuters Corp. on behalf of the British Bankers’ Association, an
industry lobby group that asks firms to estimate how much it
would cost to borrow from each other for different periods and
in different currencies.

Dozen Banks

The complaint lists 15 banks as defendants as well as the
British Bankers’ Association. They include Citigroup Inc. (C),
Barclays Plc, Royal Bank of Scotland Group Plc (RBS), the Royal Bank
of Canada, Deutsche Bank AG and Credit Suisse Group AG. (CSGN)

Freddie Mac accuses the banks of fraud, violations of
antitrust law and breach of contract. The housing financier is
seeking unspecified damages for financial harm, as well as
punitive damages and treble damages for violations of the
Sherman Act.

“To the extent that defendants used false and dishonest
USD LIBOR submissions to bolster their respective reputations,
they artificially increased their ability to charge higher
underwriting fees and obtain higher offering prices for
financial products to the detriment of Freddie Mac and other
consumers,” the U.S.-owned company said in the complaint.

Banks Named

Representatives of the banks who declined to comment on the
lawsuit were Danielle Romero-Apsilos, a spokeswoman for New
York-based Citigroup; Jennifer Zuccarelli, a spokeswoman for New
York-based JPMorgan; Brandon Ashcraft, a Barclays spokesman;
Bill Halldin, a Bank of America spokesman; Victoria Harmon, a
spokeswoman for Credit Suisse; and Ed Canaday, a spokesman for
Edinburgh-based Royal Bank of Scotland.

Eberhard Roll, a Portigon AG spokesman, didn’t respond to
e-mail and phone messages requesting comment.

Calls to Bank of Tokyo-Mitsubishi UFJ Ltd. and Norinchukin
Bank, both of Tokyo, which also were named in the complaint,
weren’t answered on a public holiday.

“The BBA is aware of the lawsuit in the United States and
is unable to comment,” Brian Mairs, a spokesman for British
Bankers’ Association, said in an e-mail.

Brad German, a spokesman for McLean, Virginia-based Freddie
Mac
, said the company doesn’t comment on litigation. Denise
Dunckel, a spokeswoman for the Federal Housing Finance Agency,
the conservator of Freddie Mac, also declined to comment.

Freddie Mac and its sister company, Washington-based Fannie
Mae, could have lost a combined $3 billion because of Libor
manipulation, the auditor of the FHFA said in a Nov. 3 internal
memo urging the regulator to investigate further.

Floating Rate

Freddie Mac and Fannie Mae use Libor to determine interest
payments on their investments in floating-rate financial
instruments such as bonds and swaps.

The two companies, which package mortgages into securities
on which they guarantee payments of principal and interest, have
been under U.S. conservatorship since 2008.

Barclays, UBS and RBS have been fined more than
$2.5 billion following a global probe into Libor manipulation.
Traders rigged the benchmark to profit from bets on derivatives,
while banks sought to submit artificially low rates to appear
financially healthier than they were, according to regulators.

From August 2007 and through at least May 2010, the
defendants “formed a combination, conspiracy, or agreement,”
to submit false Libor rates, Freddie Mac alleged in the
complaint.

The case is Federal Home Loan Mortgage Corp. v. Bank of
America Corp. (BAC)
, 13-cv-00342, U.S. District Court, Eastern
District of Virginia (Alexandria).

To contact the reporters on this story:
Tom Schoenberg in Washington at
tschoenberg@bloomberg.net;
Andrew Zajac in Washington at
azajac@bloomberg.net

To contact the editor responsible for this story:
Michael Hytha at mhytha@bloomberg.net.


Enlarge image
Freddie Mac Sues BofA, UBS, JPMorgan Over Libor Rigging

Freddie Mac Sues BofA, UBS, JPMorgan Over Libor Rigging

Freddie Mac Sues BofA, UBS, JPMorgan Over Libor Rigging

Andrew Harrer/Bloomberg

A Freddie Mac sign stands outside the headquarters in McLean, Virginia. Freddie Mac accuses the banks of fraud, violations of antitrust law and breach of contract.

A Freddie Mac sign stands outside the headquarters in McLean, Virginia. Freddie Mac accuses the banks of fraud, violations of antitrust law and breach of contract. Photographer: Andrew Harrer/Bloomberg


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