[ by Melanie Gretchen and Howard Haykin ]

Libor claims by private individuals against multinational banks were, by and large, dismissed on Friday by a Federal Judge in Manhattan's District Court.  Of significance, the dismissals included antitrust and Racketeering counts that bring with them triple damages and attorneys' fees for any violation. 

While Friday's district court decision is a major victory for the defendant banks, Judge Naomi Reice Buchwald's 161-page decision cannot be viewed as an "end-all, be-all."  This is merely the first stop for the case - one that actually is made up of more than two dozen interrelated cases rolled into one, each of which relates to alleged fixing of the U.S. Dollar (USD) Libor benchmark rate. 

See our related story - posted Monday in WHO's News ["The 16 Banks That Shared the 'Libor Victory Lap"].

Next up is the U.S. Court of Appeals for the Second Circuit, where the case will be reviewed again.  The panel of judges at this level may or may not follow Judge Buchwald’s analysis.  The appeal process may even take this case to the Supreme Court;  this is the type of case - given the nature of the disputes and high stakes - that often draws the interest of the Supreme Court.  Should both venues get involved, it's likely the threats hanging over the banks could linger for the next year or 2 as the appeals process runs its course.

Basis for Judge Buchwald's Decision. In some ways, the court decision might have seemed surprising given that 3 banks – Barclays, UBS, and RBS – already have settled cases with the government and agreed to collectively pay over $2.5 billion in penalties.  Each admitted to submitting false interest-rate information to the British Bankers Association used to establish Libor, a benchmark for loans and securities issued throughout the world.

The judge acknowledged this "contradiction," noting that the dismissal might be “unexpected” in light of those settlements.  But she made it clear that this seeming incongruity was a result of the “many requirements that private plaintiffs must satisfy, but which government agencies need not.”

• Antitrust Claims.   The key to Judge Buchwald's dismissal of the antitrust claims is her finding that the banks were not acting as competitors but instead were cooperating when submitting interest-rate information  to the British Bankers Association, which in turn set Libor based on that data.  To prove an antitrust violation, any financial harm suffered by private plaintiffs must be traceable to to the negative effect on competition from the collusion.  Thus, she concluded, the "injury would have resulted from defendants' misrepresentation, not from harm to competition."   The judge furthermore found that Libor did not fall under the antitrust laws because it was designed to be only a point of information reflecting what banks would charge one another for loans, not a product subject to price-fixing. 

• Racketeering Claim.   The judge dismissed the racketeering or RICO claim because:  (i) RICO cannot be used in cases involving securities; and, (ii) RICO only reached a domestic enterprise affected by the misconduct, not a foreign one.  centered on transactions that were too long ago.

• Commodities Claims.   The judge allowed some claims to proceed if the plaintiffs could show that the 2-year statute of limitations did not require dismissal.

Other Cases on Horizon. The banks face other lawsuits arising from alleged Libor manipulation that were not directly affected by the ruling.  For example, Freddie Mac  filed a lawsuit against the banks alleging antitrust violations, breach of contract, and fraud, with potential damages of $5 billion.  And, there are several banks that have not settled with regulators as yet - and their time will come to face the prospect of large monetary penalties along with guilty pleas by a (foreign) unit or subsidiary.

For further details, go to [Dealbook, 4/1/13] and [Judge Naomi Reice Buchwald's Ruling].

To contact the authors: Melanie: melanie@compliance-insights.com; Howard: howard@compliance-insights.com.