Some of the biggest names in asset management, including BlackRock Inc., Fidelity Investments and Vanguard Group Inc., are trying to determine whether their clients have been hurt by the growing Libor manipulation scandal — and whether they should take legal action, according to Bloomberg.

Global regulators are reviewing the rate-setting mechanism and contemplating criminal charges against bank traders who were caught manipulating Libor, a benchmark interest rate for about $500 trillion in financial products. Barclays was fined 290 million pounds ($449 million) by U.S. and U.K. regulators on June 27 after admitting it submitted false rates. The scandal led to the resignation of Robert Diamond as the bank’s chief executive officer.

Libor is determined by a daily poll carried out on behalf of the British Bankers’ Association that asks banks to estimate how much it would cost to borrow from each other for different periods and in different currencies. Quotes in the top and bottom quartile are excluded, and an average of the remaining entries is calculated.

Barclays, like other lenders that help set Libor rates, could potentially face lawsuits from any investor that was on the wrong side of the transactions, who could claim that they were kept in the dark about a key benchmark. Barclays is a defendant in at least 24 interrelated lawsuits that have been aggregated in Manhattan federal court.

Libor-related litigation “has the potential to be the biggest single set of cases coming out of the financial crisis because Libor is built into so many transactions and Libor is so central to so many contracts,” said John Coates, a professor of law and economics at Harvard Law School in Cambridge, Massachusetts. “It’s like saying reports about the inflation rate were wrong.”

While Libor affects a broad range of investments from money funds to leveraged buyout financing, firms seeking to sue may struggle to quantify losses and pinpoint which banks are responsible for them, according to interviews with more than half-a-dozen industry executives, lawyers and former regulators, according to the Bloomberg article. 

Edited by: Tommy Fernandez


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