Seven banks in New York Libor probe

 State Attorney General: Eric Schneiderman

Πηγή: FT
By Shahien Nasiripour and Tracy Alloway
August 15 2012

Seven of the world’s largest banks are facing fresh scrutiny from a powerful US state prosecutor over their role in the alleged rigging of Libor, the lending gauge at the centre of an international scandal.

Eric Schneiderman, New York attorney-general, has sent subpoenas to Deutsche Bank, Citigroup, JPMorgan Chase, Royal Bank of Scotland, Barclays, HSBC and UBS in the latest probe into banks' setting of the London Interbank Offered Rate, according to people familiar with the matter and regulatory filings.

Mr Schneiderman’s demands for documents and communications – most of which were sent out in July or earlier this month – is part of a two-state probe he has launched with George Jepsen, Connecticut’s top law enforcement officer. The pair want to examine whether banks colluded to fix interest rates determined by Libor, damaging the states’ borrowers and investors as a result.

The state investigation comes on the heels of separate probes from prosecutors and regulators in countries including the UK, Canada, Japan and the US who are examining possible collusion by large financial groups to manipulate benchmark rates.

But what may set Mr Schneiderman’s probe apart is his ability to use the Martin Act, a 1921 New York law considered one of the country’s most powerful prosecutorial tools. The law allows Mr Schneiderman to investigate anyone doing business in New York and to bring cases without having to show that the accused intended to commit fraud.

Most of the world’s major banks conduct business in Manhattan, home to Wall Street, and the city’s role as a global financial centre has given state regulators an added potency in prosecuting banks. The state’s Department of Financial Services used its clout to secure a $340m fine against New York-licensed Standard Chartered, despite federal authorities cautioning against the move.

Some US administration officials have privately expressed concern that the snowballing number of separate investigations could undermine financial stability, particularly in the case of Libor. The rate affects trillions of dollars worth of outstanding loans and securities, and finding a replacement is very difficult, they say.

Mr Schneiderman’s prosecutors need only prove that a fraud was committed, which New York courts have defined as “all deceitful practices contrary to the plain rules of common honesty”.

JPMorgan, Barclays and HSBC declined to comment. Deutsche did not respond to requests for comment. RBS said it is co-operating with investigators and keeping regulators informed. Citi, which previously disclosed the state prosecutors’ request in a securities filing, also declined to comment. UBS said in a recent filing that “various state attorneys-general in the US” were conducting investigations.

According to the US Office of the Comptroller of the Currency, there are at least 900,000 outstanding US home loans indexed to Libor that were originated from 2005 to 2009, the period the key lending gauge may have been rigged, investigators have said.

Home mortgages, student loans and other credit products are among the hundreds of trillions of dollars’ worth of financial instruments that may have been infected by alleged efforts to manipulate Libor.

Since Barclays agreed in June to pay US and UK authorities $450m to settle allegations it had attempted to manipulate Libor, scrutiny has increased as targeted traders have been suspended and banks have acknowledged receiving demands for further documents.

The global investigation threatens as many as 20 banks and inter-broker dealers that may have been involved in manipulating interbank rates.

The New York prosecutor also can operate across state lines, essentially acting on behalf of investors across the US, with broader powers to pursue financial fraud than those available to federal authorities. A predecessor, Eliot Spitzer, wielded the law to extract lucrative settlements from Wall Street firms.

Representatives for Mr Schneiderman and Mr Jepsen declined to comment.