AG announces RI eligible for portion of $220 million multi-state settlement

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Attorney General Peter F. Kilmartin recently announced a $220 million multi-state settlement with Deutsche Bank for fraudulent conduct involving the manipulation of London Interbank Offered Rate (LIBOR). This is a benchmark interest rate that affects financial instruments worth trillions of dollars and has a widespread impact on global markets and consumers.

The investigation, conducted by a working group of 43 state attorneys general, revealed that Deutsche Bank manipulated LIBOR in a number of ways. Deutsche Bank employees improperly (a) made internal requests for LIBOR submissions to benefit Deutsche Bank’s trading positions; (b) attempted to influence other banks’ LIBOR submissions in a manner intended to benefit Deutsche Bank’s trading positions; and (c) received communications from inter-dealer brokers and external traders attempting to influence Deutsche Bank’s LIBOR submissions. At times, Deutsche Bank LIBOR submitters and supervisors expressly acknowledged and indicated they would work to implement the requests they received.

Given this conduct, Deutsche Bank LIBOR submitters and management had strong reason to believe that Deutsche Bank’s and other banks’ LIBOR submissions did not reflect their true borrowing rates (as they were required to do pursuant to published guidelines) and that the LIBOR rates submitted by the banks did not reflect the actual borrowing costs of Deutsche Bank and other panel banks.

Deutsche Bank employees did not disclose these facts to the governmental and not-for-profit counterparties with whom Deutsche Bank executed LIBOR-referenced transactions even though these rates were material terms of the transactions.

Government entities and not-for-profit organizations in Rhode Island and throughout the United States, among others, were defrauded of millions of dollars when they entered into swaps and other investment instruments with Deutsche Bank without knowing that Deutsche Bank and other banks on the U.S. Dollar (USD)-LIBOR-setting panel were manipulating LIBOR.

Governmental and not-for-profit entities with LIBOR-linked swaps and other investment contracts with Deutsche Bank will be notified if they are eligible to receive a distribution from a settlement fund of $213.35 million. The balance of the settlement fund will be used to pay costs and expenses of the investigation and for other uses consistent with state laws.

“The manipulation of interest rates and the market to enhance profits by Deutsche Bank and other financial institutions is another example of Wall Street playing by a different set of rules at the expense of investors and economic stability,” said Attorney General Kilmartin. “This type of unlawful action can lead to the erosion of faith in our financial system and, if left unchecked, collapse of the market and our economy.”

Deutsche Bank is the second of several USD-LIBOR-setting panel banks under investigation by the state attorneys general to resolve the claims against it, and has cooperated with the investigation. Attorney General Kilmartin, as a member of a multi-state group, recently settled similar claims with Barclay’s Bank.

Rhode Island residents benefit from the information and evidence provided by corporations that timely cooperate with the Attorney General’s investigations. Such cooperation can facilitate civil enforcement efforts, including the distributions of funds for victims of the offense.

The states joining Rhode Island in the Deutsche Bank settlement include: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Utah, Virginia, Washington, West Virginia, Wisconsin and Wyoming

The investigation into the conduct of several other USD LIBOR-setting panel banks is ongoing.

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