More On Legal & Compliancefrom The Advisor's Professional Library
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
Annie Bell Adams, who lost her home to foreclosure, and four co-plaintiffs have filed the first class-action suit by homeowners in New York against 12 banks, alleging that LIBOR manipulation made them pay more for their subprime mortgages between 2000 and 2009.
The Financial Times reported Monday that Alabama-based attorney John Sharbrough says that plaintiffs in the suit could number as many as 100,000. The class action alleges that traders at the 12 banks were incentivized to manipulate LIBOR to a higher rate on certain dates, resulting in homeowners having to pay more.
While class action suits have been brought over LIBOR manipulation already, they have been filed by municipalities and investors. Now homeowners are getting into the act. Plaintiffs in this case held LIBOR Plus adjustable-rate mortgages (ARMs). Adams, who was on a pension, and whose subprime mortgage was securitized into LIBOR-based collateralized debt obligations (CDOs) and sold by banks to investors, saw her home go into foreclosure.
According to the Office of the Comptroller of the Currency, at least 900,000 home mortgage loans tied to the LIBOR rate were originated between 2005 and 2009. Their unpaid balances total some $275 billion.
The suit claims that when LIBOR went up, banks were able “to raise the interest rates paid by the plaintiffs on their adjustable-rate notes.” It also says that most ARMs reset repayment rates on the first day of the month, and that statistical analysis indicates a first-of-the-month increase in LIBOR consistently for each month between 2000 and 2009. Not only that, the suit also alleges that between 2007 and 2009 LIBOR moved by as much as 7.5 basis points on certain reset days.
“This can’t just be dismissed as a kooky lawsuit,” said Dominic Auld in the report. Auld, a litigator at Labaton Sucharow and not involved in the case, added, “Referencing CDOs and subprime mortgages ... really ties together LIBOR manipulation with the kinds of behavior that caused the financial crisis in first place.”