Barclays Plc agreed to pay $100 million to 44 U.S. states to resolve an investigation into interest rate manipulation by the British bank. It’s the first lender to settle state probes into false rate submissions that inflated borrowing costs linked to the London and U.S. dollar interbank offered rates.
The scheme to manipulate rates from 2005 to 2009 masked Barclays’ poor health during the global financial crisis at the expense of government entities and not-for-profits whose contracts were linked to the rates, New York Attorney General Eric Schneiderman said Monday in a statement. The false rates also benefited Barclays’s own traders at times, the attorney general said.
“There has to be one set of rules for everyone, no matter how rich or how powerful, and that includes big banks and other financial institutions that engage in fraud or impair the fair functioning of financial markets,” Schneiderman said in the statement.
The accord is the latest development in probes by governments across the globe into banks’ manipulation of benchmark interest rates that affected trillions of dollars of derivatives and loans, one of the key scandals that led to a cultural overhaul of the industry over the past decade. Global fines have topped $9 billion, while a London court in July sentenced four former Barclays traders to as much as 6 1/2 years in prison for rigging the rate.
“We believe this settlement is in the best interests of our shareholders and clients, and allows us to continue to focus on the future and serve our clients,” the bank said in an emailed statement.
Schneiderman’s office provided a copy of the agreement signed by state representatives and Matthew Fitzwater, the head of litigation, investigations and enforcement for the London-based bank’s Americas region. Under the deal, Barclays will “neither admit nor deny” the allegations.
Schneiderman said entities with Libor-linked swaps or other investment contracts with Barclays will be notified if they’re eligible to tap the settlement fund.
Barclays in 2012 was fined 290 million pounds, then the largest imposed by regulators in the U.S. and U.K., after admitting it submitted false London and euro interbank offered rates. In that case, the U.S. Commodity Futures Trading Commission said members of senior management instructed Barclays’s Libor staff to lower their submissions to make them match other banks and dispel concern about the lender’s health.
Three years after that deal was reached, Barclays agreed to pay an additional $60 million criminal penalty for violating the non-prosecution agreement it signed.
Separately, in 2014, Barclays agreed to pay $20 million and cooperate with a group of Eurodollar-futures traders suing other banks, to settle litigation over Libor manipulation. That accord resolved claims by people and firms that traded in Libor-based Eurodollar futures contracts and options on exchanges including the Chicago Mercantile Exchange.
Submission by a panel of 16 banks were supposed to reflect borrowing rates in the interbank market, and a daily Libor rate was calculated by averaging the middle eight submissions, according to Schneiderman’s statement. The multi-state probe found that from 2007 to 2009, Barclays managers told Libor submitters to lower their settings “to avoid the appearance that Barclays was in financial difficulty and needed to pay more than some of its competitors to borrow money,” according to the statement.
“This settlement is the first, but certainly not the last, with major international financial institutions that manipulated interest rate benchmarks for their own gain,” Maryland Attorney General Brian Frosh said in a statement about the settlement.