(July 29, 2013) — Pension funds should think twice before embarking on London interbank offer rate (Libor) damages class actions, as many of the cases will cost far more money to put together than you’ll receive in damages.
That’s the message from Dominic Auld, a partner at law firm Labaton Sucharow, speaking in the aftermath of Houston, Texas and Sacramento County joining the host of cities taking banks to court in an effort to obtain Libor settlements.
“One of the biggest challenges in bringing a Libor case is determining damages. Large, complex investors who are exposed to a wide variety of trades and securities pegged in some way to the benchmark are faced with a gargantuan task,” he told aiCIO.
“They would need to parse out the potential negative and positive effects the artificially supressed (or inflated) rates may have had on every single position they are in, on a daily basis, for a period of several years against 17 potential counterparties. In many cases, the effort simply isn’t worth it.”
While some might think this is a case of sour grapes from a lawyer who is not himself leading any such cases, Auld insists the challenges of putting together a good case are simply too big for it to be efficient for investors.
“The best cases seem to be direct actions involving smaller and more simplistic institutional investors who invested in a single class of assets that consistently fell on the same side of Libor, and purchased them from a bank shown to have engaged in culpable conduct,” he continued.
Auld pointed to the relatively small law firms who are currently making headlines by representing the likes of Sacramento County.
“In what appears to be a cyclical lull in the filing of large meritorious securities fraud cases, the smaller US firms in this space are under considerable pressure to stay busy,” he began.
“It appears that, at least for some, filing Libor-related actions may be filling the void. The facts are certainly on their side, the question is whether they have the clients able to show the direct damages from specific lines of investment with guilty banks.”
On July 24, aiCIO reported that the City of Houston had sued 17 major banks in the Texas federal court, alleging their manipulation of Libor had artificially suppressed its returns on $1.1 billion in interest rate swap agreements.
The Texas city is seeking unspecified damages for both receiving artificially low interest and paying artificially high rates on investments dating back six years.
Sacramento County, which filed its suit on the same day as Houston, accused Bank of America, Barclays, JPMorgan Chase, and others of profiting at the county’s expense by influencing interest rates.
Sacramento became the 15th government agency in California alone to file over Libor claims this year.
Baltimore, Los Angeles, and San Diego County have also filed suits in recent months.
And there are several class action lawsuits based in the Southern District of New York on appeal, after a judge ruled that the federal anti-trust law did not apply to these cases and dismissed the original filing.