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Barclays must face U.S. lawsuit over Libor, court rules

A logo hangs outside a branch of Barclays bank in London July 30, 2013. REUTERS/Toby Melville
A logo hangs outside a branch of Barclays bank in London July 30, 2013. REUTERS/Toby Melville

By Jonathan Stempel

NEW YORK (Reuters) - A federal appeals court, reversing a lower court decision, said Barclays Plc shareholders may pursue a lawsuit accusing the British bank of causing them to lose money because it manipulated the interest rate known as Libor.

The 2nd U.S. Circuit Court of Appeals in New York said on Friday that investors presented a "plausible claim" that a 12 percent drop on June 28, 2012 in the price of their American depositary shares stemmed from misrepresentations by Barclays and several officials, including one-time Chief Executive Robert Diamond.

That decline came a day after Barclays agreed to pay roughly $453 million of fines in settlements with U.S. and British regulators, and admitted to having often made artificially depressed Libor submissions from August 2007 to January 2009.

Libor underpins hundreds of trillions of dollars of transactions, and is used to set interest rates on credit cards, student loans and mortgages. U.S. and European regulators have been probing whether banks artificially depressed Libor during the 2008 financial crisis to appear healthier.

"We're obviously pleased with the decision and look forward to prosecuting the case," said David Rosenfeld, a partner at Robbins Geller Rudman & Dowd representing investors led by the Carpenters Pension Trust Fund of St. Louis in Missouri and the St. Clair Shores Police & Fire Retirement System in Michigan.

Barclays spokesman Brandon Ashcraft declined to comment. Andrew Levander, a partner at the law firm Dechert who represents Diamond, could not immediately be reached.

Investors claimed that Barclays' share price was propped up artificially from July 2007 to June 2012 because the bank had understated its borrowing costs through false Libor submissions from August 2007 to January 2009.

They also said Diamond, then Barclays' president, deceived them on an October 31, 2008 conference call when he denied that Barclays' borrowing costs were higher than those of rivals, saying: "We're categorically not paying higher rates in any currency."

UNDERSTATED COSTS

U.S. District Judge Shira Scheindlin in Manhattan dismissed the lawsuit last May, saying any inflation in Barclays' share price resulting from Libor manipulation had dissipated by the time the settlement was disclosed.

Writing for the 2nd Circuit, however, Judge Richard Berman, who normally sits on the same court as Scheindlin, said the dismissal was premature.

"Defendants argue that Barclays' Libor misrepresentations were 'stale,'" and that the share price drop resulted from the fines rather than any inadequate disclosures, Berman said. "But defendants' arguments here involve questions of fact and should not be resolved upon a motion to dismiss."

The 2nd Circuit also said Scheindlin correctly ruled that Barclays' statements in U.S. Securities and Exchange Commission filings about its internal controls were not materially false. It returned the case to her court for further proceedings.

Royal Bank of Scotland Group Plc , Switzerland's UBS AG , Britain's ICAP Plc and Dutch bank Rabobank have also reached regulatory accords over Libor manipulation. The Federal Deposit Insurance Corp, bondholders and others have accused 16 banks in U.S. lawsuits of Libor manipulation.

The case is Carpenters Pension Trust Fund of St. Louis et al v. Barclays Plc et al, 2nd U.S. Circuit Court of Appeals, No. 13-2678.

(Reporting by Jonathan Stempel in New York; Editing by Steve Orlofsky)

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