Skip to Content

City of Houston website banner

Office of Mayor Annise D. Parker

 

 

City of Houston Seal

City of Houston

Media Release

Office of Mayor Annise Parker

FOR IMMEDIATE RELEASE
July 23, 2013

 Contact: Janice Evans-Davis
janice.evans@houstontx.gov
832-393-0800 (o)
713-376-0525 (c)

Jessica Michan
jessica.michan@houstontx.gov
832-393-0804 (o)
713-834-7127 (c)

City of Houston Files Lawsuit Against
16 Major Banks for LIBOR Interest Rate Manipulation

The City of Houston filed suit today for financial damages suffered from the manipulation of the interest rates on its investments against the banks that set the benchmark interest rate known as the London Interbank Offered Rate, or LIBOR. The lawsuit was filed in federal court in the Southern District of Texas by Richard Mithoff, of Mithoff Law Firm, the California law firm Cotchett, Pitre & McCarthy, LLP, and the Houston law firm The Chevalier Law Firm, PLLC, against more than 16 current and former financial institutions that set LIBOR, including Barclays, UBS, Bank of America, Royal Bank of Scotland, JP Morgan, and Citigroup.

 

"I have instructed the city legal department to aggressively pursue any monies owed the city," said Mayor Annise Parker. "Any manipulation of rates paid by the taxpayers must be corrected."

 

“The complaint filed in federal court specifically notes three examples of transactions in which the LIBOR manipulation was detrimental to the City of Houston,” said Mithoff. “Damages to the city resulting from this global interest rate manipulation could be substantial.”

 

Mayor Annise Parker and City council approved hiring Mithoff earlier this year. Mithoff currently represents the Texas Heart Institute in its contractual dispute with St. Luke’s Hospital System, and serves as well as lead co-counsel for shareholders in their class action suit against BP.

 

"Nobody questions the existence of the conspiracy, nobody questions that the rigging took place," City Attorney David M. Feldman said. "The question is the amount of damages." By bringing the case under federal antitrust laws, Feldman said, the city can seek three times the actual damages, plus attorney's fees.

 

ABOUT LIBOR

 LIBOR is the world’s benchmark interest rate used for setting short-term interest rates on a wide range of financial instruments– from simple consumer car loans to complex municipal derivative investments by public entities.  LIBOR-based investments are in the trillions of dollars annually.

LIBOR is set every day by the British Bankers’ Association (BBA), based on an average of the interest rates that each LIBOR member bank reports it could borrow money from other LIBOR member banks.  Until the manipulation scandal broke, LIBOR was accepted by the global financial system as the true cost of borrowing between financial institutions because it was believed to represent the true interest rate at which banks are able to borrow money.

LIBOR member banks reported an interbank borrowing rate that each bank “self-certified” to be the interest rate that it might pay to borrow funds from a fellow member bank; it was not an actual borrowing rate. Until recently, a LIBOR member bank’s reported interbank borrowing rate was believed to reflect its credit worthiness because a bank that could borrow money at a lower interest rate was believed to be more credit worthy.  This “self-certified” or self-regulated market proved too tempting to the LIBOR member banks and was ripe for manipulation.

 

In March 2011, government regulators in the United States, United Kingdom, Switzerland and Japan announced they had launched investigations of LIBOR rate manipulation affecting global financial markets.  LIBOR member banks were under scrutiny for manipulating LIBOR upward to increase their own profits, and for manipulating LIBOR downward to report suppressed borrowing rates to create the illusion of financial strength. 

 

More than $2.5 billion in penalties have been paid by only three LIBOR member banks: In June 2012, Barclays agreed to pay $450 Million after admitting it manipulated LIBOR with other member banks; in December 2012, UBS agreed to pay more than $1.5 billion; and in February 2013, Royal Bank of Scotland agreed to pay $610 Million.  In June 2013, a former UBS and Citigroup trader was criminally charged by British prosecutors for LIBOR manipulation involving eight LIBOR member banks and interdealer brokers, following December 2012 criminal charges by U.S. prosecutors.  Charges against numerous others are pending.

 

As a result of the LIBOR manipulation, many Texas public entities and other investors have received reduced interest payments on interest rate swaps, corporate bonds, and other investments that were tied to LIBOR as a benchmark interest rate. 

Mayor Parker's Facebook Page City of Houston Twitter Feed City of Houston YouTube Channel

####