On July 19, 2017, the Second Circuit vacated the convictions and dismissed the indictments of two individuals accused of playing a role in the manipulation of the London Interbank Offered Rate (LIBOR). United States v. Allen, No. 16-898-cr, Slip Op. at 3 (2d Cir. July 19, 2017). The ruling was based on the Fifth Amendment to the US Constitution, which provides that “[n]o person . . . shall be compelled in any criminal case to be a witness against himself.” US Const. amend. V. The Second Circuit’s decision clarifies that this protection against self-incrimination is an “absolute” “trial right” that applies to all criminal defendants in US courts (including non-citizens) and to all compelled testimony (including testimony given during a foreign government’s investigation). United States v. Allen, No. 16-898-cr, Slip Op. at 55. The court’s clarification of the Fifth Amendment’s scope has important implications for US antitrust enforcers prosecuting international cartels and for individuals ensnared in cross-border criminal investigations alike.
DOJ Makes Headway in Fight Against Financial Fraud
On August 18, 2014, following a Department of Justice (DOJ) investigation and criminal indictment, Paul Robson became the second former Rabobank employee to plead guilty for his participation in a scheme to manipulate the Japanese Yen London InterBank Offered Rate (LIBOR). This latest success for the agency “demonstrates the Department of Justice’s continued resolve to hold individuals and institutions accountable for their involvement in fraud in the financial markets,” said Assistant Attorney General Leslie Caldwell of the DOJ’s Criminal Division.
The charges against Robson came in the wake of Rabobank’s October 2013 admission of guilt for its involvement in the global scheme. The bank agreed to pay a $325 million penalty as part of a deferred prosecution agreement with the DOJ. Three months later, the agency charged Robson along with two Rabobank derivatives traders with submitting fraudulent LIBOR figures in order to benefit their own trading positions. LIBOR is a benchmark interest rate used by lenders worldwide as a basis for calculating interest rates on short-term and various other loans. A London-based trade association calculates LIBOR for 10 different currencies based on rates submitted by the world’s leading banks, which are supposed to reflect each bank’s estimation of the rate it would be charged for a short-term loan. Robson played his role in the scheme as the primary submitter of Yen LIBOR for Rabobank, one of 16 banks that contributed to the published Yen LIBOR.
Earlier this year, Rabson was indicted on 15 different counts, each of which carried up to a 30-year prison sentence. Rabson pled guilty to one count of conspiracy to commit wire and bank fraud. His sentencing is scheduled for June 2017.
Section 1 Claims Dismissed in LIBOR, TIBOR Class Action
On March 28, 2014, Judge Daniels of the Southern District of New York dismissed antitrust and unjust enrichment claims against over 20 banks accused of manipulating prices in the Euroyen interbank lending market by submitting false rate quotes to Yen-LIBOR and Euroyen TIBOR rate-setting organizations. Laydon v. Mizuho Bank, Ltd., No. 12-cv-3419 (S.D.N.Y. Mar. 28, 2014). The plaintiff, a short purchaser of Euroyen TIBOR futures contracts, also brought claims under the Commodities Exchange Act, which the court allowed to go forward.
The court based its dismissal of the price-fixing claim on lack of antitrust standing and failure to allege a restraint of trade. The plaintiff lacked antitrust standing for two reasons: (1) failure to plead antitrust injury and (2) the indirect, remote and speculative nature of his alleged injury—while the alleged misconduct involved manipulating present-day interbank lending rates, the alleged injury was suffered in the futures market. Although the plaintiff alleged that prices were distorted, he failed to allege that the distortion resulted from a reduction in competition. The ruling was partially based on the unique nature of the rate-setting process, which is neither supposed to be competitive nor collaborative. Instead, “each bank was supposed to independently contribute its submission to be evaluated collectively with other bank submissions.”
In holding that the plaintiff failed to allege a restraint of trade, the court noted, “Plaintiff merely alleges that prices may have been different. Plaintiff does not, however, allege that trades in Euroyen TIBOR futures contracts were in any way restrained by the alleged misconduct.” The court analyzed the alleged misconduct under the rule of reason and found that the plaintiff had failed to plead any anticompetitive effects. “There are no allegations that banks competed less, or were forced out of any of these markets. Nor is there any allegation that output of Euroyen futures contracts was eliminated or diminished. Absent any such allegations, Plaintiffs’ claim does not sufficiently plead a violation of the Sherman Act.”