(CN) - Two weeks after Barclays was fined $450 million for manipulating the LIBOR rate, a class action filed last week accuses seven banks of similarly manipulating the EURIBOR rate, the interest rate for the Eurozone, to bolster the value of their derivatives products.
Karen Kalaway filed a class action in New York's Southern District against seven banks that serve as panel banks for allegedly manipulating the European Interbank Offered Rate (EURIBOR), including Barclays, Citibank, Deutsche Bank, JP Morgan Chase, and HSBC Bank.
Kalaway was the principal of Riff-Raff Trading, an Illinois-based trading company, which purchased and sold futures contracts, including European Interbank Offered Rate futures contracts, according to the complaint.
The EURIBOR is a daily reference rate based on the average rate that Eurozone banks lend money to other Eurozone banks, comparable to the London Interbank Offered Rate (LIBOR). It is the main reference interest rate for the Euro currency, and one of the most important financial baselines in the world, according to the complaint.
Kalaway claims that "the defendants named herein conspired to artificially manipulate the reported EURIBOR, which is the baseline interest rate used in the valuation of more than $200 trillion in derivative financial products."
There are 40 EURIBOR panel banks that submit their EURIBOR rates to Thomson Reuters, which calculates the average rate and publishes the rate just before noon Central European Time, according to the complaint.
"Although, as the defendants were fully aware, EURIBOR is one of the most important interest rate calculations in the world, with trillions of dollars of loans and other financial products directly tied to it, the rate is set by subjective responses submitted by a handful of multinational banks, including the defendants, that had a strong incentive to manipulate EURIBOR," the complaint states. "The defendants yielded to these incentives and conspired to manipulate EURIBOR for their own selfish reasons, knowing full well that this manipulation would have disastrous ramifications for the multitude of persons in the United States, including the class members of this case, who suffered damages when the value of their EURIBOR-related financial instruments suffered because of inaccurate EURIBOR presentations that were engineered by the defendants."
She alleges that "at least as early at 2005, the defendants intentionally created and caused to be created artificial EURIBOR. Defendants did this in order to benefit the value of EURIBOR derivatives that the defendants were holding. ... Defendants also communicated, coordinated and agreed with other banks to artificially manipulate EURIBOR in order to make sure the desired EURIBOR was achieved."
In a settlement last month with the U.S. Justice Department, the Commodity Futures Trading Commission and the British Financial Services Authority, Barclays agreed to pay $450 million for manipulating the LIBOR.
In that investigation, Barclays produced documents "publicly admitt[ing] that its traders' practice of requesting that Barclays EURIBOR submitters raise or lower the EURIBOR submission based on its derivatives holdings was an 'open, common and pervasive practice,' within Barclays. In fact, Barclays admitted that traders would, among other things, shout across the trading desks to fellow traders to confirm there were no conflicting requests before they sent their requests to the Barclays EURIBOR submitters," according to the complaint.
Kalaway is represented by Jason A. Zweig, Steve W. Berman, and Karl P. Barth of Hagens Berman Sobol Shapiro LLP.