(SCHW) Schwab Sues Banks in LIBOR Rigging

Bloomberg reported that Charles Schwab Corporation (SCHW) has a filed a lawsuit against global banks including Bank of America Corporation (BAC) over charges of rigging the benchmark interest rate – London Interbank Offered Rate or LIBOR. The company sued the banks for fraud in the state court in San Francisco.

Schwab alleged that the banks obscured their conduct related to LIBOR calculation even when questions were raised about the rate-rigging in 2007. The company purchased billions of dollars worth LIBOR-based securities, which were offering less returns as the banks had decided to artificially lower the rates.

The lawsuit filed by Schwab includes claims of fraud, violation of California unfair business practices and federal securities laws as well as unjust enrichment. At the same time, the company wants to cancel purchases of LIBOR-based securities.

This is not the first time that Schwab has filed a case related to LIBOR manipulations. In Aug 2011, the company accused nearly 11 banks of manipulating LIBOR.

Schwab alleged that this rate-rigging deprived it and 8 of its money market and ultra short-term bond mutual funds of returns worth billions of dollars on LIBOR-based investments. However, this case and several similar lawsuits filed by other institutional investors were dismissed by the U.S. District Judge Naomi Reice Buchwald in Mar 2013.

However, in Feb 2013, Royal Bank of Scotland announced that it would pay a penalty of £390 million to resolve charges for its involvement in the manipulation of LIBOR. In 2012, UBS AG (UBS) finally conceded to pay a penalty of CHF 1.4 billion, while Barclays PLC (BCS) admitted having paid a penalty of $450 million for rigging the LIBOR.

Currently, Schwab carries a Zacks Rank #3 (Hold).
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