Deutsche Bank will pay $220 million in a 45-state settlement for fraudulent conduct involving the manipulation of U.S. Dollar and the London Interbank Offered Rate or LIBOR and other benchmark interest rates. Benchmark interest rates affect financial instruments worth trillions of dollars and have a widespread impact on global markets and consumers because LIBOR may determine how much they’ll be paid on their investments.
“We will not tolerate fraudulent, manipulative or collusive conduct that interferes with or undermines confidence in our financial markets,” said New York Attorney General Eric Schneiderman. “Large financial institutions, like all other market participants, have to abide by the rules.”
From 2005-2010, a panel of 16 banks made USD LIBOR submissions that were supposed to reflect borrowing rates in the interbank market. A daily LIBOR rate was calculated by averaging the middle eight submissions.
The investigation found that from as early as 2005 and continuing through the financial crisis, Deutsche Bank acted unlawfully. It found that Deutsche Bank defrauded banks on the panel by failing to disclose that the bank:
- Made false or misleading LIBOR submissions.
- Attempted to influence other banks’ LIBOR submissions to benefit Deutsche Bank’s trading positions.
- Was aware that other banks were manipulating their LIBOR submissions and that LIBOR was a false rate.
As a result of this misconduct, Deutsche Bank employees and management knew that Deutsche Bank’s and other panel banks’ LIBOR submissions didn’t reflect their true borrowing rates and that published LIBOR rates didn’t reflect the actual borrowing costs of Deutsche Bank and other panel banks.
Deutsche Bank employees didn’t disclose these facts to the affected governmental and not-for profit counterparties, even though these rates were part of transactions. Government entities and not-for-profit organizations throughout the United States were defrauded of millions of dollars when they entered into swaps and other financial contracts with Deutsche Bank without knowing that Deutsche Bank and other banks on the USD-LIBOR-setting panel were manipulating LIBOR.
According to the terms of the settlement, companies and agencies with LIBOR-linked swaps and other investment contracts with Deutsche Bank will be notified if they’re eligible to receive a distribution from a settlement fund of $213.35 million. The balance of the settlement payment will be used for the expenses of the investigation and for other state uses.
Deutsche Bank is the second of several USD-LIBOR-setting panel banks under investigation by the state attorneys general to resolve the claims against it.
States taking part in Deutsche Bank settlement are Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, District of Columbia, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
The investigation into the conduct of several other USD LIBOR-setting panel banks is continuing.