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A putative class action brought by investors against multinational bank Barclays was revived by the Second Circuit last week, when the court vacated in part the district court's dismissal of the suit, reports Reuters.
While the Second Circuit agreed with Judge Shira Scheindlin (of New York City stop and frisk fame) that Barclay's SEC filings were not materially false, the court found her dismissal of the other claims, prior to discovery, premature.
LIBOR, which stands for London Interbank Offered Rate, is a "benchmark interest rate" based on ten currencies, and is calculated daily* using figures submitted by contributor banks. The rate a bank submits for LIBOR calculation is indicative of the bank's health, for example, a high rate may indicate a bank is having financial troubles.
Alleged Fraudulent Statements
On June 27, 2012, a Barclays settlement was published, in an unrelated matter, which made a corrective disclosure that from 2007 to 2009, the bank submitted lower than actual rates. The following day, Barclays stock price dropped 12%, prompting investors to take legal action, suing Barclays for violation of Section 10 of the Securities and Exchange Act of 1934 ("Act"), SEC Rule 10b-5, and control person liability claims pursuant to Section 20(a) of the Act.
There are three types of allegedly fraudulent statements that plaintiffs point to: (1) misleading LIBOR rates; (2) statements made in a conference call; and (3) SEC filings. Investors in this case allege that from August 2007 through January 2009 Barclays inaccurately submitted lower rates giving the market an inflated view of its actual financial condition. In June 2008, Barclays then President stated in a conference call, "We're categorically not paying higher rates in any currency." Finally, SEC filings made from 2006 through 2011 contain a statement that "[m]inimum control requirements have been established for all key areas of identified risk."
District Court's Dismissal
Last year, Judge Scheindlin dismissed the investors' case for failure to state a claim. She found that "Plaintiffs do not adequately plead loss causation" because of a disconnect between the corrective disclosure in the Settlements in 2012 and the false LIBOR submissions that ended in 2009. The district court also concluded that the SEC filings did not contain materially false statements.
Second Circuit Analysis
The Second Circuit disagreed with Judge Scheindlin's dismissal for failure to state a claim on the theory that the market would have corrected itself in the three years between the false submissions and the settlement publication. Instead, the court found that plaintiffs plausibly alleged that "Barclays's and Diamond's misrepresentations were not corrected until June 27, 2012." As to the SEC filings, because they were general statements, and not related specifically to LIBOR rates, the court concluded that the district court properly dismissed claims based on those filings.
The Second Circuit remanded the case; we'll keep you posted as it progresses.
*The LIBOR rate is calculated by Thomson Reuters Corporation, which owns FindLaw.