9 Mega Banks Accused of Rigging to Generate 'Illegitimate Profits'

The Fire & Police Pension Association of Colorado, FPPA, has filed a lawsuit against nine megabanks, six of which are Canadian, for allegedly rigging the benchmark lending rate in Canada, the Canadian Dollar Offered Rate, or CDOR.

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The defendants allegedly did so by finding means to lower interest rates on derivative trading to increase their "illegitimate profits" between 2007 and 2014.

The banks — Toronto-Dominion Bank, Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, HSBC Holdings Plc, Bank of America Corp. and Deutsche Bank AG — have been named in the class action lawsuit filed for allegedly violating the U.S. Sherman Act, manipulating the Commodity Exchange Act and breaking other anti-racketeering laws.

The FPPA, a multiple employer public employee retirement system that manages about US$4.66 billion, claimed these megabanks "reduced the amount of interest owed" in CDOR-based derivative trading of the Canadian dollar futures contracts, including swaps. The FPPA also claims the nine banks duped investors by either charging them a higher interest rate or paying them less interest over their investments. 

The CDOR, Canada's benchmark lending rate, is used to lend money to mostly corporate clients using bankers’ acceptances and is calculated daily by Thomson Reuters based on rate submissions from banks. In January 2013, Canadian regulators updated the CDOR-setting process as the Investment Industry Regulatory Organization of Canada identified loopholes in the system which had a “potential” for manipulation.

The Colorado-based fund conducted business worth US$1.2 billion with seven defendants during the time of the alleged conspiracy. 

"Defendants conspired to suppress CDOR by making artificially lower submissions that did not reflect the true rate at which they were lending Canadian dollars in North America," according to the Jan. 12 filing in the U.S. District Court for the Southern District of New York. 

"Economic analyses show that defendants consistently made CDOR submissions well-below prevailing Canadian dollar money market rates, inexplicably offering to lend for less than what it cost them to borrow funds." 

Eight of the nine banks implicated in the conspiracy declined to comment, according to Global News Canada.