AAI Asks Appeals Court to Reject Wayward LIBOR Ruling (Gelboim v. Bank of America)

The American Antitrust Institute (AAI) filed an amicus brief in the Second Circuit Court of Appeals urging the court to reverse a lower court’s dismissal of several consolidated damage actions challenging banks’ collusive manipulation of the London Interbank Offered Rate (LIBOR) as price fixing.  The Justice Department has brought criminal antitrust charges against two of the defendant banks arising out of the manipulation of the widely used interest-rate benchmark.

The district court dismissed the private actions—brought by holders of financial instruments pegged to LIBOR—because the court concluded plaintiffs had failed to allege “antitrust injury.”  The court believed that because the defendant banks did not compete over submitting reports of their borrowing ability in the interbank lending market, their collusion to submit false reports did not harm competition.

In its amicus brief, the AAI argues that the court misapplied the antitrust injury doctrine and misunderstood the alleged harm to competition by confusing the mechanism of price fixing with its anticompetitive effects.  Regardless of whether the mechanism of price fixing is itself “competitive”—or “merely” fraudulent—the AAI brief points out that the prices that were fixed—in antitrust terms—were those of LIBOR-based financial instruments issued or sold by the colluding banks.  And plaintiffs clearly had alleged harm to competition in the markets for these instruments, where defendants manifestly do compete.

The AAI brief also argues that the district court erred when it found no harm to competition in the markets for LIBOR-based financial instruments because the banks continued to compete over the other terms of the instruments.  The brief explains that this reasoning conflicts with bedrock antitrust precedents, which hold that price fixing harms competition, and is per se illegal, even when it fixes only one element of price.

The AAI brief also argues that the district court erred in suggesting that antitrust injury may be lacking because plaintiffs would have suffered the same harm if defendants had submitted false reports without colluding.  This is wrong, AAI says, because antitrust injury must be analyzed by assuming the violation alleged in the complaint.

The amicus brief cautions that the district court’s erroneous understanding of antitrust injury and competitive harm, if upheld, would undermine the enforcement of the Sherman Act against criminal price-fixing conspiracies effectuated through fraud and other arguably “non-competitive” means.

The brief was written by AAI Vice President and General Counsel Rick Brunell and AAI Associate General Counsel Randy Stutz, with help from AAI Research Counsel Geoff Kozen.