Court reinstates Libor antitrust lawsuits against banks

Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM) and 13 other international banks suffered a legal setback Monday when a federal appeals court reinstated private antitrust lawsuits that accused them of manipulating a global financial benchmark.

The U.S. Court of Appeals for the Second Circuit ruling overturned a lower court decision dismissed claims in which cities like Baltimore and San Diego, as well as pension funds and individuals, charged they had suffered disadvantageous transaction prices through banks' rigging of the benchmark known as Libor.

Libor scandal explained and what rate-rigging means to you

Libor, an acronym for London Interbank Offered Rate, is used to set rates on trillions of dollars in mortgages, credit cards, loans and some financial derivatives. The rates are set each day based on what London-based representatives of major banks say they would expect to pay for short-term loans from each other in various monetary currencies.

Manhattan U.S. District Judge Naomi Reice Buchwald's 2013 decision dismissed the antitrust complaints on grounds that they failed to allege harm to competition.

Banks win dismissal of rate-rigging claims

But the three-judge federal appeals panel ruled that so-called horizontal price-fixing by banks that competed even as they cooperated to set Libor rates "constitutes a per se antitrust violation." The judges ruled that  consumer who pays higher prices from such price-fixing "suffers antitrust injury."

The appeals court also rejected the banks' arguments that there were insufficient legal allegations of a conspiracy. The judges sent the case back to the district court for further proceedings consistent with their decision.

"Although novel features of this case raise a number of fact issues, we think it is clear that, once appellants' allegations are taken as true (as must be done at this stage), they have plausibly alleged both antitrust violation and antitrust injury and thus, have cleared the motion-to-dismiss bar," the appeals court ruled.

The cities, pension funds and other plaintiffs will still have to prove that Libor rigging exerted some influence on prices of the plaintiffs' transactions, as well as the extent of that influence and the identities of those who are authorized to sue for damages.

Apart from the private antitrust cases, major banks and financial firms collectively have paid billions of dollars to settle investigations of Libor manipulation by prosecutors in the U.S., Europe and around the world.

Former bank trader convicted in Libor scandal

Former Citigroup and UBS trader Tom Hayes was sentenced to an 11-year prison term in Aug. 2015 for his London court conviction on charges he persuaded traders and employees at other banks to help boost his profits by nudging Libor rates up or down. He was ordered to pay $1.24 million in March for his role in the scandal.

Six other traders won subsequent London acquittals.

Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc