Colorado pension fund sues 9 banks over alleged Canadian rate manipulation

Colorado Fire & Police Pension Association, Greenwood Village, filed a class-action lawsuit against nine banks, including six Canadian banks, over alleged rate manipulation.

The banks engaged in "unlawful conspiracy to increase the profitability of their derivatives trading business by manipulating the Canadian dealer offered rate," an interest rate benchmark, between 2007 and 2014, according to the lawsuit, which was filed on Jan. 12 in U.S. District Court in New York.

The lawsuit, which alleges violations of the Sherman Act (a U.S. antritrust act), Commodity Exchange Act and the Racketeer Influenced and Corrupt Organizations Act, names the Bank of Montreal, Bank of America Merrill Lynch, Deutsche Bank, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, HSBC Holdings, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank as defendants.

"Defendants profited by suppressing CDOR because it reduced the amount of interest owed under CDOR-based derivatives contracts with investors," according to the lawsuit. Specifically, the $4.7 billion Colorado pension fund "paid more or received less" than it should have on more than $1.2 billion in CDOR-based derivatives transactions as a result of the banks’ alleged CDOR suppression, the lawsuit said.

Between 2007 and 2014, the six Canadian banks held more than $1 trillion in CDOR-based swap contracts with U.S. counterparties, the lawsuit said.

The lawsuit added that it’s not the first time the defendants have been accused of manipulating financial benchmarks, noting that Bank of America Merrill Lynch, Deutsche Bank and HSBC have already collectively paid about $4.4 billion in fines over claims they manipulated at least 11 financial benchmarks, including the U.S. dollar London interbank offered rate, the Japanese yen LIBOR, and the euro interbank offered rate, among others.

Royal Bank of Canada continues to face litigation risk from LIBOR-rigging investigations, according to Bloomberg Intelligence.

In the wake of allegations that global banks had rigged the LIBOR benchmark in the U.S. and Europe, Canadian regulators took steps to prevent any potential manipulation of the rate in 2014

The Canadian Office of the Superintendent of Financial Institutions said in 2014 that it would begin supervising the governance and controls surrounding the banks’ CDOR submission process and outlined expectations for their work, including providing rates in a consistent manner.

Spokesmen for the pension fund, BofA and CIBC declined to comment. Spokesmen for the other banks could not immediately be reached for comment.

Bloomberg contributed to this story.

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