(Bloomberg) -- Citigroup Inc. agreed to pay a combined $100 million to 42 U.S. states to resolve a probe into fraudulent conduct tied to interest-rate manipulation that affected financial instruments worth trillions of dollars.
The settlement was announced Friday by several of the states, who alleged Citigroup misrepresented the integrity of the Libor benchmark to state and local governments, not-for-profit organizations and institutional trading counterparties, sometimes to protect the bank’s own reputation.
“Our office has zero tolerance for fraudulent or manipulative conduct that undermines our financial markets,” New York Attorney General Barbara Underwood said in a statement. “Financial institutions have a basic responsibility to play by the rules -- and we will continue to hold those accountable who don’t.”
The accord is the latest development in probes by governments around the globe into manipulation of benchmark interest rates, one of the key scandals that led to a cultural overhaul of the industry over the past decade. Global fines have topped $9 billion. In October, Deutsche Bank paid 45 states $220 million in penalties and disgorgements to resolve U.S. and U.K. probes.
“Citi has adopted industrywide reforms related to participation in interbank offered rates and other benchmark rates and made substantial investments in its systems, controls and monitoring processes to better guard against inappropriate behavior,” the bank said in an emailed statement.
The attorneys general said the bank has also agreed to cooperate fully in the ongoing investigation. At issue is whether the banks reported their borrowing costs accurately to help set the global standard, or tweaked them to avoid publicizing higher borrowing rates that may have signaled trouble at the bank.
Citigroup sometimes made U.S. dollar Libor submissions that were inconsistent with their rates and contributed to inaccurate Libors, occasionally to avoid the stigma of high borrowing costs, the attorneys general said. The bank’s Libor submitters also sometimes asked their colleagues in other units to avoid offering higher rates than the bank’s submissions.
The settlement agreement quoted extensive electronic and phone communications obtained in the case, including a communication on March 28, 2008, between a New York-based manager and former Libor submitter to one of his backups.
‘Avoid Being Highest’
“Also I note that our 1-6mths LIBORS were the highest out of all contributors,” the submitter said. “Given the potential negative publicity that this could have I would go lower (and certainly try to avoid being the highest).”
Other messages showed submitters expressing concern that a high Libor would signal the bank was “in trouble” while one that’s too low would attract unwanted attention, according to the settlement agreement. The bank moved its submissions up after a Wall Street Journal report in April 2008 questioned whether Libor submissions truly reflected the banks’ borrowing rates, according to the settlement.
“[T]here is a little bit of internal political pressures for us to be seen, but not heard anywhere at all in the market,” one message said.
Another message by a Citi financial strategist said the British Bankers’ Association, which used to oversee Libor, was “simply sticking its head in the sand and not acknowledging what everyone in the market recognizes -- LIBOR is nowhere near where banks may (or may not) extend unsecured credit.”
In August 2017, Citigroup agreed to pay $130 million to settle a civil suit by over-the-counter purchasers who alleged banks conspired to manipulate U.S. dollar Libor. That suit began in 2011 when the city of Baltimore sued Libor-setting banks. Citi also agreed to cooperate against non-settling banks in that case.
In 2015, former UBS and Citigroup trader Tom Hayes became the first trader to be convicted of rigging Libor. He was given 14 years in jail, later cut to 11 years.
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