Alabamians Lead Charge in Libor Suit
Don’t cry for me, Alabama: Royal Bank of Scotland CEO Stephen Hester said in August he expects his bank to be fined for its role in the Libor rigging scandal. But he probably didn’t count on the recently filed class action suit led by homeowners in Alabama.
John Stillwell/PA Wire URN:14158406 (Press Association via AP Images)
Alabamians Dennis Fobes and his wife, who bought a waterfront home on Dog River, just south of Mobile, are headliners in a homeowner action against worldwide banks, claiming they paid excess interest because of illegally manipulated Libor rates.
Since buying the property in 2005, the Fobes family has lived “in a perfect storm of economic calamity,” says their lawyer, John Sharbrough of Mobile.
“They’re really hard-working, honest people who have played by the rules and had nothing but bad luck from hurricanes to oil spills to a fall in property prices and then their mortgage.”
The Financial Times tells how Fobes chose to update his property in 2006, financing the changes with a new mortgage pegged to the Libor. “That same year, thousands of miles away in London, traders were emailing each other in messages that have now become infamous, offering a bottle of Bollinger champagne as apparent thanks for changing the London interbank offered rate,” Financial Times writer Caroline Binham wrote.
Fobes and four others sued on behalf of a class that could reach 100,000 people, Sharbrough says. It’s not the first suit over Libor manipulation, but it’s the first filed by homeowners. Some of the other myriad of suits filed regarding Libor-rate manipulation have claimed that it was held artificially low, Sharbrough says, which should have benefited homeowners.
But early Department of Justice documents suggested the opposite, and when Sharbrough began a statistical analysis of the rate from 2000 through 2011, he found “a pattern that Libor consistently upticked on or about the first day of each month” — the day that adjustable rate mortgages are recalculated. It didn’t happen every month, says Sharbrough, “but enough that there’s evidence of potential manipulation.”
Filed in the Southern District of New York, because the judicial panel on multi-district litigation assigned Libor-related cases there, the suit asks for a change in the system so that adjustable rates are linked to a true index set by the market, says Sharbrough, and “We want damages for the excess interest rate that was charged during the class period.”
This lawsuit “isn’t a panacea for all their problems, but just one area where we could help them,” says Sharbrough.