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U.S. judge rules banks must face lawsuit over alleged rate rigging

A man uses an ATM machine of Mizuho Bank as pedestrians walk past at a train station in Tokyo November 13, 2013. REUTERS/Yuya Shino
A man uses an ATM machine of Mizuho Bank as pedestrians walk past at a train station in Tokyo November 13, 2013. REUTERS/Yuya Shino

By Dena Aubin

NEW YORK (Reuters) - A federal judge in Manhattan has ruled that a group of international banks must face complaints that they violated the U.S. Commodity Exchange Act by manipulating yen-denominated interest rate benchmarks between 2006 and 2010.

In a ruling on Friday, U.S. District Judge George Daniels also granted the banks' motion to dismiss related claims against them for antitrust violations and unjust enrichment.

The banks, which included Mizuho Bank Ltd, JP Morgan Chase & Co, Barclays Bank AG, UBS AG and Citigroup Inc, were sued in 2012 for allegedly manipulating rates that reflect interest on short-term loans denominated in Japanese yen.

The interest rate benchmarks, used for pricing a wide array of financial products, are set each day based on rates submitted by banks as the prevailing market rates or the rates at which they could borrow funds.

Lawyers for the banks could not immediately be reached for comment.

The class action was filed on behalf of Jeffrey Laydon, a Sanford, Florida man who said he suffered losses on futures contracts that were manipulated by the banks.

According to the lawsuit, the banks deliberately and systematically submitted false rates to the Japanese Bankers Association and British Bankers Association, which set the benchmark rates.

The rates involved were the Euroyen Tokyo Interbank Offered Rate (TIBOR), the London Interbank Offered Rate for Japanese Yen (Yen-LIBOR), and Euroyen TIBOR futures contracts.

More than a dozen banks and brokerage firms have been investigated worldwide over alleged manipulation of Libor and related benchmarks.

A Japanese investment banking unit of UBS in September was ordered to pay a $100 million criminal fine after pleading guilty to wire fraud for scheming to manipulate yen LIBOR to benefit a senior trader's positions.

Barclays and Royal Bank of Scotland Group Plc have also reached settlements with authorities.

In his ruling, Daniels rejected the banks' argument that Laydon did not have standing to sue under the Commodity Exchange Act. That act gives plaintiffs standing to sue for manipulation of a futures contract or the price of the commodity underlying the contract, Daniels said.

The Commodity Futures Trading Commission has repeatedly found that the Yen-LIBOR and Euroyen TIBOR are each a "commodity" within the meaning of the Commodity Exchange Act, Daniels said.

However, Daniels agreed with the banks' argument that Laydon did not have standing to sue for antitrust violations. Although Laydon alleged that he suffered net losses because of the banks' rate rigging, the lawsuit "does not allege facts that competition was harmed in any way," Daniels said.

Daniels also said the unjust enrichment claims fail because Laydon failed to show any relationship between himself and the banks or how the banks benefited at Laydon's expense.

The case is: Jeffrey Laydon et al v Mizuho Bank Ltd et al, U.S. District Court, Southern District of New York, No 12-cv-3419

(Reporting By Dena Aubin; editing by Andrew Hay)

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