Ilya Marritz covers business for WNYC.
Nassau County Likely To Sue Banks Over Interest Rates
Wednesday, July 11, 2012
Officials in one of New York's wealthiest and most populous suburban counties say they are preparing to sue major banks for manipulating a key interest rate, which allegedly cost the county millions of dollars.
"Every tax dollar is important," Nassau County Comptroller George Maragos said. "Especially during the last few years where we had to economize, cut services, lay off certain employees. That may not have been necessary if we did not have to overpay on our bonds."
At issue is the London Interbank Offering Rate (LIBOR). It’s used as a benchmark for the cost of lending throughout the financial system. Over the past five years it may have cost Nassau County $13 million dollars, Maragos estimates.
Like many local governments, Nassau County routinely signs so-called swap agreements with banks to reduce its debt costs. The LIBOR rate is a key ingredient of many of these contracts. If LIBOR was in fact tampered with, Nassau may have overpaid on the money it owed.
Nassau is the first New York City-area entity to assert LIBOR-related losses.
Baltimore recently filed a class action suit in New York against 14 banks, and other governments say they are weighing joining the suit.
A spokesman for New Jersey's Treasury Department, Andy Pratt, said Treasury has asked the state's Attorney General, Jeffrey S. Chiesa, "to provide advice on what steps should be taken if evidence found that the state incurred losses because of LIBOR manipulation."
The Comptrollers of New York State, Tom DiNapoli, and New York City, John Liu, said they are studying the matter.
Nassau has not yet filed suit. That decision is up to John Ciampoli, the Nassau County Attorney, who could join Baltimore's class action, or initiate his own independent suit.
Ciampoli could not immediately be reached for comment.
Nassau County’s budget is under the control of a state run-authority after it nearly went bankrupt. The county’s annual spending is around $3 billion, making the alleged losses significant, but relatively small.
But Maragos cautioned that the estimated $13 million loss is preliminary, and he will have to do a detailed calculation to support the suit.
"For legal purposes, we have to calculate it precisely," Maragos said. "Only on a daily and weekly basis because that's how the fluctuation in the LIBOR rate would have affected the overpayment amount."
Separately, the Federal Reserve Bank of New York conceded it was aware of potential manipulation of the LIBOR rate in 2008.