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Freddie Mac sues for Libor losses

By Judy Martel · Bankrate.com
Wednesday, March 27, 2013
Posted: 2 pm ET

Claiming it has suffered "substantial losses," Freddie Mac sued 15 banks and the British Banker's Association for manipulation of the London Interbank Offered Rate, or Libor, that is used to calculate interest on floating-rate securities.

The complaint, filed with the federal court in Alexandria, Va., alleges that the banks used false Libor submissions, charged higher underwriting fees and obtained higher prices for financial products, all to the detriment of Freddie Mac.

"Defendants' fraudulent and collusive conduct caused USD Libor to be published at rates that were false, dishonest and artificially low," Richard Leveridge, a Freddie Mac attorney, said in the complaint.

Libor is calculated daily on behalf of the British Banker's Association and produces an average rate that London banks would charge to borrow from other banks. It is considered a primary benchmark for short-term rates.

As a result of the Libor scandal, fines of $2.5 billion have already been levied against Barclays, UBS and Royal Bank of Scotland. Regulators say the artificial rates were used to give a false impression of the financial health of the institutions. Other banks named in the Freddie Mac complaint include Citigroup, JPMorgan Chase and Bank of America.

Freddie Mac is suing for unspecified damages.

Fannie Mae and Freddie Mac, the two giant mortgage companies, were bailed out by taxpayers in 2008 and are now under the conservatorship of the Federal Housing Finance Agency. Last month, the agency announced that the two will form a joint firm to securitize mortgages as part of the government's effort to get out of the mortgage business.

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