In a dispute between Lloyds Banking Group and a businessman worth £1.3 billion, the High Court will hear claims that the Bank of England encouraged manipulation of Libor.
Ardeshir Naghshineh is suing Lloyds for allegedly “fraudulently manipulating” the Libor benchmark. Lloyds had rescued HBOS in 2009. If he knew about the alleged “fraudulent exploitation”, he claims he wouldn’t have taken out loans with HBOS.
This week, a civil trial will begin to examine claims relating to the Iranian-born businessman’s investment property company, Targetfollow.
Lloyds will defend claims related to an alleged abuse in a UK court. Similar claims have been settled in the past. The Naghshineh case is likely to be Lloyds’ last Libor lawsuit, given the legal limitations.
Lloyds’s reaction to the claims that it manipulated Libor during its trial will be closely monitored. The Financial Conduct Authority (the City regulator) fined it £105 million for “serious failures” in relation to Libor and benchmarks. However, Lloyds does not believe that senior management was aware of the alleged manipulation.
Libor is meant to represent the interest rates that banks charge each other. It was a key benchmark for the financial system and was used to price trillions of pounds worth of products. The scandal began when banks inflated or deflated their rates to make money from trading or to give the appearance that they were creditworthy during the financial crisis.
Naghshineh has filed a claim for compensation after the insolvency in 2011 of two Targetfollow entities. The two Targetfollow entities failed in 2011 after they took out loans worth hundreds of millions and interest rate derivatives that were benchmarked against Libor.
Naghshineh says the swaps were fraudulently sold because the bank was aware, or should have been aware, that Libor was being manipulated routinely by Lloyds and others banks, and that this rate was “compromised”.
Lloyds’ spokesperson said: “We understand the pain Mr Naghshineh is feeling, but we don’t believe that the claim has merit.” The two parties reached a settlement over a decade earlier in relation to the products of banking that are now subject to this claim. It would be inappropriate at this time to make any further comments as the proceedings are still ongoing.
Two senior Lloyds Bankers are expected at the trial to testify.
Naghshineh has filed documents stating that “management instructions” were given to manipulate Libor following a meeting in 2007 between the central banks and lenders. Lloyds has denied this.
Naghshineh is believed to be the first person to make such an accusation in the High Court. The Bank of England has not been a party in this civil case but it has been accused of Libor rigging on many occasions.
The central bank declined to comment. Naghshineh refused to comment.
Lloyds, who is countersuing Naghshineh for damages, interests and costs, says Naghshineh has no right to sue, because the loans in dispute cannot be transferred without consent. The bank claims that he has violated the terms of an agreement which prevented him from bringing any further claims. Naghshineh is believed to have felt that Libor had little impact on the transactions, and it didn’t cause any losses. When the companies failed, more than £500m was owed to the bank.