Barclays vs. FERC over LIBOR: The Pre-Game Warm Up

Barclays will fight its gigantic penalty from U.S. energy regulators by arguing that its traders did not carry out the rigging scheme they are accused of by FERC. The Federal Energy Regulation Commission (FERC) is bringing a $470 million penalty against Barclays for rigging the LIBOR interest rate index. This week FERC demanded that Barclays explain why they should not pay the penalty.

The dispute is likely to lead to a highly public court battle, with Barclays arguing that the emails released in FERC’s regulatory filing do not amount to credible evidence.

The case will hinge on whether FERC can prove that the emails in question show that Barclays traders intended on manipulating LIBOR. The phrase usually associated with this behavior is “reckless disregard.”

“To prove that that’s the answer is difficult,” said Susan Court, former FERC chief of enforcement, “because it goes to the intent” of the traders’ actions. “So sometimes it comes down to interpreting those electronic messages and what they mean in context.”

So the case may turn on the context of certain emails, but it will also be up to FERC to determine that a “reckless disregard” also syncs up with actual manipulation. If it does not appear that LIBOR manipulation occurred, it will be difficult to prove that the traders actually meant for it to happen.

Barclays Case Has Implications for Regulation

The outcome of the case will reverberate beyond the massive penalty. Success for FERC against LIBOR rigging could pave the way for more cases against manipulation and making false statements, which could ultimately lead to nearly $1 billion in penalties for recent cases alone.

The momentum of regulation is at stake at these cases, which may explain why Barclays has seemed reluctant to settle its penalty out of court. To take the penalty lying down might open the floodgates to more regulation and oversight.

Nevertheless, the end result of the looming court battle may take years to work through. It could take more than a year or two before the case makes it to court.

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