Every morning, from his desk by the bathroom at the far end ofRoyal Bank of Scotland Group Plc's trading floor overlookingLondon's Liverpool Street station, Paul White punched a series ofnumbers into his computer.

White, who joined RBS in 1984, was one of the employeesresponsible for the firm's submissions to the London interbankoffered rate, or Libor, the global benchmark for more than $300trillion of contracts, from mortgages and student loans tointerest-rate swaps. Behind him sat Neil Danziger, a derivativestrader at the bank since 2002. On the morning of March 27, 2008,Tan Chi Min, Danziger's boss in Tokyo, told him to make sure thenext day's submission in yen would increase.

“We need to bump it way up high, highest among all if possible,”Tan, known by colleagues as “Jimmy,” wrote in an instant message toDanziger, according to a transcript made public by a Singaporecourt and reviewed by Bloomberg before being sealed by a judge atRBS's request.

The trader typically would have swiveled in his chair, tappedWhite on the shoulder and relayed the request, people who worked onthe trading floor said. Instead, as White was away that day,Danziger input the rate himself.

The next morning RBS said it paid 0.97 percent to borrow in yenfor three months, up from 0.94 percent the previous day. TheEdinburgh-based bank was the only one of 16 surveyed to raise itsrate. If it had lowered its submission in line with others, thecost of borrowing in yen would have fallen one-fifth of a basispoint, or 0.002 percent, according to data compiled by Bloomberg.Even that small a move could mean a gain of $250,000 on a positionof $50 billion.

Events like those that took place on RBS's trading floor, acrossthe road from Bishopsgate police station and Dirty Dicks, a267-year-old public house, are at the heart of the biggest andlongest-running scandal in banking history.

For years, traders at RBS, Barclays Plc, UBS AG, Deutsche BankAG, Rabobank Groep and other firms that stood to profit worked withemployees responsible for setting the benchmark to rig the price ofmoney, according to documents obtained by Bloomberg and interviewswith two dozen current and former traders, lawyers and regulators.Those interviews reveal how the manipulation flourished for years,even after bank supervisors were made aware of the system'sflaws.

'Financial Fraud'

The conspiracy wasn't confined to low-level employees. Seniormanagers at RBS knew banks were systematically rigging Libor asearly as August 2007, transcripts of phone conversations obtainedby Bloomberg show. Some traders colluded with counterparts at otherbanks to boost profits from interest-rate futures by aligning theirsubmissions. Members of the close-knit group knew each other fromworking at the same firms or going on trips organized byinterdealer brokers such as ICAP Plc to Chamonix, a French skiresort, or the Monaco Grand Prix.

“We will never know the amounts of money involved, but it has tobe the biggest financial fraud of all time,” said AdrianBlundell-Wignall, a special adviser to the secretary general of theOrganization for Economic Cooperation and Development in Paris.“Libor is the basis for calculating practically every derivativeknown to man.”

Now, more than five years after alarms first sounded, regulatorsand prosecutors are closing in. Three people, including a formertrader at UBS and Citigroup Inc., were arrested in London this weekin connection with the probe into rate manipulation, the firstapprehensions in an investigation involving more than half a dozenagencies on three continents.

Barclays paid a record 290 million-pound ($468 million) fine inJune to settle with regulators, and the London-based lender's threetop executives, including Chief Executive Officer Robert Diamond,departed after criticism by bank supervisors and politicians. Otherfirms, including RBS and Zurich-based UBS, are negotiatingsettlements, according to people with knowledge of the discussions.UBS faces a fine within days that may surpass the one levied onBarclays, one of the people said. Spokesmen for Barclays, RBS andUBS declined to comment.

The industry faces regulatory penalties of at least $8.7billion, according to Morgan Stanley. The European Union is leadinga probe that could see banks fined as much as 10 percent of theirannual revenue. Dozens of lawsuits have been filed in the U.S. andU.K. claiming losses on products pegged to Libor.

Light Touch

The scandal demonstrates the failure of London's two-decadeexperiment with light-touch supervision, which helped make theBritish capital the biggest trading hub in the world. In his 10years as Chancellor of the Exchequer, Gordon Brown championed thisapproach, hailing a “golden age” for the City of London in a June2007 speech. Even after the FSA pledged to toughen its rulesfollowing the 2008 financial crisis, supervisors failed to act onwarnings that the benchmark was being manipulated.

Regulators have known since at least August 2007 that banks wereusing artificially low Libor submissions to appear healthier thanthey were. That month, a Barclays employee in London e-mailed theFederal Reserve Bank of New York, questioning the numbers thatother banks were inputting, according to transcripts published bythe New York Fed.

Nine months later, Tim Bond, then head of asset allocation atBarclays's investment bank, publicly described the Libor figures as“divorced from reality,” saying in a Bloomberg Television interviewthat firms were routinely misstating their borrowing costs to avoidthe perception they were facing stress.

The New York Fed and the Bank of England say they didn't actbecause they had no responsibility for oversight of Libor. Thatfell to the British Bankers' Association, the industry lobbyinggroup that created the rate and largely ignored recommendationsfrom central bankers after 2008 to change the way the benchmark iscomputed. Regulators also were preoccupied with the biggestfinancial crisis since the Great Depression, and forcing banks tobe honest about their Libor submissions might have revealed theywere paying penalty rates to borrow.

Libor is calculated daily through a survey of banks asking howmuch it costs them to borrow in different currencies for variousdurations. Because it's based on estimates rather than actual tradedata, the process relies on the honesty of participants. Instead,derivatives traders at banks around the world sought to influencetheir firms' Libor submissions and managers sometimes condoned thepractice, according to documents and transcripts of instantmessages obtained by Bloomberg.

Some former regulators say they were surprised to learn aboutthe scale of the cheating.

“Through all of my experience, what I never contemplated wasthat there were bankers who would purposely misrepresent facts tobanking authorities,” Alan Greenspan, chairman of the U.S. FederalReserve from 1987 to 2006, said in a phone interview. “You werehonor-bound to report accurately, and it never entered my mindthat, aside from a fringe element, it would be otherwise. I waswrong.”

'Eye-Popping'

Sheila Bair, a former acting chairman of the U.S. CommodityFutures Trading Commission and chairman of the Federal DepositInsurance Corp. from 2006 to 2011, said the scope of the scandalpoints to the flaws of light-touch regulation.

“When a bank can benefit financially from doing the wrong thing,it generally will,” Bair said in an interview. “The extent of theLibor manipulation was eye-popping.”

Libor debuted in 1986, the year British Prime Minister MargaretThatcher's so-called “Big Bang” program of financial deregulationfueled a boom in London's bond and syndicated-loan markets. It wasintended to be a simple benchmark that borrowers and lenders coulduse to price loans.

In 1997, the Chicago Mercantile Exchange switched the rate usedin pricing Eurodollar futures contracts to Libor, solidifying itsposition as the principal benchmark for the swaps market, which byJune 2012 had a notional value of $639 trillion, according to theBank for International Settlements.

That decision created a temptation for swaps traders to gameLibor, particularly in the days before International Money Marketor IMM dates, when three-month Eurodollar futures settle. The valueof traders' positions, often billions of dollars, was affected bywhere the dollar Libor rate was set on the third Wednesdays ofMarch, June, September and December.

The manipulation of Libor was discussed openly at banks.

“We have an unbelievably large set on Monday,” one Barclaysswaps trader in New York e-mailed the firm's rate-setter in Londonon March 10, 2006. “We need a really low three-month fix, it couldpotentially cost a fortune.”

The rate-setter complied with the request, according toBritain's Financial Services Authority, which published the e-mailfollowing its investigation of the bank's role.

'Yeah, Yeah'

The 2007 credit crunch increased the opportunity to cheat. Withbanks hoarding cash and not lending to one other, there was littletrading in money markets, making it impossible for rate-setters toassess borrowing costs accurately. Instead, traders said theyresorted to seeking input from interdealer brokers, colleagues andacquaintances at other firms, many of whom stood to benefit fromwhere the rate was set. They described it as legitimateinformation-sharing in the absence of trading.

On Aug. 20, 2007, days after BNP Paribas SA halted withdrawalsfrom three funds, forcing the European Central Bank to offerlenders unlimited cash and marking the start of the credit crisis,Paul Walker, RBS's head of money-markets trading and the personresponsible for U.S. dollar Libor submissions, discussed with ScottNygaard, then Tokyo-based head of short-term markets for Asia, howbanks were using Libor to benefit their trading positions.

“People are setting to where it suits their book,” Walker saidin a phone call with Nygaard, a transcript of which was obtained byBloomberg. “Libor is what you say it is.”

“Yeah, yeah,” replied Nygaard, an American who joined RBS in2006 after six years at Deutsche Bank in Japan.

Walker and Nygaard, now global head of treasury markets based inLondon and a member of the Bank of England's money-markets liaisongroup, both declined to comment.

Each day, the BBA asks banks to estimate how much it would costthem to borrow in 10 currencies for periods ranging from overnightto one year. The top and bottom quartiles of quotes are excluded,and those left are averaged and made public before noon in London.Submissions from contributing banks also are published. The dollarLibor panel consists of 18 banks, while the one for sterling has16, and 13 firms set the yen rate.

It didn't take a conspiracy involving large numbers of tradersat different firms to move the rate. By nudging their submissions,traders at a single bank could influence where Libor was fixed.Even inputting a rate too high to be included could push up thefinal figure by sending a previously excluded entry back into thepack. A move in Libor of less than 1 basis point, or one-hundredthof a percentage point, could be valuable for traders managingbillions of dollars in swaps.

No Training

“If you have a system like Libor, where highly subjective quotesare built into the process, you have a lot of opportunity formanipulation,” said Andrew Verstein, a lecturer at Yale Law Schoolin New Haven, Connecticut, and co-author of a paper on Liborrigging to be published in the Winter 2013 issue of the YaleJournal on Regulation. “You don't need a cartel to make Libormanipulation work for you. It certainly wouldn't hurt, but itdidn't have to happen.”

At UBS, Deutsche Bank, Barclays, Rabobank, RBS and JPMorganChase & Co., rate-setters were given no training or guidelinesfor making submissions, according to former employees who asked notto be identified because investigations are continuing. At RBS andFrankfurt-based Deutsche Bank, derivatives traders on occasion madetheir firm's submissions, they said. Spokesmen for all the banksdeclined to comment.

As the credit crisis intensified in the fourth quarter of 2007,Libor was a closely scrutinized gauge of the health of financialfirms. After years of relative stability, the benchmark became morevolatile. The average spread between the highest and lowestsubmissions to the three-month dollar rate widened to about 8 basispoints in the three months ended Oct. 30, 2007, from about 1 basispoint in the previous three months, data compiled by Bloombergshow.

The volatility drew the attention of investors and regulators.As Japan endured its most intense heat wave in 100 years on August20, 2007, a sales manager at RBS in Tokyo received a call from atrader at hedge fund Brevan Howard LLP in Hong Kong, according totwo people with knowledge of the matter.

RBS's rate-setter in London had increased the bank's submissionfor three-month yen Libor by 9 basis points from the end of theprevious week, helping to push the benchmark to its highest levelsince 1995.

Instant Messages

Brevan Howard wanted to know why the rate jumped, even after theFed had announced unprecedented steps to boost liquidity at the endof the week, something that should have lowered the measure, thepeople said.

RBS employees in London and Tokyo discussed the hedge fund'scall in instant messages. Nygaard phoned Walker in London to sayRBS should be “careful how we speak with them about what we, howthe rate is set,” according to a transcript of an instant-messageconversation obtained by Bloomberg.

On a conference call later that day that included Walker andDarin Spilman, an RBS sales manager, Danziger told the BrevanHoward trader how the bank calculated its submissions in theabsence of any cash trading and gave his views on what he expectedto happen to the Tokyo interbank offered rate, or Tibor. Danziger,Spilman, Walker, Nygaard and Tan declined to comment, as didAnthony Payne, a spokesman for Brevan Howard in London.

About a week later, on Aug. 28, 2007, Fabiola Ravazzolo, aneconomist on the financial-stability team at the New York Fed,received an e-mail from a member of Barclays's money-markets deskin London, accusing the firm's competitors of making artificiallylow Libor submissions, according to transcripts published by theregulator that didn't identify the sender.

Barclays that day had submitted the highest rate to three-monthdollar Libor, while the lowest was posted by London-based LloydsBanking Group Plc, suggesting Barclays was having more difficultyobtaining funding than Lloyds, a bank later bailed out by the U.K.government.

“Today's U.S. dollar Libors have come out and they look too lowto me,” the e-mail said. “Draw your own conclusions about whypeople are going for unrealistically low Libors.”

Lloyds, in an e-mailed statement, declined to comment on what itcalled “speculation by traders at other banks.”

It wasn't until the following year, prompted by a March 2008report by the Bank for International Settlements and an Aprilarticle in the Wall Street Journal suggesting banks were lowballingtheir submissions, that the New York Fed and the Bank of Englandasked the BBA to review the rate-setting process.

Geithner Memo

In June 2008, New York Fed President Timothy F. Geithner sent amemo to Bank of England Governor Mervyn King and his deputy, PaulTucker, putting forward a list of recommendations for fixing Libor,including increasing the number of contributing banks, basing therate on an average of randomly selected submissions and cuttingmaturities in which little or no trading took place.

“These are pretty modest reforms, they probably wouldn't haveinvalidated contracts and they might have reduced some of theabuses,” Yale's Verstein said. “On the other hand, it would likelyhave caused Libor to go up, which could have affected a great manypeople.”

Aside from creating a committee to review questionablesubmissions and promising to increase the number of contributors todollar Libor, the BBA chose not to implement Geithner'ssuggestions. Angela Knight, then the group's CEO, said in aDecember 2008 statement that Libor could be trusted as “a reliablebenchmark.”

Privately, regulators were skeptical. As the BBA was draftingits proposals, King wrote to colleagues including Tucker on May 31,2008, describing the group's response as “wholly inadequate,”according to documents released by the Bank of England in July.Rather than press the BBA to change the way Libor was set, the Bankof England, the FSA and the New York Fed demanded that anyreferences to them be removed from the BBA review, the e-mailsshow.

A spokesman for the Bank of England said Britain's central bank“had no supervisory responsibilities” for Libor at the time. TheNew York Fed also “lacked direct authority over Libor” and didn'twant to be seen endorsing a private association's plan, accordingto Jack Gutt, a spokesman. The New York Fed continued to press forreform through 2008, he said.

'Reliable Benchmark'

Liam Parker, an FSA spokesman, referred to earlier comments FSAChairman Adair Turner made to British lawmakers in July that theregulator was in contact with the CFTC at a “very early stage” inthe U.S. commission's investigation. It's in the nature of suchprobes that one regulator takes the lead and others assist anddecide at a later date whether to get “directly and formallyinvolved,” Turner said.

The BBA said in an e-mail that it's working with the regulators“to ensure the provision of a reliable benchmark which has theconfidence and support of all users.”

By failing to act, regulators allowed rate-rigging to continueover the next two years. At RBS, the abuse was most pronounced from2008 until late 2010, according to people close to the bank'sinternal probe. At Barclays, manipulation continued until thesecond half of 2009. Japan's financial services agency bannedCitigroup from trading derivatives linked to Libor and Tibor fortwo weeks in January in punishment for wrongdoing that started inDecember 2009.

Barclays former chief operating officer, Jerry Del Missier, wentfurther, saying that the Bank of England encouraged the lender tosuppress Libor submissions. In October 2008, days before RBS andLloyds sought bailouts, the central bank asked Barclays to lowerits quotes because they were stoking concern about the bank'sstability, Del Missier told a panel of British lawmakers July 16.Tucker, the Bank of England deputy director, has said he never gavesuch instructions.

“It's not adequate for the authorities to say, 'We didn't haveresponsibility,'” said Paul Myners, a Labour Party member inParliament's House of Lords and the U.K. government'sfinancial-services minister from 2008 to 2010. “It was a hugeoversight by the regulators not to realize that Libor and otherbenchmarks were of such critical importance that they should fallwithin the regulatory ambit.”

In the end, it was a U.S. regulator without any bankingoversight that brought Libor rigging to a halt. Vincent McGonagle,a top enforcement official at the Commodity Futures TradingCommission in Washington, initiated a probe into Libor afterreading the April 2008 Wall Street Journal story.

'So Flawed'

The CFTC sent letters to several banks that fall requestinginformation, according to a person with knowledge of theinvestigation. The commission decided it had the authority to actbecause Libor affects the price of commodities, including futurescontracts that trade on the Chicago Mercantile Exchange.

A decade earlier, the CFTC had lost out in an attempt toregulate the market for over-the-counter derivatives, includingthose pegged to Libor, following the 1998 collapse of hedge fundLong-Term Capital Management LP. The bid was opposed by then-FedChairman Greenspan and Treasury Secretary Robert Rubin. In 2000,Congress passed the Commodity Futures Modernization Act, leavingthe OTC markets unregulated.

“That's reflective of the hands-off, light-touch,markets-can-regulate-themselves approach to regulation that hasbeen shown to be so flawed,” Bair said.

Banks opened their own investigations after the CFTC inquiries.Barclays initially looked into allegations it had lowballed dollarLibor. It appointed Rich Ricci, then co-head of its investmentbank, to oversee the inquiry. As the team sifted through thousandsof pages of e-mail correspondence and transcripts of instantmessages and phone conversations, it uncovered evidence thattraders were manipulating the rate both up and down for profit,according to two people with knowledge of the probe.

The CFTC came to the same conclusion in late 2009 or early 2010,according to the person with knowledge of the commission's inquiry.It happened when Gary Gensler, who had been chairman for less thana year, stood in the foyer of his ninth-floor Washington office asStephen Obie, acting head of enforcement at the time, played aBarclays tape of a conversation between traders and rate-setters,the person said.

“We had to vigorously pursue this,” Gensler said in a Dec. 9interview. “Sometimes practice in a market gets confused and overthe line, but nonetheless it may still be illegal.”

The Barclays internal probe retained two law firms workingoutside the bank's Canary Wharf office and cost 100 million pounds,according to people briefed on the matter. Diamond, who wasinterviewed during the in-house inquiry, wasn't made aware of thefull extent of the findings until less than a week before the bankannounced its settlement in June because of his status as a witnessin the probe, the people said.

Traders' Requests

The settlement revealed how widespread the manipulation was. Thebank's derivatives traders made 257 requests for U.S. dollar Libor,yen Libor and Euribor submissions between January 2005 and June2009, according to the settlement. The requests for U.S. dollarLibor were granted about 70 percent of the time.

Former Barclays trader Philippe Moryoussef is underinvestigation by the CFTC, FSA and U.S. Department of Justice forcolluding with counterparts at Deutsche Bank, Credit Agricole SAand HSBC Holdings Plc to influence Euribor, according to a personwith knowledge of the matter who asked not to be identified becausethe probes are continuing. The Deutsche Bank trader was ChristianBittar, head of money-markets derivatives trading, one of thepeople said.

Thomas Hayes, among those arrested in London on Dec. 11, also isbeing probed by Canada's Competition Bureau for rate manipulationalong with counterparts at five banks including HSBC, RBS andJPMorgan, according to a person briefed on the investigation. The33-year-old trader worked with two of the others during his time atRBS in London between 2001 and 2003, two people with knowledge ofthe matter said.

The extent of the rate-rigging surprised Martin Taylor,Barclays's CEO from 1994 to 1998.

“Pretty much anything you could do to increase the revenue ofyour organization appeared legitimate,” Taylor said in aninterview. “Here was the market doing something blatantlydishonest. I never imagined that people in the financial marketswere saints, but you expect some moral standards.”

Michael Golden, a Deutsche Bank spokesman, said that the conductof a “limited number” of employees, acting on their own initiative,fell short of the bank's standards, and that the firm iscooperating with regulators. Spokesmen for Barclays, HSBC andCredit Agricole declined to comment, as did Bittar. Hayes andMoryoussef couldn't be located through directory and web searchesor by contacting former employers.

Wrongful Dismissal

At RBS, managers condoned and sometimes encouraged rate-riggingby employees, according to Tan, who sued the bank for wrongfuldismissal in Singapore in December 2011. Tan says executivesincluding Nygaard and Kevin Liddy, global head of short-terminterest-rate trading, were aware of the behavior.

Other RBS managers sought to manipulate the benchmarkthemselves. In an instant-message conversation on Dec. 3, 2007,Jezri Mohideen, then RBS's head of yen products in Tokyo,instructed colleagues in the U.K. to lower the bank's six-monthLibor submission that day, according to a transcript of thediscussion seen by Bloomberg.

“We want lower Libors,” Mohideen said in the chat. “Let themoney markets guys know.”

“Sure, I'm setting,” said Will Hall, a trader in London who setthe rate that day in the absence of the rate-setter.

“Great, set it nice and low,” Mohideen said.

Hall agreed to set the rate at 1.01 percent and followed throughwith the request, data compiled by Bloomberg show. No reason wasgiven in the message as to why he wanted a lower bid.

RBS put Mohideen on leave Oct. 12, two weeks after Bloombergreported the conversation, according to two people with knowledgeof the move. White, Danziger and Tan were dismissed in 2011following the bank's internal probe into yen Libor known as ProjectZen. Andy Hamilton, who traded derivatives tied to the Swiss franc,also was fired in 2011 for trying to influence Libor.

White is now the commercial manager for Welling United footballclub and writes match-day programs for the Wings, as the non-leaguesoccer team in southeast London is known. On his LinkedIn profile,he describes himself as: “Former trader: looking for employment ora fresh challenge.” He declined to comment, as did Tan, Danziger,Hamilton and Liddy. Mohideen said in a statement issued by hislawyer that he never sought “to exert pressure on anyone to submitinaccurate rates.”

Chamonix Trip

The manipulation of Libor was a common practice in anunregulated market small enough for most participants to know oneanother personally, investigators found. Traders who worked 12-hourdays without a lunch break were entertained by interdealer brokerssoliciting business, according to three people familiar with theoutings.

In March 2007, five months before the onset of the creditcrisis, a dozen traders from firms including Deutsche Bank,JPMorgan and Lehman Brothers Holdings Inc. traveled to Chamonix,according to people with knowledge of the outing. The group,traders of yen-based derivatives, spent a day skiing beforegathering over mulled wine at a restaurant. They flew back late onSunday, in time for a 6 a.m. start the next day.

The trip was organized by London-based ICAP, the world's biggestinterdealer broker, which lines up buyers and sellers of securitiesand takes a percentage from every trade. Brokers such as ICAP andRP Martin Holdings Ltd., also in London, were sounding boards forthose trying to set rates, especially after money markets dried up,traders interviewed by Bloomberg said.

ICAP said in May that it had received requests from governmentagencies probing banks' Libor submissions and is cooperating fully.The firm has suspended one employee and placed three others on paidleave pending the outcome of the investigation. Brigitte Trafford,an ICAP spokeswoman, declined to comment. Two RP Martin brokerswere arrested in London on Dec. 11 as part of an inquiry intoLibor-rigging. RP Martin spokesman Jeremy Carey declined tocomment.

RBS has fired four traders and suspended at least three othersfor alleged rate manipulation, according to a person with knowledgeof the probe. Barclays has disciplined 13 employees and dismissedfive, Ricci, now head of corporate and investment banking, toldBritish lawmakers on Nov. 28.

More than 25 people have left UBS after the Zurich-basedlender's internal probe, a person with knowledge of theinvestigation said last month.

Not until Barclays settled with regulators in June, five yearsafter flaws in the rate-setting process emerged, did the U.K.government order an inquiry into Libor. It recommended strippingthe BBA of its oversight role, handing it to the Bank of Englandand introducing criminal sanctions for traders seeking to rig thebenchmark rate.

'Completely Failed'

“Governance of Libor has completely failed,” FSA ManagingDirector Martin Wheatley, who led the review, said as he releasedthe report. “This problem has been exacerbated by a lack ofregulation and a comprehensive mechanism to punish those whomanipulate the system.”

In the final chapter of his report, published in September,Wheatley said Libor wasn't the only rate vulnerable to abuse. Twomonths later, the U.K.'s $480 billion gas market came under thespotlight for alleged manipulation after a journalist at the ICISprice agency reported deals he suspected were being done below“prevailing” levels. UBS and RBS suspended four traders inSingapore for rigging benchmarks used to set prices onforeign-exchange contracts.

“Libor is just the beginning,” said Rosa Abrantes-Metz, aneconomist with New York-based consulting firm Global EconomicsGroup Inc., an associate professor at New York University's SternSchool of Business and co-author of “Libor Manipulation?” a paperpublished in August 2008. “Regulators are carrying out a generalreview of dozens of benchmarks around the world, and most of themare built the same way.”

The ubiquity of contracts pegged to Libor leaves banksvulnerable to lawsuits. Barclays was ordered by a British judgelast month to release the names of all individuals involved inLibor-rigging at the bank after Guardian Care Homes Ltd., aWolverhampton, England-based owner of about 30 homes for theelderly, sued the bank for 38 million pounds over interest-rateswaps that lost it money.

Alabama Mortgages

In Alabama, mortgage-holders have filed a class action infederal court alleging that 12 banks colluded to push Libor higheron the dates when repayments are set. The plaintiffs include AnnieBell Adams, a pensioner whose home was repossessed, and DennisFobes, a 59-year-old salesman of janitorial supplies whose house inMobile is now worth less than his mortgage. He said he refinancedin 2006 with a $360,000 adjustable-rate mortgage linked tosix-month dollar Libor.

“It's just another example of how the banks have manipulatedeverything in their power,” Fobes said in a telephone interview. “Iwill fight them to the day I die to save my home.”

Savers also are suing. The city of Baltimore and Charles SchwabCorp., the largest independent brokerage by client assets, havefiled suits claiming banks colluded to keep Libor artificially low,depriving them of fair returns. At least 30 such cases are pendingin federal court in New York.

“Our hope is that the exposure of this illegal conduct resultsin systemic changes in Libor that prevent similar abuses in thefuture,” Sarah Bulgatz, a spokeswoman for Schwab, said in ane-mail.'

In London, lawyers at Collyer Bristow LLP, a 252-year-old firm,are working on a plan that would force banks to reimburse customersfor any payments they made under derivatives contracts pegged toLibor. Three of the five partners on the financial-litigation teamare working full time on Libor-related cases.

Stephen Rosen, who runs the practice, said clients who enteredinto interest-rate swaps with banks are entitled to cancel thosecontracts because manipulation was so entrenched. Swaps arecontracts that allow borrowers to exchange a variable interest costfor a fixed one, protecting them against fluctuations in interestrates.

“It's possible on legal grounds to set aside the swap contractentirely, which could mean you can recover all the payments you'vemade under the swap,” Rosen, who wears thick-rimmed glasses andspeaks in clipped, precise tones, said in an interview at hisoffice in a Georgian townhouse in the legal district of Gray's Inn.“The bank, when they entered into the swap, made an impliedrepresentation that Libor would not be unfairly manipulated.”

Rosen said his clients include a publicly traded real estatecompany, three nursing homes and at least 12 more firms that boughtLibor-linked interest-rate swaps from banks. He declined toidentify them by name, citing confidentiality rules.

“The client will argue, 'Had you told me the truth — that youwere fraudulently manipulating this rate — I would never haveentered the contract with you,'” he said. “We are calling this thenuclear option.”

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