In July, the City of Philadelphia filed a lawsuit against Wall Street banks for illegally manipulating a major interest-rate index underpinning complex derivatives that have cost cities and schools billions of dollars. Now, the Philly School District may do the same. “The School District is currently in the process of analyzing whether or not the agency has a sufficient basis for pursuing claims against financial institutions which may have been involved in the manipulation of Libor,” a district spokesperson wrote in a statement issued to City Paper.
Other cities have filed similar lawsuits, contending that interest-rate swaps — billed as a protection against rising borrowing costs — were tilted in banks’ favor through the fraudulent rigging of the London Interbank Offered Rate, or Libor.
The school district took out swaps with Wachovia (purchased by Wells Fargo in 2008), Merrill Lynch, Goldman Sachs and Morgan Stanley. But a lawsuit could name more banks as defendants.
It is unclear when the District, run by the state-controlled School Reform Commission, will decide whether to file suit or what damages might be sought. The city could seek tens of millions of dollars, says Quinn Emanuel attorney Steig D. Olson, one of the lawyers representing the city. The precise damages at stake — a matter of figuring out how particular Libor manipulations affected particular swap deals — will be determined through discovery.