Pension Funds at Risk Over Canadian Bank Manipulation

Pension Funds at Risk Over Canadian Bank Manipulation
Pension Funds at Risk Over Canadian Bank Manipulation

The Fire & Police Pension Association of Colorado is suing nine of Canada’s most influential banks over what it believes to be interest rate manipulation. The lawsuit accuses all nine banks of engaging in Canadian Dollar Offered Rate (CDOR) violations by working together to illegitimately boost the rate. If true, such interest rate fixing may have cost the pension millions of dollars in lowered interest owed or cost-to-buy in derivatives trades. The alleged financial manipulation took place over the course of seven years.

Key Facts

• Each of the banks named in the suit is accused of violating the U.S. Sherman Act, the Commodity Exchange Act, and several other US-based anti-racketeering laws by manipulating the CDOR. The CDOR is adjusted daily by Thomson Reuters based on submissions from banks. Banks who engage in or coordinate rate manipulation face heavy fines and regulatory punishment.

• Although the Fire & Police Pension Association of Colorado is the complainant in this particular lawsuit, a win for the plaintiff could cause investigations elsewhere. Cumulatively, the banks involved manage approximately $1 trillion in CDOR-based trades for U.S. clients.

• The Fire & Police Pension Association of Colorado has a significantly large portfolio; most estimates reveal that the fund manages approximately $4.66 billion at any given time. The large size of the pension is especially concerning because even a fraction of a percentage amounts to a significant amount of money lost.

• The filing also identified exactly how the CDOR violations allegedly occurred. “Economic analyses show that defendants consistently made CDOR submissions well-below prevailing Canadian dollar money market rates, inexplicably offering to lend for less than what it cost them to borrow funds.”

• The class action lawsuit contains the names of nine individual banks. That list includes Toronto-Dominion Bank (TD), Royal Bank of Canada (RBC), Bank of Nova Scotia (Scotiabank) Bank of Montreal (BoM), Canadian Imperial Bank of Commerce (CIBC), National Bank of Canada (NBC), HSBC Holdings Plc, Bank of America Corp. and Deutsche Bank AG.

• It isn’t clear exactly what the Fire & Police Pension Association of Colorado is asking for in response to the alleged rate fixing. Details on the case remain sparse, and more information will likely be revealed as it processes through the U.S. court system. The last update on the case, entered on January 17th, stated that the case was referred to the magistrate judge for further investigation.

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