By Mayor Annise Parker
Itپfs hard to imagine being more proud of a hometown than I am of Houston. We have sacrificed together to make our city stronger in the face of the worst recession in generations.
Thatپfs what we do in Houston. We work hard, tackle our problems with integrity and determination, and always keep one foot squarely planted in the future.
On the other hand, when weپfre not working on a level playing field, these efforts are not enough. Thatپfs why I asked the cityپfs legal department to aggressively pursue two lawsuits for fraud just last month.
As our economic recovery began, we learned that 16 international financial institutions were participating in a conspiracy to manipulate a key interest rate – known as London Interbank Offered Rate, or LIBOR – that determines how much the city pays to borrow money and how much the city earns on many of its investments.
While we were cutting back on everything possible to protect essential services during the recession, these big banks were boosting their profits illegally and at our expense – siphoning away more than $9 million of your hard-earned tax dollars that could have paid for more after-school programs, more police officers, or more crews to repair broken streets.
Ultimately, this suit is about recovering money owed to the city and to taxpayers. Although our final calculations will not be made until we are further along into the lawsuit, we have estimated damages to be around $9 million. Under federal anti-trust law, the city can sue for three times the determined damages amount.
While that sum probably does not mean much to these big banks, that is a significant amount of money we could reclaim for our city. My goal is to prevent these financial giants from running away with Houstoniansپf hard-earned dollars.
LIBOR is based on the average of the interest rates reported by each LIBOR member bank. Specifically, banks are responsible for reporting the interest rate each would pay were it to borrow funds from a fellow member bank. Since these banks had been tasked with reporting and certifying their own interest rates, the LIBOR market was ripe for manipulation.
In filing a suit July 23, Houston joined a number of cities and agencies across the country alleging LIBOR rate manipulation. Baltimore, Los Angeles, Sacramento, and San Diego Counties have all filed suits. There are also several class action suits based in the Southern District of New York that are on appeal.
As it stands, three LIBOR member banks have paid more than $2.5 billion in penalties. Charges against numerous other banks are pending.
Government regulators in the United States, United Kingdom, Switzerland, and Japan announced in March 2011 that they had launched investigations of LIBOR rate manipulation affecting global financial markets. LIBOR member banks are under scrutiny for manipulating LIBOR upward to increase their own profits and also for manipulating LIBOR downward, since reporting lower borrowing rates creates an illusion of financial strength.
Until this recent LIBOR scandal broke, the global financial system accepted LIBOR as the true cost of borrowing between financial institutions. Worldwide, LIBOR was trusted to represent the true interest rate at which banks are able to borrow money.
Recovering What is Owed Taxpayers
The city also has filed another suit for fraud – this time against the firm that the city hired to handle ambulance billings and collections. All Houston taxpayers deserve transparency and fair dealing from the cityپfs vendors; those who pay for EMS and ambulance services are often vulnerable economically and deserve nothing less.
We won’t know the extent of the damages until the lawsuit progresses. Weپfve canceled the contract and are engaging a new firm to do the work.
It takes all of us to keep Houston the best place in America to live, work, and raise a family – and there is a lot of work ahead of us. Houstonپfs taxpayers are doing their part. My job is to pay attention to the details – like watching over your tax dollars – so the best city in America can get even better.
I have instructed the city legal department to aggressively pursue any monies owed the city and I will continue to update Houstonians with our progress.
