Citi, UBS provide keys to widening interest rate-rigging probe

The information has bolstered the investigation of an alleged rate-rigging scheme, and the investigation has widened to include at least five other banks and a prominent London trading firm, according to these people and documents.

Now the investigation is expected to move beyond yen-denominated trading, drawing in more financial institutions and traders, according to people familiar with the situation.

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The new disclosures mark a turning point in a year-long investigation into how Libor is set. Despite mounting questions surrounding the accuracy of the rate, it retains its influence as a benchmark for $350 trillion in derivatives market securities and is the basis for pricing about $10 trillion in loans for everything from home mortgages to companies with shaky credit histories.

The details also raise troubling questions about the rate's reliability, and already have opened the door to numerous lawsuits. According to documents filed in the probe in Canada, for example, banks "entered into agreements to submit artificially high or artificially low" Libor submissions "in order to impact the yen Libor interest rates published by the British Bankers Association."

The details were provided by an unidentified "cooperating party" and occurred between 2007 and 2010. According to people familiar with the matter, UBS is the bank cooperating in the Canadian probe. The link to UBS was first reported by Bloomberg News.

Libor has existed since the 1980s, when banks developed it as a benchmark for adjustable rates on corporate debt. Calculated in a daily process overseen by the British Bankers' Association, a UK trade association, it measures the interest rates at which banks lend to each other and covers a range of 10 currencies and maturities of up to a year.

The rate also is considered a gauge of a bank's health. Because banks may not want to reveal when they are ailing - and thus paying higher rates to borrow - there is an incentive for them to report a lower rate than they are actually paying. Banks also could manipulate the rate for financial gain.

A BBA spokesman said it is committed to "retaining the reputation and integrity of BBA Libor, which continues to be the authoritative benchmark of the wholesale money market." The spokesman said the calculation by Thomson Reuters is transparent and that "rigorous standards" are used in scrutinizing and governing Libor. A spokesperson for Thomson Reuters said the company "is engaged by the BBA to calculate and distribute Libor."

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Questions about Libor's reliability first surfaced in 2008. But the first signs that regulators were investigating the rate emerged last year, when UBS said it had received subpoenas from U.S. regulators and was cooperating in return for conditional immunity from investigators. So far, investors have sued more than a dozen banks, alleging they were harmed by manipulation of the rate.

Now, the court and regulatory documents filed in Japan, Canada, U.S. and the UK are revealing the contours of overlapping, parallel investigations focused on alleged rigging of the Libor rate for yen-denominated assets between 2007 and 2010 at Citigroup and UBS. The probes have led to the suspensions or departures of nearly a dozen bankers so far.