LIBOR Scandal: NY AG Takes Center Stage

One might only guess that New York Attorney General Eric Schneiderman and his colleague NY Department of Financial Services’ superintendent Benjamin Lawsky are not on the distribution list for the Wall Street-Washington Incestuous Regulatory Relationship mailings. That is a good thing.

Hopefully other state regulators and attorneys general might take a cue from these two.

On the heels of Lawsky playing hardball with the Standard Chartered – Iranian Laundromat, we now see Schneiderman doing the same with seven Wall Street heavyweights implicated in the largest financial scandal in history, that is, the manipulation of Libor. Which heavyweights?

Deutsche Bank, Citigroup, JP Morgan Chase, Royal Bank of Scotland, Barclays, HSBC, and UBS.

Mr Schneiderman’s demands for documents and communications – most of which were sent out in July or earlier this month – is part of a two-state probe he has launched with George Jepsen, Connecticut’s top law enforcement officer. The pair want to examine whether banks colluded to fix interest rates determined by Libor, damaging the states’ borrowers and investors as a result.

The state investigation comes on the heels of separate probes from prosecutors and regulators in countries including the UK, Canada, Japan and the US who are examining possible collusion by large financial groups to manipulate benchmark rates.

But what may set Mr Schneiderman’s probe apart is his ability to use the Martin Act, a 1921 New York law considered one of the country’s most powerful prosecutorial tools. The law allows Mr Schneiderman to investigate anyone doing business in New York and to bring cases without having to show that the accused intended to commit fraud.

While the Fed, Treasury, SEC, FINRA, CFTC, and DOJ slow walk this investigation, investors and consumers alike lose whatever confidence they had left in the game being on the up and up. These regulators may believe financial stability will take a hit if the investigation of this scandal is escalated. They are so wrong.

Financial stability, trust, confidence, and integrity in the system are predicated on the fact that wrongdoings will be addressed in exhaustive fashion and adjudicated accordingly. Accountability at the most senior levels of these banks must be brought into question. To do otherwise would be to shortchange capitalism and the American spirit of fair play. Wishful thinking? I call on each and every attorney general and state banking regulator in the nation to join forces with Schneiderman and Jepsen.

There Should Be No Fines.

If senior bank executives are exposed and dealt with appropriately, Wall Street will not only survive but be stronger for it. As will America and the world at large.