Sacramento County filed a major lawsuit today against some of the world's largest banks, accusing them of manipulating an influential interest rate to gain profits at the county's expense.
The lawsuit, filed in U.S. District Court in Sacramento, accuses Bank of America, Barclays, JPMorgan Chase and a host of others of manipulating the interest rate known as Libor - the London Interbank Offered Rate.
Libor is used to set interest rates all over the world.
The lawsuit doesn't spell out how much the county was allegedly damaged by the Libor manipulation, which took place over several years.
Sacramento County became the 15th government agency in California to file suit over Libor this year. Other plaintiffs include the University of California system, the cities of Richmond and Riverside, and an association covering San Diego County and 18 of its cities, said Nanci Nishimura of Bay Area law firm Cotchett Pitre & McCarthy. The Cotchett firm has filed all the lawsuits.
Nishimura called the Libor litigation "a case of enormous magnitude."
In a typical instance cited in the latest lawsuit, Sacramento County entered into a so-called "interest rate swap" with several banks, including Deutsche Bank, Bear Stearns, Morgan Stanley, Merrill Lynch and Bank of America. In effect, the county was loaning money to those banks on a short-term basis, at a rate tied to Libor. Because Libor was artificially supressed, the county got less money, Nishimura said.
"When Libor was supressed, they were cheated," she said.
Officials with the county declined comment. Regulators have fined three big banks - Barclays, UBS and Royal Bank of Scotland - a combined $2.5 billion in the past year for manipulating Libor and other key rates, according to Bloomberg news.
Call The Bee's Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.