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U.S. judge finds 'viable' legal theory in Libor litigation

By Jonathan Stempel

NEW YORK, Aug 4 (Reuters) - The U.S. judge overseeing private litigation accusing global banks of manipulating Libor on Tuesday said she found a "viable legal theory" that could justify relief for investors who claim they were harmed by a conspiracy to rig the benchmark rate.

In a 431-page decision covering part of the litigation, U.S. District Judge Naomi Reice Buchwald in Manhattan (Hamburg: 32U.HM - news) said the theory turns on what banks may have disclosed to a London administrator who oversees the so-called London Interbank Offered Rate.

Libor underpins hundreds of trillions of dollars of transactions, and is used to set rates on credit cards, student loans and mortgages. It is calculated based on submissions by banks that sit on panels.

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Investors and regulators have accused big banks of suppressing Libor during the financial crisis to boost earnings or make their finances appear healthier.

"According to plaintiffs' allegations, each panel bank lied to the Libor administrator about its own borrowing costs, knowing that entities such as plaintiffs would rely on the accuracy of that information; as was to be expected, plaintiffs then relied to their disadvantage, perhaps reasonably, on this false information," Buchwald wrote. "If these allegations prove true, then defendants' conduct was fraud."

Buchwald also said various banks may be able to recover from each other should they be held liable. She (Munich: SOQ.MU - news) has yet to decide whether punitive damages should be available.

Tuesday's decision covers complaints filed under 28 separate court dockets by individual plaintiffs who are not pursuing and do not want to join class-action lawsuits.

Buchwald said all of the complaints may go forward, but she dismissed some claims, and dismissed some bank defendants from six of the lawsuits.

The litigation began in 2011, and accused 16 banks including Bank of America Corp, Citigroup Inc (NYSE: C - news) , Credit Suisse (NYSE: CS - news) Group AG, Deutsche Bank AG (Xetra: 514000 - news) , HSBC Holdings (HKSE: 0005.HK - news) Plc, JPMorgan Chase & Co (Xetra: 850628 - news) , Societe Generale (Swiss: 519928.SW - news) and UBS AG (NYSEArca: FBGX - news) of conspiring to manipulate Libor.

In March 2013, Buchwald dismissed what she called a "substantial portion" of the litigation, including federal antitrust claims that could justify triple damages.

Authorities worldwide have levied about $9 billion of fines against banks and brokerages to settle Libor rigging probes.

On Monday, former Citigroup and UBS trader Tom Hayes was convicted by a London jury of conspiring to manipulate Libor, and sentenced to 14 years in prison.

The case is In re: Libor-based Financial Instruments Antitrust Litigation, U.S. District Court, Southern District of New York, No. 11-md-02262. (Editing by Grant McCool)