FrontPoint Fund Sues Over Libor Losses

May 24 2013 | 1:39pm ET

FrontPoint Partners' demise is widely attributed to the a major insider-trading scandal that sent one of its top hedge fund managers to prison. But the estate of one of the defunct firm's hedge funds has a different theory: It was brought down by Libor manipulation.

Salix Capital, one of FrontPoint's former funds, sued a host of banks this week, alleging that they kept the interest rate artificially low, causing $250 million in damages to the hedge fund, which "relied on the integrity of how Libor was set and the truthfulness of defendants' representations about how Libor was set in entering into" Libor-pegged interest-rate swaps with the banks.

"By suppressing Libor, defendants artificially lowered the amount they were contractually obligated to pay to the funds under the interest rate swaps, while still demanding that the funds make the contracted-for (comparatively high) fixed-rate payments," the lawsuit, filed in New York State court, alleges. "In marketing the basis packages, defendants misrepresented Libor and omitted to disclose their manipulation of Libor."

The suit goes on to blame those 2008 losses for FrontPoint's demise. The hedge fund was set to spin off from Morgan Stanley in 2010 when top healthcare manager Joseph Skowron was accused of insider-trading. Skowron's hedge funds accounted for about half of FrontPoint's $7.5 billion in assets, and investors began to flee its other hedge funds in droves.

The banks named in the lawsuit are Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, JPMorgan Chase, the Royal Bank of Scotland and UBS.


In Depth

Q&A: Neil Azous Talks Global Macro Investing

Nov 24 2014 | 12:41pm ET

Neil Azous is the founder and managing member of Rareview Macro, an advisory firm...

Lifestyle

Griffin Selling Chicago Apartment

Nov 26 2014 | 11:40am ET

Citadel Investment Group’s Kenneth Griffin is making clear to his estranged wife...

Guest Contributor

Why The Big Money Is Going To Europe

Nov 14 2014 | 6:03am ET

Peer-to-peer lending was invented with the individual investor in mind. But despite...

 

Sponsored Content

    For Hedge Funds, Mastering Data Is Key To Success

    Nov 4 2014 | 9:45am ET

    Data management is important to every business, but for hedge funds, it is critical. FINalternatives recently asked Peter Sanchez, CEO of Northern Trust Hedge Fund Services, how fund managers can deal with the demands of managing data while at the same time remain transparent and abide by operational best practices. Read more…

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

November 2014 Cover

Building a better market

Reg NMS created a huge bifurcation in equity markets and while much of what has followed has been positive, in terms of lower fees and greater liquidity, many traders would like to see the market come...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.