Rival Banks

Goldman Sachs Group Inc. and Morgan Stanley are among financial firms that may bring lawsuits against their rivals, Bradley Hintz, an analyst with Sanford C. Bernstein & Co., said last week. Even if Goldman Sachs and Morgan Stanley forgo claims on their own behalf, they oversee money-market funds that may be required to pursue restitution for injured clients, he said.

It's not just lower rates that hurt investment firms. Libor rates that were artificially inflated could also potentially damage investors such as private-equity firms, which obtain deal financing based on the benchmark rate.

Regulators are looking at whether banks made submissions that understated funding costs during the credit crisis or if traders at the firms influenced Libor to boost profits. In addition to Barclays, UBS AG, Citigroup Inc., JPMorgan Chase & Co. and Credit Suisse Group AG are among at least a dozen banks to disclose inquiries.

Attorneys general in at least five states in the U.S. are conducting investigations tied to manipulation of Libor, adding to probes by regulators including the U.S. Justice Department.

'Complicated Case'

If the banks involved in the scandal neither admit nor deny wrongdoing to the Justice Department, it's a much harder case for fund companies, said Harvard's Pozen. To make a legal case, investment firms would have to show which banks' Libor submissions were included in the daily rate, how much they affected the average and quantify how much money their funds have lost, he said.

"While you can say in general money-market funds got less than they should have, for them to win a court case, they would have to show who's culpable for that," Pozen said. "It's a complicated case and in order to win, someone has to go day-by- day to show who did what and how it influenced Libor and how it influenced the fund managers' investment decisions."

Instead of trying to prove one or two banks influenced the rate fraudulently, plaintiffs might accuse the banks collectively of conspiring to rig the rate, Barry Barbash, head of the asset-management group at law firm Willkie Farr & Gallagher LLP, said in a telephone interview.

"Both theories are hard to show," said Barbash, a former director of the U.S. Securities and Exchange Commission's division of investment management.