Forbes By Erin Carlyle
28 March 2013 – Billionaire developer Sheldon Solow, who built the tony Nine West 57th tower in New York City, appears to be the biggest individual loser in the Libor scandal in the U.S.—at least so far. He claims that bankers’ malfeasance in the scandal cost him half $1 billion.
But D.C. litigator Michael Hausfeld, who is representing investors in one of the leading Libor cases, says that Solow’s financial loss is just a hint of what’s to come.
“It’s a drop in the bucket, unfortunately,” says the attorney, who is chairman of Hausfeld LLP. “You’re dealing in a market that’s in the hundreds of trillions.”
He expects more such suits–large money suits affecting high net worth people–to be filed. When asked if he knew of other cases like Solow’s, Hausfeld said “Not yet.”
“He lost half a billion. That’s real money,” says attorney Anthony Michael Sabino, of Sabino & Sabino in Mineola, New York. “I would think that if he’s out there, on the radar, there’s another nine affluent individuals or companies that had a similar problem, but did not sue because there was behind-the-scenes talks and settlements. There might have been threats.”
Solow sued Citibank, Bank of America, JP Morgan, and Credit Suisse in February, alleging that their manipulation of the Libor rate resulted in the wrongful seizure of his bond portfolio. His is the largest case affecting an individual plaintiff, and also the first Libor case to put an exact dollar figure on the financial losses.
Other Libor cases have not yet estimated the dollar loss, in part because there are a number of legal questions pending. (Hausfeld’s case, for instance, is currently before U.S. District Court Judge Naomi Reice Buchwald, of the Southern District of New York, who must rule on whether Hausfeld’s investors is representing qualify for a class action suit.)
Here’s exactly what happened to Solow: he took out a loan from Citi to purchase the Consolidated Edison parcels along the East River, where he was planning to develop a seven-building, $4 billion project. As collateral, Solow put up more than $450 million in high-grade municipal bonds.
The loan was current. But during the fall of 2008, the complaint alleges, Citi artificially inflated the Libor rates. As a result, the value of Solow’s bond portfolio sunk, and he technically defaulted on the loan. Citi seized and sold off Solow’s bond portfolio. To add insult to injury, Citi also sued Solow for the gap in the value of his loan portfolio at the time it technically defaulted, about $100 million. Citi won the case and Solow paid.
In May 2012, Citigroup won dismissal of a Solow lawsuit alleging that the firm committed securities fraud during the 2008 financial crisis. In early February 2013, Solow filed the current suit over Libor.
If anyone would be likely to sue over personal losses related to Libor, it would be Solow. According to the Commercial Observer, he has been involved in some 400 court cases. And, as a billionaire, he has the resources to take on this kind of case. And while most of the people dealing in financial instruments were managing other people’s money, and thus might be reticent to expose portfolio-losses related to Libor, Solow doesn’t have that problem.
“Sheldon Solow is the son of a bricklayer who built this iconic building in New York City after taking a tremendous risk,” says Dan Mogin, the attorney representing Solow. “In this particular case, he feels as if he was abused by Citigroup, and was particularly shocked to learn that at the same time the Libor interest rates were being manipulated was precisely the same time they declared a technical default–even though he was current in all his loans. The same people who drove the bond prices down and declared the default simply wouldn’t take responsibility for their actions and tried to put it off onto him. He took a large loss as a result, and he’s going to get it back.”