Banks Bombshell May Lie in Sleeper Suit

NEW YORK (TheStreet) -- A price-fixing case involving some of the world's largest banks, including U.S. giants Citigroup, Bank of America, JPMorgan Chase could end up providing the criminal prosecution of high-level bank executives that many critics of the financial services industry have been seeking.

While the case has received steady coverage it hasn't registered with the public. That's most likely because it involves Libor--an acronym determinedly unsexy and seemingly disconnected from every day concerns.

But Libor, which stands for the London interbank offered rate, is a critical metric for the banking industry. Set by a group of some of the world's largest banks, it reflects the rate at which they are willing to lend to one another. Along with U.S. Treasury rates, it is one of the most important metrics for setting prices on a vast number of bonds and loans.

Libor touches everything from multi-billion dollar syndicated loans to your mortgage.

Some of the 16 banks that set the Libor rate in 2007 and 2008 are being investigated for possible manipulation of that market, and investigators are now looking at potentially bringing criminal charges, according to a report in the Financial Times Thursday.

The report states that all 16 banks on the London panel in 2007 and 2008 have been asked to give information to investigators, who are being led by the Commodity Futures Trading Commission and the U.S. Justice Department. Investigators from the UK, Japan and the European Union are also involved in the case, according to the FT report. It isn't clear which of the 16 banks could face criminal charges. While an FT in March stated that Barclays was "emerging as a key focus" of the probe, Thursday's report made no mention of the British bank.

In eyeing criminal charges, investigators are focusing on potential violations of the Commodity Exchange Act which led to criminal settlements and prison terms of up to 14 years when a similar strategy was used against American Electric Power, Mirant Energy Trading and Williams Power, the FT report states. The law prohibits dissemination of a false report that could affect commodity prices.

Critics of the banking industry have complained about the lack of criminal prosecutions brought against Wall Street executives. One high profile case against Bear Stearns fund managers Ralph Cioffi and Matthew Tannin was unsuccessful, and though Galleon Groupfounder Raj Rajaratnam was successfully convicted in May, that case has not satisfied most critics who argue the case has relatively little to do with what brought about the crisis in 2008.

While the same may be said of the Libor case, it appears closer to the mark.

First of all, it appears to involve banks conspiring with one another. Second, it relates to the credit markets--where most of the massive damage to the world economy was done.

If prosecutors are able to put pressure on senior credit market officials at some of the world's largest banks, they could be closer to getting the kind of inside information they need to put some serious dents in Wall Street's armor.