|Barclays CEO Bob Diamond|
Campus Crest Communities, whose CEO was the beneficiary of a grossly unlawful divorce judgment in Alabama, draws major financial support from a bank at the center of an international rate-fixing scandal.
Barclays, the London-based bank at the heart of the evolving LIBOR scandal, is a primary backer of Campus Crest Communities. In fact, Barclays joined with Raymond James and Citigroup as underwriters for a $62.7 million public offering that Campus Crest launched in late June.
The public offering was announced on the same day that Barclays agreed to pay $453 million to settle allegations that it manipulated a key interest rate known as the London Interbank Offered Rate (LIBOR). Several top executives, including CEO Bob Diamond, have stepped down.
Barclays, however, hardly is out of the woods. Robert Reich, a former U.S. labor secretary in the Clinton administration, has called LIBOR the "Wall Street Scandal of All Scandals" and hinted that criminal penalties could be coming.
That can't be good news for Ted Rollins, CEO of Campus Crest Communities. His company completed a $380-million Wall Street IPO in 2010 and has built and managed student housing at 33 universities around the country. It has a $26.3-million project planned for Auburn University.
Zac Parrish's mother, Sherry Carroll Rollins, was married to Ted Rollins for almost 15 years. She filed for divorce in Greenville, South Carolina, where the family lived, and the case was litigated there for more than three years. But she and the couple's two daughters, Sarah and Emma Rollins, were forced out of their home when Ted Rollins failed to pay the mortgage as ordered by a court--and they fled to Alabama, where Ms. Rollins had relatives.
Ted Rollins, contrary to clear law, somehow managed to get the divorce case moved to Shelby County, Alabama, where he wound up with a judgment that was so one-sided that it has left his daughters and ex wife on food stamps. How did Ted Rollins pull that off? Well, it probably helped that his primary corporate law firm is Birmingham-based Bradley Arant, the largest and perhaps most powerful "pro corporate" firm in Alabama.
The CEO of Campus Crest Communities is no stranger to scandal. And now it looks like one of his strongest financial backers is immersed in ugliness of epic proportions.
Matt Taibbi recently put the LIBOR scandal in perspective for a piece at Rolling Stone, saying the public has yet to comprehend the massive scope of the deceit involved. Wrote Taibbi:
The furor is over revelations that Barclays, the Royal Bank of Scotland, and other banks were monkeying with at least $10 trillion in loans (The Wall Street Journal is calculating that that LIBOR affects $800 trillion worth of contracts).
The banks gamed LIBOR for two semi-overlapping reasons. As noted here last week, there were instances of Barclays traders badgering the LIBOR submitters to "push down" rates in order to fatten their immediate bottom lines, depending on what they were trading or holding that day. They also apparently rigged LIBOR downward in order to produce a general appearance of better health, essentially tweaking their credit scores a few ticks upward.
A piece at The Economist says the scandal exposes "The Rotten Heart of Finance" and could turn into a global banking crisis:
What may still seem to many to be a parochial affair involving Barclays, a 300-year-old British bank, rigging an obscure number, is beginning to assume global significance.
The number that the traders were toying with determines the prices that people and corporations around the world pay for loans or receive for their savings. It is used as a benchmark to set payments on about $800 trillion-worth of financial instruments, ranging from complex interest-rate derivatives to simple mortgages. The number determines the global flow of billions of dollars each year. Yet it turns out to have been flawed. . . .
As many as 20 big banks have been named in various investigations or lawsuits alleging that LIBOR was rigged. The scandal also corrodes further what little remains of public trust in banks and those who run them.
It seems clear that LIBORGate will, indeed, grow way beyond Barclays. Some are saying this could be the banking industry's "tobacco moment." From The Economist report:
Regulators around the world have woken up, however belatedly, to the possibility that these vital markets may have been rigged by a large number of banks. The list of institutions that have said they are either co-operating with investigations or being questioned includes many of the world’s biggest banks. Among those that have disclosed their involvement are Citigroup, Deutsche Bank, HSBC, JPMorgan Chase, RBS and UBS.
What does all of this mean for companies who depend on these banks for financing? The answer is not clear, but perhaps that question has crossed Ted Rollins' mind.
Public documents show that notable holders of Campus Crest Communities stock include UBS, Deutsche Bank, and Goldman Sachs. Among its prime financial underwriters are Barclays, Citigroup, and RBC Capital Markets. Published reports indicate that some, maybe all, of those entities will become ensnared in the LIBOR scandal.
What was the motive for rigging LIBOR? One, not surprisingly, was to make money. Here is how an article at ProPublica explains it:
The traders wanted to influence the rates in order to profit on positions they had taken in particular trades and to benefit Barclays’ derivatives portfolio as a whole. Emails and other records show that this occurred frequently from 2005 to 2007 and occasionally until 2009. It’s not clear when, and by how much, the traders’ requests actually affected the rates, though the U.S. Justice Department says they sometimes did.
Could investigations show that ill-gotten funds wound up supporting up-start firms such as Campus Crest Communities? Are some companies built on a foundation of the LIBOR scandal? Is Campus Crest one of them? Time, perhaps, will tell.
Bradley Arant apparently was able to get Ted Rollins out of a jam on his divorce case. Some far bigger jams than that might be waiting around the bend.