New York, NY – Matthew Connolly, a former Deutsche Bank trader whose conviction for rigging the Libor interest rate benchmark was overturned last year, is now pursuing a $150 million lawsuit against the German bank for alleged malicious prosecution. Connolly claims Deutsche Bank made him a scapegoat to shield senior executives responsible for Libor manipulation.
In a ruling on Tuesday, U.S. District Judge Jesse Furman denied Deutsche Bank’s motion to dismiss Connolly’s lawsuit, finding enough factual disputes remain that prevent resolving the case at this early stage.
Furman acknowledged Connolly faces significant legal hurdles, including his initial conviction in the Libor scheme, but ruled the allegations merit further proceedings.
Deutsche Bank now has until November 14 to file a formal response to the claims. “We will vigorously defend ourselves against these claims,” the bank said in a statement.
Convictions Overturned on Appeal
Connolly previously led Deutsche Bank’s pool trading desk and was convicted alongside London-based colleague Gavin Black in 2018 for rigging the Libor rate, a key benchmark for global borrowing costs. Connolly received a six-month sentence of home confinement and a $100,000 fine.
But in January 2022, a U.S. appeals court overturned both convictions, citing a lack of evidence the defendants were actually guilty of manipulating Libor rates to benefit Deutsche Bank’s trading positions.
Black has also filed a $30 million malicious prosecution lawsuit against Deutsche Bank in a New York state court. The bank is seeking to dismiss that case as well.
Libor Rigging Scandal
The London Interbank Offered Rate, or Libor, was a benchmark interest rate that underpinned hundreds of trillions of dollars in financial products before being phased out in January 2022.
In the wake of the 2008 financial crisis, multiple banks were found to have manipulated Libor rates between 2005 and 2009 to profit from their trading positions. Regulators in the U.S. and Europe imposed around $9 billion in fines on banks, including a $2.5 billion penalty paid by Deutsche Bank in 2015.
The probes led to criminal charges for several traders allegedly involved in the scheme. Connolly and Black were among those targeted for prosecution in the U.S., but had their convictions vacated after appeals.
Connolly Claims ‘Perfect Fall Guy’ Treatment
In his lawsuit filed earlier this year, Connolly alleges Deutsche Bank used him as a “perfect fall guy” to shield top executives from responsibility in the Libor rigging plot. He asserts the bank wrongly destroyed his reputation and livelihood to redirect scrutiny from senior personnel.
Connolly claims Deutsche Bank manipulated circumstances and evidence to pin the scheme on him and his colleagues, while the true culprits at higher corporate levels escaped accountability. He is seeking $150 million in damages for lost income, legal fees, harm to his career and emotional distress.
Judge Finds Sufficient Basis for Lawsuit
In allowing Connolly’s lawsuit to move forward, Judge Furman acknowledged the case faces complex legal hurdles before Connolly could be entitled to damages. The judge specifically cited Connolly’s initial criminal conviction, which requires overcoming a high bar to then prove malicious prosecution.
However, Furman found Connolly’s complaint plausible enough at this stage to proceed to further litigation. The judge noted Connolly does not need to definitively prove his allegations yet, but simply show their viability if all reasonable inferences are made in his favor. Furman said explicit disputes of fact exist that cannot be resolved until discovery unfolds.
Deutsche Bank Plans Strenuous Defense
Deutsche Bank has strongly denied Connolly’s accusations and insists it will mount a zealous defense against the lawsuit.
The bank will likely argue Connolly cannot demonstrate conclusively that senior management, rather than his direct supervisors, directed any effort to manipulate Libor rates.
Legal experts say the case poses a tough challenge for Connolly despite surviving the initial dismissal motion. Deutsche Bank will seek to avoid a potentially massive jury verdict by asserting Connolly already admitted to wrongdoing through his previous guilty plea.
But Connolly will attempt to reveal through discovery that higher-level bank executives engaged in even greater misconduct.
The lawsuit outcome could have broader implications for other banks ensnared in the Libor scandal.
If Connolly succeeds in shifting blame to Deutsche Bank’s senior leadership, it may bolster similar claims made against top officials at other global financial institutions tied to the Libor manipulation scheme.
