If Libor is found to be fraudulently fixed, are any of the derivative contracts with a floating libor leg still valid?
I assume that rate derivatives refers to a given underlying libor index that is published by either BBA, EBF or so and that than no counterparty can deny its liability wrt the contract. As such contracts are still valid between the counterparties eventhough one counterparty can suite the responsible of the fraud itself.
I read this dealbreaker post (via a link from Deus Ex Macchiato), which explains that many (most?) contracts detail something like 'the number on the Libor01 Reuters page' rather than 'the rate published by the BBA as the 3m LIBOR'.
So, as Levine argues, if the BBA rephrase Libor as something else, even a trade-driven value, many of those agreements would still be valid. As he also points out, that could step into territory arguable as a change of contract, if it was a significantly different rate.
Note also that Libor is just the BBA's fixings. Everyone other than UK, US and some Euro participants who use Libor instead of Euribor should be ok until Euribor undergoes the same crisis.
Frankly, the value of Libor has already diverged so far from the risk-free rate for so long that instrument holders must have already had to reprice everything. One more change might just instigate a round of revaluations, depending on which way the fixing went.
Presumably the SEC-defined swaps will be stricter on the floating rate, or at least detail some eventualities for Libor ceasing to function.