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Unless you've been living in a rock, you're no doubt aware that Barclays (BCS) agreed to a $453 million settlement with British and American regulators to resolve accusations of rigging Libor. The scandal has cost CEO Robert Diamond and COO Jerry del Missier their jobs, which is big news. But there are two hidden bigger stories that, taken together, have significant investment implications.

The first hidden story is that Barclays was just one of several players in the rate rigging conspiracy. In order to rig its offered rate, the bank had to conspire with other banks. And conspire it did, with several mega banks around the world. From Bloomberg Businessweek:

The two-year probe, which involves regulators on three continents, has touched as many as 18 financial institutions, including Citigroup (C), Deutsche Bank (DB), HSBC Holdings (HBC), JPMorgan Chase (JPM), and Royal Bank of Scotland Group (RBS). A dozen firms have fired or suspended traders in connection with internal probes looking at whether their employees tried to manipulate Libor.

The number of willing participants in the scheme suggests that the financial crisis did not sufficiently purge the banking industry of its unscrupulous players. Indeed, Bloomberg published Monday a story entitled There's Something Rotten in Banking.

And this brings us to the investment angle: Where there are unscrupulous bankers, there are lawsuits.

The second hidden story is that the settlement has opened the gates to a flood of lawsuits from institutional investors. The complicit banks are going to get hammered, and that's going to badly hurt the financial industry as a whole, which is already one Eurozone default away from implosion. In other words, this would be a good time to short financials, particularly banks that participated in the conspiracy. From Bloomberg:

"We expect that the cost of lawsuits related to Libor manipulation will dwarf the fines imposed on Barclays," said Sandy Chen, a banks analyst at Cenkos Securities Plc in London, who is "penciling in multi-year provisions that could run into the billions."

Hopefully, the media will uncover more about the 18 probed banks. CNNMoney reported on July 3 that Bank of America (BAC) is being investigated. Stay tuned.

Source: Barclays Fallout Creates Opportunity To Short Financials