Navinder Sarao: ‘Flash Crash’ Trader’s Extradition Appeal Adjourned

29 09 2015

Like Tom Hayes who got burned for benchmark rigging – but is appealing both his conviction and his sentence – Navinder Singh Sarao also suffers from Asperger’s Syndrome (autism). People like them only see the world in black and white and are unable to see shades of grey. Hayes got 14 years which seems to be disproportionate given that UBS had distributed a manual on rigging LIBOR. But he managed to play the Serious Fraud Office and achieved his main objective, i.e. to dodge extradition to the US. Sarao faces a potential sentence in the US, on 22 counts, which may be as long as 380 years’ imprisonment. The charges against Sarao include wire fraud, commodities fraud, commodity price manipulation and attempted price manipulation. He is charged with using his trading algorithm to spoof markets. After being granted bail in August he got his second lucky break and his extradition hearing was adjourned for four months because of changes, which seek to vary the start date of the allegation of the criminal activity by six months, in the charges levelled at him. Sarao was arrested on 21 April 2015. The US authorities, lead by the Department of Justice and the Commodities Futures Trading Commission (CFTC) believe that Sarao is a malevolent individual.

But then again the Americans are also still running Guantánamo Bay despite the Obama administration’s promise to close the prison which Lord Steyn famously described by as a “legal black hole”: see post on Shaker Aamer’s return after 14 long years of being held there without charge. Because he does not have a spouse or a child, Sarao was initially refused bail because of posing a “quintessential flight risk” but was finally released on 14 August 2015 by Westminster magistrates’ court when his bail was reduced from £5 million to £50,000. His extradition appeal was due to be heard this month. Hitherto attempts to postpone the hearing scheduled on 25 September 2015 were unsuccessful: see posts here and here. The reasons for postponing the extradition hearing are related to the fact that the US authorities are pressing further charges against him and want to back date his criminal activity by six months to January 2009. Sarao told that Westminster magistrates’ court that he did not consent to being extradited to America. Read the rest of this entry »

Société Cooperative de Production SeaFrance S.A. v CMA and Another

16 09 2015

The Supreme Court’s website explains that it has granted permission for the Competition and Markets Authority (CMA) to appeal the Court of Appeal of England and Wales’ decision Société Coopérative De Production Seafrance S.A. v Competition and Markets Authority & Anor [2015] EWCA Civ 487 (15 May 2015) in a case relating to the acquisition by Eurotunnel of three out of SeaFrance’s four ships, together with certain business assets. The Supreme Court’s website explains that the legal question relates to whether or not Eurotunnel acquired an “enterprise” through the transaction, and therefore whether or not the CMA had the power to require Eurotunnel to take remedial action. The case has been listed to be heard before five Justices on 14 and 15 October – one of the first cases to be heard by the Supreme Court in the new legal year. Additionally, an advocate to the court has been appointed to assist the Justices in examining some of the legal issues raised by CMA’s appeal, in the absence from the proceedings of representatives of the liquidators of Societe Cooperative De Production SeaFrance.

The Court of Appeal, held that the CMA’s decision that the activities of a liquidated company had been brought under the control of a competitor such as to found a relevant merger situation under the Enterprise Act 2002, section 22(1) and section 129(1) was fundamentally flawed. It had held that the company’s former employees had effectively transferred to the competitor, but the liquidator’s dismissal of the employees had rendered irreversible the cessation of the company’s activities. Arden LJ (dissenting) concluded for the that it had not shown that the CMA came to a decision which was irrational or wrong in law. The CMA could rationally take the view that, even though SeaFrance has been placed in liquidation, and even though its employees have been declared redundant, Groupe Eurotunnel SA/Société Coopérative de Production SeaFrance S.A. acquired its business. The CMA made some errors in the way it described the events but the conclusion which it reached was inevitable. Her Ladyship would have dismissed the appeal. Read the rest of this entry »

The Senior Managers Regime

12 09 2015

Tom Hayes did not bring down a bank but he paid a heavy price for being a part of the wider dirty casino culture built into the world of finance. During his trial, important questions were thrown up about the degree to which his seniors were culpable in his actions. In applauding the Senior Managers Regime (SMR), which aims to fill the lacuna in the regulatory regime, it has already been argued that Sir Jeremy Cooke was right to say that those supervising Hayes were irrelevant to his crimes: they would, after all, raise the stale decades old “we didn’t know” defence. But this historical rebuttal has been stretched to its outer limits: too overworked and overloaded, it has crowded itself out. As Roger McCormick explained in a recent interview referring to the famous Swaps Case from the 1980s: “Patience has run out and it’s no longer acceptable for them to just say, ‘It’s not our fault, we didn’t know.’ Laws of this kind reflect that impatience. We’ve had enough of this. We can’t have big, unruly banks that are out of control with no one at the top really accepting responsibility for what’s going on.” We must not lose sight of the fact that a divergence of views exists in this field. Senior lawyers and academics do not necessarily see eye to eye on everything that the regulators say.

Some unknown authors in the media argue that: “The LIBOR conviction is welcome. Now directors must be held accountable too.” It is said that the trial “was a landmark moment in the cleanup of the City after the financial crisis.” Mark Carney pledged that the SMR will in principle apply to him and the Bank of England but the bank is uneasy about opening up to official auditors for fear that such proposals may reduce its autonomy. George Osborne has been, as of July, consulting in relation to a Bank of England Bill targeting accountability and transparency at Threadneedle Street. The bank is “uneasy” and “surprised” by thoughts of being swept within the audit powers of the National Audit Office outside whose scrutiny it has historically been. As regards future prospects of independence, the bank is not satisfied with the limited comfort offered by the retention of its policy making functions and potentially keeping them outside the scope of the National Audit Office’s oversight. Read the rest of this entry »

Tom Hayes: Trial By Fire

19 08 2015

As ever, the world of finance is abuzz with sizzling news. Most of it, like the judgment in Plevin [2014] UKSC 61, makes pretty grim reading for banks. Similarly, forex fixing claims worth billions are brewing in London – a colossal currency market – because of last week’s $2 billion payout in New York by household names such as Barclays, HSBC and RBS and numerous others: indeed, the settlement of class action litigation with investors, arising out of the rigging of WM/Reuters 4pm London Fix, has been tipped as opening the floodgates. This comes off the heels of May 2015’s foreign exchange (forex or FX) rigging penalties of $5.6 billion: watch excellent video on how the “Cartel” and Coiled Cobra” rigged the marketplace. Such events leave little room for doubt that the LIBOR scandal was just the tip of the iceberg because the rigging of the $5.3 trillion-a-day forex markets completely dwarfs the total $500-$800 trillion value of financial contracts underpinned by LIBOR. Citigroup, JPMorgan Chase & Co, Barclays and RBS all pleaded guilty in May in forex related criminal cases. In other news, things are looking dreadful for those charged by the Serious Fraud Office (SFO). In the first LIBOR trial, Tom Hayes, an obscure yen derivatives trader in UBS and Citigroup became the world’s first individual to be tried and convicted for benchmark rigging. He got 14 years’ imprisonment for his crimes. Against this nightmare sentence, his trial has set a chilling precedent for the 12 others in his shoes who are awaiting trial.

Hayes contended that he was operating in a “grey area” where there were “no rules” and that he had no compliance training, but this did nothing to help him. His predicament gives promise to the maxim that “the age of irresponsibility is over.” In the case against him, Hayes was described as a “ringmaster” whose avarice knew no bounds. The archetypical Foucauldian fiend, he stood accused of using corruption and accepted making “concerted efforts to influence LIBOR” but argued he “was operating within a system”. Discussing the dilemma’s associated with punishment, in Discipline and Punish: The Birth of the Prison Foucault concludes that the offender is “worse than an enemy” and that transgressing the boundaries set by society makes him “nothing less than a traitor, a monster.” The outcome of this pivotal case will serve as a yardstick for future prosecutions against benchmark manipulators and fraudsters. The system had to make an example of Hayes to create a deterrent effect, others will think twice before following in his wretched footsteps. Read the rest of this entry »

Terminated: City Sheriff Shot Down

16 08 2015

The tough talking Martin Wheatley finally decided to resign last month. But it was for the wrong reason, i.e. vanity. He was unhappy about his boss George Osborne’s refusal to renew his contract as head of the Financial Conduct Authority (FCA) in March 2016. Whilst Wheatley does not accept the excesses of his four year stint as City Sheriff, many in financial circles are nonetheless breathing a sigh of relief that his reign of terror is over. A trigger-happy sort of chap, unlike his iconic predecessors (e.g. Howard Davies, Hector Sants etc) whose shoes he just couldn’t fill, Wheatley persistently failed to command the respect of the financial elite. The shot down sheriff will be temporarily replaced by his deputy Tracey McDermott (who will temporarily act as CEO from 12 September 2015) and Andy Haldane (the Bank of England’s Chief Economist) has been tipped as his permanent replacement. Wheatley, who became globally infamous for his fierce crackdown on the cheating that has historically infected financial services, reportedly said that he is disappointed to be leaving his job because he had some unfinished business to settle; apparently, the cure had not fully been delivered. The caped crusader’s legacy has been one of lumbering the banks with fines, authoring the Wheatley Review (which was germane to reforming LIBOR/benchmarks) and co-authoring the equally seminal Fair and Effective Markets Review with the Bank of England and HM Treasury.

Despite having resigned, Wheatley will apparently stay on at the FCA in an advisory role and he will be paid until July 2016 irrespective of his actual exit in January 2016. He received more than £700,000 in compensation last year. His work has been hailed as the blueprint for oversight of financial benchmarks and has come to form the bedrock of the conduct regime. Equally, his tenure had a lot to do with fear and loathing in the City and mischievous individuals in financial services must be hugely tickled that the terminator himself has been terminated. On the other hand, some were of the view, that his systemic efficiency was little more than a lot of huff and puff. For example, on the subject of third party rights the Court of Appeal – see the long read – thought that his FCA failed to follow proper legal channels and truncated procedures when wrongdoing was penalised and regulatory action was taken. As far as Gloster LJ (with whom Longmore and Patten LJJ agreed) could see, the wheels of justice had simply turned too fast and third party rights had suffered as a result: in other words, enforcement had become redolent of the law of the jungle, the judgment is being appealed to the Supreme Court. Read the rest of this entry »

Hunter into Prey: City Watchdog Exposes its Achilles’ Heel – Part 2

6 07 2015

HeelThe issues in the last post must be examined in light of the scandal which erupted in late 2014 when the FCA came under heavy fire from the Davis Report because of the highly irresponsible way in which it had leaked sensitive data to the media earlier in March that year. Simon Davis, a partner in the Magic Circle firm Clifford Chance, stressed that there had been nothing less than systemic failure. Davis was adamant that the FCA failed to address the issue of whether the information given out might be price sensitive. The conclusion was unsurprising because the leak culminated in an article in the Telegraph headlined Savers locked into ‘rip-off’ pensions and investments may be free to exit, regulators will say which claimed that the regulator was planning an investigation of 30 million pension policies, some sold as far back as the 1970s. Consequently, big insurance companies had billions wiped off their share prices. The misapprehension that selected annuity products would be picked out meant that major UK insurers saw their share prices plummet. The insurers called for Wheatley’s resignation. Even the Chancellor George Osborne bemoaned he was “profoundly concerned” by the episode. In his inquiry, Davis unearthed multiple failures symbolic of a dysfunctional organisation, and he emphasised that the regulator was “high-risk, poorly supervised and inadequately controlled.”

Davis – who was unsparing in his criticism – held the FCA’s Board responsible for the flaws in the regulator’s controls on the identification, control and release of price sensitive information. The buck ultimately stopped with the board because it “failed in its oversight of the FCA’s executive and … failed to identify the risks inherent in the FCA’s communications strategy.” The episode required urgent action and an external organisation needed to review the board’s practices and effectiveness. So serious were the mechanical failures of corporate governance of the City watchdog. To scotch the confusion, in light of public hearings that ensued, on 17 March 2015 the House of Commons Treasury Select Committee (the Treasury Committee) published Thirteenth Report (2014-2015): Press briefing of information in the Financial Conduct Authority’s 2014/15 Business Plan (HC881). Read the rest of this entry »

Hunter into Prey: City Watchdog Exposes its Achilles’ Heel – Part 1

6 07 2015

Achilles “When the pendulum swung back it did so in dramatic fashion,” claims the iconic Howard Davies in his admirable sketch of the 2008 global meltdown entitled Can Financial Markets Be Controlled? “Bankers have vanished from the Honours lists in London. They are barely respectable in New York,” continues the first ever chairman of the abolished Financial Services Authority (FSA, 2001-2013). Yet in May 2015 the tide turned against the FSA’s successor. In The Financial Conduct Authority (FCA) v Achilles Macris [2015] EWCA Civ 490, the legal pendulum swung back in favour of the banks because an unhesitant Court of Appeal safeguarded the reputation of the global financial elite by unanimously dismissing the FCA’s appeal against the decision of the Upper Tribunal: reported as [2014] UKUT B7 (TCC). At first blush, the decision looks like a small step. But properly understood it significantly derails clichés about the bugbear of evil bankers. It equally exposes the FCA’s Achilles’ heel. The issue before Longmore, Patten and Gloster LJJ was whether the FCA’s notices identified Mr Achilles Macris for the purposes of section 393 of the Financial Services and Markets Act 2000 (FSMA) in which case the watchdog ought to have given him third party rights. The third party procedure secures the fair treatment of the reputation of third parties so that they are not presumed guilty in the enforcement process.

Oddly, despite the recent 800th anniversary of the fight for freedom incorporated in Magna Carta, present day executive procedures are not being properly followed. These two posts argue that the tough talking FCA’s Achilles’ heel is becoming increasingly exposed not only because of the important issues in the landmark case of Macris but also because of its unpardonable misconduct in relation to the Telegraph article headlined Savers locked into ‘rip-off’ pensions. Mishaps such as these seem to be turning the hunter into easy prey and questions loom large over its prowess to hold mischief to account. Similarly, these two posts also examine the new Senior Managers and Certification Regimes and question the conventional wisdom in relation to whether a heftier rulebook will bring us closer to a better formula for conduct. Light is also shed on the Supreme Court’s existing jurisprudence involving the FSA/FCA because Macris is in the process of being appealed Read the rest of this entry »


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