The LIBOR Trial: Episode Two

6 10 2015

The SFO lost this case: see here, original post continues. Only recently former rogue UBS trader Tom Hayes, who accused the Swiss lender of distributing a manual on rigging LIBOR, became the first person ever to be convicted of benchmark rigging. He got 14 years’ imprisonment for eight counts of fraud and is appealing his conviction and sentence. However, episode two of the LIBOR trial is underway in London this week and a number of brokers thought to be acting in cahoots with Hayes are facing a jury in Southwark crown court for manipulating the interbank rate. These proceedings constitute a continuation of the long promised clean up (being overseen by the Serious Fraud Office) of rampant cheating in the banking and financial services industry that erupted in the aftermath of the global financial crisis. The sequel proceedings involve a batch of allegedly crooked individuals, namely Darrell Read (50), Colin Goodman (53), Danny Wilkinson (48) of ICAP (“a leading markets operator and provider of post trade risk mitigation and information services”); Terry Farr (44) and James Gilmour (50), formerly of RP Martin; and Noel Cryan (49, of Tullet Prebon). Their criminal trial began today and is expected to last 12 to 14 weeks and is likely to end early in the new year. All six men deny the charges and have elected to plead not guilty.

The new/emergent point in these cases is the part played by brokers, and not traders and submitters, in LIBOR manipulation. The half a dozen individuals identified above stand accused of conspiring with Hayes to rig LIBOR by suggesting numbers which were falsified and misleading. Darrell Read and Colin Goodman are said to have conspired with Brent Davies (also of ICAP) and Hayes. Terry Farr and James Gilmour are said to have conspired with Luke Madden of HSBC and Paul Robson of Rabobank to rig LIBOR. Farr also faces charges for conspiring with Hayes during his time at Citibank (which ultimately reported him over his cheating ways). Noel Cryan is accused of conspiring with UBS traders. Mr Justice Hamblen, a highly accomplished and respected judicial figure, will hear the case and it is being prosecuted by Mukul Chawla QC who saw to it that no loose boards were left dangling from Hayes’s coffin when he went down. Opening the case for the prosecution, Mukul Chawla QC argued that all six defendants conspired with Hayes and others and that they were:

rewarded in various ways to corrupt the system.

These proceedings are the result of a wide-ranging crackdown on corporate crime involving an alignment of tactics and enhanced coordination by international regulators. Employees of big banks such as HSBC, Deutsche, UBS, RBS and Citibank – which have already paid billions to settle their bad behaviour entailing “clustered criminality” – are caught up in these high profile investigations and regulatory actions and the interlinked civil and criminal legal proceedings. (As noted in Seven Deadly Sins: ‘Retrospectivity, Culpability and Responsibility’ by Roger McCormick clustered criminality is part of the Case 1 cohort of which benchmark rigging and tax evasion are classic example.)

As I have noted here, the “ringmaster” of manipulation, Tom Hayes, pleaded not guilty in December 2013 to eight charges of fraud: instead, he insisted that he was operating in a “grey area” where there were “no rules” and that UBS distributed “an instruction manual on fixing LIBOR.” “Petrified” of extradition, Hayes explained to the jury:

the only consideration was getting charged and avoiding extradition … I didn’t think about innocence or guilt.

Despite being brutally sentenced for his crimes Hayes was able to achieve his objective of avoiding extradition to the US where he was a wanted man. Hayes famously wrote an email correspondence to a broker stating that:

just give the cash desk a Mars bar and they’ll set you whatever they want.

Hayes initially agreed to plead guilty but later, changing his mind, he somersaulted on his plea. He contended that he always acted with “complete transparency” and that LIBOR rigging was an open secret. According to him, all his managers (even the CEO) were well aware of his methods.

Will these new accused say the same?

Chawla also maintained that they corrupted a process which “should not have been corrupted” and argued that Hayes was the “central figure” and that as the master puppeteer he manipulated the brokers. According to the prosecutor:

Each one of these six defendants was essentially helping him to cheat those who had entered into trades with.

Read was Hayes’s partner in crime at ICAP and the broker at the euro yen cash desk in London and New Zealand was reportedly known by the moniker “Big Nose”. Goodwin was known by moniker “Lord LIBOR”. Read’s manager Wilkinson who also allegedly participated in the rigging was known as “Sarge” and described the rigging as “arbi” (shorthand for “arbitrage”) . The prosecution’s case will continue until the middle of November 2015 and the accused will present their defence thereafter. The first three counts on the indictment relate to Hayes’s activities at UBS whereas the second two are connected to his time at Citigroup. Chawla has had to explain quite a lot of technical jargon to the jury; terminology used in the banking trade – such as a “yard” signifying a billion and a basis point meaning .001% and so forth – which these individuals relied upon to carry out their malevolent designs.

Chawla said that Hayes’s actions “loom large in everything” and that the six accused were “middlemen” in his cheating ways. The jury heard the prosecution argue that the immediate victims of handsome rewards for the middlemen were the traders at the other end of Hayes’s trades.

Hayes used inducements such as posh restaurant meals, beer and even curry to get these defendants to rig the rate in his favour. The Guardian has reported today (8 October 2015) that on his first trading day at UBS in Tokyo, i.e. on 29 September 2006, told Farr on Bloomberg chat to “do me a favour today and get LIBORS right up? started trading today and am long of em.” Farr replied: “I’ll do what I can.” Moreover, Read got a request from Hayes and responded: “Do my best mate.” Soon afterwards, Hayes sought Read’s collaboration to get someone else at another firm to manipulate the six-month LIBOR rate, saying he had a “fix” worth 350 billion yen – then equivalent to about £1.75 billion – depending on it, the jury heard.

On another occasion, Hayes said to Read: “I’m getting absolutely done on this, I’ve lost a fortune”, and Read replied “Shite … will push as high as I can.” The prosecution alleges that Read changed over to night shifts so he could do more to manipulate things in a different time zone.

“Can you please get 3 and 6-month [LIBOR rates] as high as is possible today. We’ll sort you out with a curry takeaway next week in recognition of your efforts. Thanks mate,” Read told ICAP colleague Goodman on 20 October 2006. Email exchanges recorded that while at UBS Hayes wrote: “Well done Darrell and Terry [Farr]. I owe them a beer.” Similarly, Read promised Goodman “copious amounts of curry” in return for LIBOR manipulation. Another treat offered was a meal at K10, a Japanese restaurant in the City.

Chawla said to the jury:

It is small things like beers or a curry. The process is not so trivial.

Phone calls played to the jury between the accused included Farr appearing to ask someone (who did as he was told) to lower LIBOR as a favour for a “geezer at UBS, he’s a mate and he does us a lot of favours … anything above that [a certain rate] is going to fucking lose us a load of money so I said I’d have a word with you.”

In arguing his case, Chawla explained that:

It has got nothing to do with the LIBOR definition and how LIBOR should be set. It is all to do with trader manipulation, to do with causing maximum advantage to his [Hayes’s] trading book to the disadvantage of others.

Reportedly, in March 2007, Read wrote to Hayes:

I need to make up some ground on the average monthly brokerage fee to get myself a contract worth having in New Zealand … Good luck Tom hope you make us both lots of money!

As noted above, five sets of charges are involved in these cases. Three involve Hayes until 2009 when he was at UBS and two turn on his time at Citibank. All six defendants have pleaded not guilty.

I hope to update this page as the trial progresses.

Episode Three: Forex: The Next Criminal Bombshell?

Notably, on 21 July 2014 the Director of the Serious Fraud Office opened a criminal investigation into allegations of fraudulent conduct in the foreign exchange market.

As noted before on this blog, the LIBOR scandal is 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.

The rigging of forex markets was achieved by rogue traders who congregated in chat rooms under aliases such as “The Cartel” and the “Coiled Cobra”.

FMSA and Third Party Rights

In relation to the forex investigations, Rohan Ramchandani (previously European head of spot trading at Citigroup) and Richard Usher (formerly the chief currency dealer in London for JP Morgan) are also pursuing challenges because of being identified by the FCA in the $4.3 billion global settlement in November 2014 as regards forex manipulation involving a half a dozen banks. Usher and Ramchandani are due to be interviewed by the SFO at the end of this month.

Ramchandani, who was allegedly part and parcel of the Cartel, is presently under investigation by the Serious Fraud Office. Apart from Ramchandani, other alleged members of the Cartel include Usher, Matt Gardiner and Chris Ashton (a temporary member). The details of these venal networks have emerged out of May 2015’s forex rigging penalties.

As noted before on this blog, the case of Macris is not just a one-off case. Macris contended that the notice clearly identified him and that he should have been given third party rights within the meaning of section 393 of the Financial Services and Markets Act 2000. Longmore, Patten and Gloster LJJ found against the FCA: see The Financial Conduct Authority (FCA) v Achilles Macris [2015] EWCA Civ 490 which the FCA is appealing to the Supreme Court.

The Court of Appeal ruled that the FCA should have given Macris the right to make representations on certain matters set out in the final notice issued to JPMorgan Chase Bank N.A (JP Morgan) on 19 September 2013 which related to the ‘London Whale’ trades.

Quite literally following suit, Deutsche Bank’s former super star trader Christian Bittar is also taking action against the FCA for improperly identifying him in April’s historic LIBOR manipulation settlement – which left Deutsche Bank nursing fines totalling $2.5 billion – with American and British regulators. Bittar, who has been privately warned by the FCA that it wants to fine him £10 million for benchmark rigging, alleges that he was not provided the opportunity to make representations before the watchdog’s findings were published. He was identified in the FCA’s final notice as “Manager B” and in the US as “Trader 3”.



7 responses

14 10 2015
Former Rogue UBS Trader Kweku Adoboli Loses Deportation Appeal | Global Corporate Law

[…] to Tom Hayes (who got 14 years’ imprisonment and is appealing his sentence and conviction) and others being prosecuted for benchmark rigging, it is arguably quite scandalous that UBS rogue trader Kweku Adoboli (who was […]

14 10 2015
Former Rogue UBS Trader Kweku Adoboli Loses Deportation Appeal | United Kingdom Immigration Law Blog

[…] to Tom Hayes (who got 14 years’ imprisonment and is appealing his sentence and conviction) and others being prosecuted for benchmark rigging, it is arguably quite scandalous that UBS rogue trader Kweku Adoboli (who was […]

19 11 2015
EURIBOR Manipulation: SFO Charges First Individuals | Global Corporate Law

[…] Darrell Read, Colin Goodman and Noel Cryan is currently ongoing at Southwark Crown Court (see here). These individuals are charged with conspiracy to defraud in respect of LIBOR manipulation and […]

7 12 2015
SFO v Standard Bank: First UK Deferred Prosecution Agreement | Global Corporate Law

[…] seen before on this blog, the SFO is also ploughing through the second LIBOR trial involving interdealer brokers and has also issued the first criminal proceedings against 10 […]

29 12 2015
Tom Hayes: LIBOR Fraudster’s Sentence Reduced, But Conviction Upheld | Global Corporate Law

[…] 38 to 60 of the court’s judgment cannot be reported until the conclusion of Trial 2 (see here) before Hamblen […]

28 01 2016

Brokers found not guilty of Libor fraud label trial a ‘sham’

Darrell Read was the last of six to be cleared of helping Tom Hayes, as group says SFO’s handling of investigation made them ‘scapegoats’

The six brokers found not guilty of helping Tom Hayes rig Libor interest rates have said their trial was a “sham” and they were made scapegoats, in heavy criticisism of the Serious Fraud Office’s handling of the investigation.

They spoke outside Southwark crown court after Darrell Read was found not guilty of the one outstanding count against the brokers, meaning they have all been cleared.

The jury returned a majority verdict of not guilty against Read, prompting cheers from the other five men, who were in court supporting him a day after they were cleared.

The other brokers were Danny Wilkinson and Colin Goodman, who worked at Icap with Read; Noel Cryan, formerly of Tullett Prebon; and Jim Gilmour and Terry Farr of RP Martin.

They were accused of helping the former UBS and Citigroup trader Hayes, who is serving 11 years in prison, to rig Libor.

Cryan said the men had been made scapegoats: “It has turned our lives upside down. Realistically, we should never have been here. We feel we’ve been scapegoated.

“There are things to be answered but we are not the ones who should be answering them.”

Read said the case had been a “sham” and that the SFO “didn’t investigate it properly and didn’t listen”.

The brokers celebrated the verdict by heading to the local pub. Their trial lasted four months, but the jury was out for less than a day before announcing the verdicts.

The men, whose nicknames included “Lord Libor” and “Big Nose”, were accused of acting as go-betweens by passing around requests from traders and being paid extra commission by Hayes.

Libor is the interest rate at which banks borrow from each other. It underpins trillions of pounds worth of contracts, from mortgages to corporate lending.

Nick Hayes, the father of Tom Hayes, heralded the verdict and said the SFO’s investigation had been a “shambles”. The verdict raises the prospect of Hayes appealing his sentence

In a series of posts on Twitter, Nick Hayes said: “Today Tom Hayes stands tall. He refused to testify versus the Libor brokers and paid the price, while they’re back with the [sic] family. I’m proud of him.”

“In conspiracy to defraud prosecution must first prove ‘agreement’ between conspirators. Where now Tom Hayes, who must’ve agreed only with himself?

“I strongly believe fraudsters should be behind bars. Lets start with the SFO who defrauded the UK taxpayer of millions of pounds in the Libor shambles.”

A spokesman for the SFO confirmed the agency will not appeal the verdicts.

David Green, the SFO director, said: “The key issue in this trial was whether these defendants were party to a dishonest agreement with Tom Hayes. By their verdicts the jury have said that they could not be sure that this was the case.

“Nobody could sensibly suggest that these charges should not have been brought and considered by a jury.”

A new Libor-related trial involving a group of former Barclays traders is scheduled to begin in February. The SFO is also pursuing six individuals for allegedly rigging Euribor, the European equivalent of Libor.

The jurors were told by the judge only to convict the six brokers if evidence showed that they played a “significant” role in helping Hayes rig Libor.

“You would need to be satisfied that any involvement was not minimal or merely transitory, but something which establishes significant involvement in the continuing conspiracy,” Judge Nicholas Hamblen said.

Lawyers said that the SFO had been hindered in securing prosecutions because the British legal system meant it was difficult to pursue companies as opposed to individual employees.

Alison McHaffie, a partner with law firm CMS, said: “Apart from being acutely embarrassing to the SFO, these verdicts show how difficult it is to demonstrate criminal activity by individuals for this type of type of market misconduct.

“It is always easier to bring regulatory action rather than criminal prosecution against the firms themselves. In future, the regulator will find it easier to pursue disciplinary actions against individuals for wrongdoing.”

Matthew Frankland, the solicitor for Wilkinson, said: “Ultimately, there is a hypocrisy in charging brokers. Brokers do not work for banks, they play no part in the Libor submission process and are not and never were regulated by the BBA in relation to their Libor predictions.

“The case also further highlights that, yet again, most of the individuals prosecuted in the Libor cases are relatively junior within the different organisations, with more senior people not being held to account.”

David James, the solicitor for Goodman, who was known as Lord Libor, added: “We can only reiterate what his counsel told the jury, that the SFO case was a complete shambles and should never have been brought.”

22 03 2016
Benchmark Manipulation and Corporate Crime: Insights on Financial Misconduct | Global Corporate Law

[…] the second innings things were different. The reverse swinging old ball meant that the Serious Fraud Office came back […]

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