DOJ Announces Prison Sentences of Former Derivatives Traders for LIBOR Manipulation

On March 10, the DOJ announced that U.S. District Judge Jed S. Rakoff sentenced two former derivatives traders for a Netherlands-based bank to prison for their roles in a scheme to manipulate the London Interbank Offered Rates (LIBOR) for the U.S. Dollar (USD) and Japanese Yen (JPY) from 2005-2009. The defendants, who were convicted of bank fraud, wire fraud and conspiracy charges in November 2015, were sentenced to 24 months and 12 months and a day in prison. Two additional bank employees were convicted in the same LIBOR investigation after pleading guilty to one count of conspiracy each for their roles in the scheme; two other individuals were charged and are awaiting trial.

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POSTED IN: Banking, Federal Issues, International

Former Derivatives Trader Convicted and Sentenced in U.K. on Libor Manipulation Charges, Also Facing Criminal Charges in U.S.

On August 3, a jury in the United Kingdom convicted former derivatives trader Tom Hayes on eight counts of fraud for his role in the manipulation of the London Interbank Offered Rate (Libor) for Japanese Yen. Hayes was subsequently sentenced to 14 years in prison. Prosecutors had argued that Hayes, a former trader at two international banks, had asked traders at his bank who were responsible for submitting the bank’s daily Libor submissions for publication – as well as submitters at other banks and brokers involved in the Libor process – to raise or lower their submissions for the Yen Libor from 2006 to 2010 to help Hayes increase the profit on his trades. Hayes was the first individual to be tried in U.K. courts for Libor manipulation, with some of Hayes’ alleged co-conspirators set to go to trial in late September. Hayes is also facing criminal charges for the same conduct in the U.S.

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DOJ Announces Plea Agreements with Five Major Banks for Manipulating Foreign Currency Exchange Markets

On May 20, the DOJ announced plea agreements with five major banks relating to manipulations of foreign currency exchange markets. Four of the banks pled guilty to felony charges of “conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market.” These four banks agreed to pay criminal fines totaling more than $2.5 billion and to a three-year period of “corporate probation,” which will be “overseen by the court and require regular reporting to authorities as well as cessation of all criminal activities.” A fifth bank pled guilty to manipulating benchmark interest rates, including LIBOR, and to violating a prior non-prosecution agreement arising out of the DOJ’s LIBOR investigation. That bank agreed to pay a $203 million criminal penalty. The DOJ emphasized that these were “parent-level guilty pleas” to felony charges and that it would continue to investigate potentially culpable individuals. The five banks also agreed to various additional fines and settlements with other regulators, including the Federal Reserve, the CFTC, NYDFS, and the U.K. Financial Conduct Authority. Combined with previous payments arising out of the FX investigations, the five banks have paid nearly $9 billion in fines and penalties.

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DOJ and International Investment Bank Enter Into Plea Agreement to Resolve LIBOR Manipulation Claims, Bank Agrees to Pay $2.5 Billion Penalty

On April 23, the DOJ announced that an international investment bank and its subsidiary agreed to plead guilty to wire fraud for its alleged conduct, spanning from 2003 through 2011, in manipulating the London Interbank Offered Rate (LIBOR), which is used to set interest rates on various financial products. In addition, the DOJ announced that the bank entered into a deferred prosecution agreement to resolve wire fraud and antitrust claims for manipulating both the U.S. Dollar LIBOR and Yen LIBOR. Under terms of the agreement, the $2.5 billion in penalties will be divided among U.S. and U.K. authorities – $800 million to the Commodity Futures Trading Commission, $775 million to the DOJ, $600 million to the New York Department Financial Services, and roughly $340 million to the U.K.’s Financial Conduct Authority. The authorities also ordered the bank to install an independent compliance monitor.

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SDNY Retains Jurisdiction Over Three LIBOR Suits

On December 30, the U.S. District Court for the Southern District of New York held that three LIBOR suits should remain under federal jurisdiction and denied the plaintiffs’ motions to remand. In Re LIBOR-Based Fin. Instruments Antitrust Litig., No. 11-md-2262, slip op. (S.D.N.Y. Dec. 30, 2013). One of the cases was removed from state court, and the other two were referred by the Judicial Panel on Multidistrict Litigation, to be joined with the numerous consolidated suits that have been brought by investors and bondholders who claim that certain financial institutions colluded to deliberately depress LIBOR, which caused the plaintiffs various economic injuries. LIBOR is a global benchmark rate used in financial products and transactions, which was set using data from the banks under the auspices of the British Bankers’ Association. Focusing on the only disputed element for Edge Act jurisdiction—whether the conduct “arises out of” (i) transactions involving international or foreign banking or (ii) other international or foreign financial operations—the court held that it has federal jurisdiction under the Edge Act. Applying a “common sense” statutory interpretation, the court reasoned that the cases arise out of the financial institutions’ allegedly misleading submissions to the LIBOR panel, which is an international or foreign financial operation, and without which there would be no cases at all. Although it did not need to address the financial institutions’ alternative basis for federal jurisdiction, the court explained that it could also retain jurisdiction under the Foreign Sovereign Immunities Act.

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