On June 2, the DOJ announced that a federal grand jury of the Southern District of New York indicted two former senior traders of an international investment bank for their alleged roles in a scheme to manipulate the U.S. Dollar London InterBank Offered Rate (LIBOR). Specifically, the former employees were charged with “one count of conspiracy to commit wire fraud and bank fraud and nine counts of wire fraud for their participation in a scheme to manipulate the USD LIBOR rate in a manner that benefited their own or [the investment bank’s] financial positions in derivatives that were linked to those benchmarks.” According to allegations included in the indictment, as director of the Pool Trading Desk in New York and as director of the Money Market Derivatives (MMD) Desk in London, the two former senior traders directed subordinates and/or requested that colleagues “submit false and fraudulent LIBOR contributions consistent with the traders’ or the bank’s financial interests rather than the honest and unbiased costs of borrowing.” Chief U.S. District Judge Colleen McMahon of the SDNY has been assigned to the case.
State Attorneys General Settle with London-based Financial Institution over Alleged LIBOR Manipulation
On August 9, Massachusetts AG Healey announced, in coordination with more than 40 state attorneys general, a $100 million settlement with a London-based financial institution and related international investment bank (collectively, defendants) to resolve allegations that the defendants manipulated the U.S. Dollar London InterBank Offered Rate (LIBOR) and defrauded government and non-profit entities across the nation. According to AG Healey, from 2007-2009, defendants’ managers instructed its LIBOR submitters to lower their LIBOR rate setting. LIBOR submitters allegedly agreed to these instructions. State attorneys general further allege that, at various times beginning in 2005 and continuing at least into 2009, the defendants’ traders asked LIBOR submitters “to change their LIBOR submissions in order to benefit their trading positions.” LIBOR submitters allegedly often agreed to the traders’ requests. The defendants are the first of “several USD-LIBOR-setting panel banks under investigation by the state attorneys general to resolve the claims against it.”
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.
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.
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.