In announcing new criminal charges today in an investigation into the manipulation of global benchmark interest rates, a senior U.S. Department of Justice lawyer said prosecutors continue to investigate "a number of financial institutions" worldwide.
"We're not done," Mythili Raman, acting assistant attorney general for the Criminal Division, said at a briefing this morning in Washington. U.S. Attorney General Eric Holder Jr. today called the Libor investigation a "major priority" for the Justice Department and other regulatory and law enforcement agencies.
The Justice Department announced criminal charges against three former brokers at London-based brokerage firm ICAP PLC. The brokers were accused of scheming with a senior trader at UBS AG to spread false information to banks involved in the setting of the London interbank offered rate, or Libor.
Trillions of dollars in financial instruments traded around the world rely on the Libor. Until recently, a London-based trade association, the British Bankers' Association, oversaw the Libor, which was calculated daily based on estimated borrowing rates across 10 currencies submitted by more than a dozen banks worldwide. The group voted this year to transfer administration of the Libor to the NYSE Euronext Rates Administration Ltd., in light of the manipulation scandal.
According to the complaint, filed September 13 in Manhattan federal district court and unsealed today, ICAP sent a daily note with suggested rates to banks that provided information to the BBA. UBS trader Tom Alexander William Hayes would communicate his needs to the ICAP brokers, according to the complaint, and the brokers would work to make sure favorable suggested rates were sent out to the Libor panel banks. Hayes would ask for higher or lower rates on a given day, depending on what would boost his trades.
The complaint quotes emails and electronic chats between Hayes and the ICAP brokers discussing their Libor strategy for the Japanese Yen borrowing rate. In an email from March 2007, for instance, Hayes told ICAP cash broker Colin Goodman, who sent the daily note to Libor panel banks, that "this may seem strange given my recent requests but really need a high/unchanged 1m libor today, low for everything else." The "1m" was a reference to the one-, three- and six-month borrowing periods included in estimates sent to the British Bankers' Association.
The excerpts show the ICAP brokers discussing rewards they expected in exchange for helping Hayes, from bonuses to champagne. The brokers "brazenly abused the trust that banks placed in ICAP to provide an honest assessment of where the Yen Libor should be set on any given day," Raman said. They were "driven by greed-their greed and the greed of their client at UBS," she said.
Goodman-referred to as "Lord Libor" by his colleagues-and two other ICAP brokers, Darrell Read and Daniel Wilkinson, were charged with wire fraud. Information on their attorneys was not immediately available. According to the Justice Department, the defendants face a maximum sentence of 30 years in jail.
In addition to the criminal case, ICAP announced today that one of its subsidiaries, ICAP Europe Ltd., agreed to pay $87 million in fines to the Commodity Futures Trading Commission and the U.K. Financial Conduct Authority related to the brokers' involvement in the manipulation conspiracy.
“We deeply regret and strongly condemn the inexcusable actions of the brokers who sought to assist certain bank traders in their efforts to manipulate YEN Libor," said ICAP group chief executive officer Michael Spencer in a statement. Spencer said Goodman, Read and Wilkinson were no longer with the firm and other brokers connected to the scheme were fired or facing disciplinary action. Spencer said the company cooperated with regulators, noting that there no findings of misconduct by the firm or senior management.
ICAP was represented by Lee Richards III and Shari Brandt of New York's Richards Kibbe & Orbe, and Dan Lavender and Matt McCahearty of Macfarlanes in the United Kingdom.
Hayes was charged in December with wire fraud in connection with the Libor-rigging scheme. At the time, UBS Securities Japan Co. Ltd., agreed to admit to criminal conduct and pay a $100 million fine. UBS AG, the parent company, signed a non-prosecution agreement requiring the company to pay an additional $400 million. UBS also paid $1 billion in penalties and disgorgement to the Commodity Futures Trading Commission and regulators in the United Kingdom and Switzerland.
Suspicions of Libor manipulation spurred private antitrust and securities fraud lawsuits against financial institutions beginning in 2011. In June 2012, Barclays Bank PLC became the first institution to admit misconduct, agreeing to pay $450 million to the Commodity Futures Trading Commission, Justice Department and U.K. regulators. David Meister, director of enforcement at the commission, said during today's briefing that the agency had so far collected nearly $1.3 billion in penalties from Libor-related actions.