Former trader charged with fraud in Libor case

Former UBS and Citigroup trader Tom Hayes was charged with fraud by United Kingdom regulators on Tuesday, marking the first criminal charges in the U.K. related to the manipulation of the benchmark Libor. While this scandal has been going on for some time, it’s noteworthy that charges are being brought against an individual.

Here are some of the details from the Wall Street Journal story:

The U.K.’s Serious Fraud Office said Mr. Hayes, a 33-year-old British citizen, was charged with eight counts of “conspiracy to defraud” in connection with the agency’s probe of manipulation of the London interbank offered rate, or Libor.

Mr. Hayes’s lawyer didn’t respond to requests for comment Tuesday. Mr. Hayes wrote in a January text message to The Wall Street Journal that “this goes much much higher than me.”

The SFO issued a brief statement Tuesday morning, saying Mr. Hayes had been charged, but it didn’t detail the allegations. David Jones, an SFO spokesman, said the charges include “conspiring with others” to manipulate Libor. A person familiar with the charges said they relate in part to Mr. Hayes’s alleged efforts to coordinate Libor manipulation via interdealer brokers at ICAP PLC and R.P. Martin Holdings Ltd. The brokerages declined to comment.

Mr. Hayes, who worked for several years as a derivatives trader for UBS and Citigroup in Tokyo, was arrested by the SFO last December and released on bail. The next day, the U.S. Justice Department filed criminal fraud charges against him and a colleague, alleging that they tried to manipulate Libor and other benchmark rates. Mr. Hayes hasn’t entered a plea to the U.S. allegations.

The British charges mean Mr. Hayes is less likely to face the U.S. justice system. Under British double-jeopardy laws, someone facing a charge in the U.K. can’t be extradited to face the same charges in another jurisdiction.

USA Today added this context around the charges, clarifying those already filed in the U.S.:

The charges against Hayes “must be just the beginning,” said Dennis Kelleher, president of Better Markets, a non-profit that seeks tougher financial enforcement. “Law-abiding citizens throughout the world can only hope that this prosecution and many more will mean that the era of no-accountability at the global banks is over.”

A December federal court complaint filed in New York accused Hayes and a second trader of conspiracy, wire fraud and other charges based on LIBOR-related transactions between September 2006 and September 2009. Those trades occurred while Hayes worked for Royal Bank of Scotland or UBS before he joined Citigroup.

However, U.S. authorities have been unable to bring Hayes to federal court on those charges amid the separate investigation in London. Successful prosecution of the London charges could prevent U.S. federal prosecutors from proceeding with their case because of double-jeopardy legal restrictions.

The New York Times offered even more content around the jurisdiction over the charges:

But while American and British authorities built these cases over several years, the Serious Fraud Office often appeared uninterested in the Libor investigation, at times irritating other prosecutors. Now, the British action against Mr. Hayes will test the somewhat tenuous relationship between the office and its American counterparts, setting up a potential turf battle over where the former trader will stand trial.

When announcing the first charges against Mr. Hayes last year, people close to the Justice Department in Washington privately expressed concern about extraditing the former trader to the United States. With the Serious Fraud Office issuing its own charges against Mr. Hayes, the Justice Department’s chances at trying a case in the United States grew even dimmer.

David Green, who took over the Serious Fraud Office last year, has said that cooperation with the United States is important, but that Britons who worked for British companies should be tried in Britain.

Mr. Hayes was one of three individuals arrested and questioned by the police and staff members of the Serious Fraud Office last December. Two employees of the brokerage RP Martin Holdings were also held, but all three were released on bail pending further investigations.

Here is the CBS News background on the investigation:

The charges follow an investigation opened last year after Barclays was fined $435 million by American and British agencies for creating false reports on its borrowing costs between 2005 and 2009, specifically related the interbank rate.

LIBOR is the critical rate banks use to borrow from each other. It indirectly affects the cost people pay when they take out loans such as when consumers buy a home or car.

The British Bankers’ Association, a trade group, sets the LIBOR daily after a dozen international banks submit estimates of what it costs them to borrow. Regulators in the U.S., Britain, Switzerland and other countries allege some banks submitted fake numbers on purpose to have the LIBOR set at a rate that better suited them.

U.S. and British regulators have fined two big British banks and Switzerland’s largest lender hundreds of millions of dollars for manipulating LIBOR.

While this story has been on going for the past year, the twists and turns continue to make it interesting. It also hits at the core of people’s mistrust for the markets given that a small handful of traders were able to manipulate a rate that affects nearly everyone in the world.