| WASHINGTON — Lloyds Banking Group plc has entered into an agreement with the Department of Justice to pay an $86 million penalty for manipulation of submissions for the London InterBank Offered Rate (LIBOR), a leading global benchmark interest rate.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Deputy Assistant Attorney General Brent Snyder of the Antitrust Division, and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office made the announcement. A criminal information will be filed today in U.S. District Court for the District of Connecticut that charges Lloyds as part of a deferred prosecution agreement (DPA). The information charges Lloyds with wire fraud for its role in manipulating LIBOR. In addition to the $86 million penalty, the DPA requires the bank to admit and accept responsibility for its misconduct as described in an extensive statement of facts. Lloyds has agreed to continue cooperating with the Justice Department in its ongoing investigation of the manipulation of benchmark interest rates by other financial institutions and individuals. “For more than three years, traders at Lloyds manipulated the bank’s LIBOR submissions for three currencies to benefit the trading positions of themselves and their friends, to the detriment of the parties on the other side of the trades,” said Assistant Attorney General Caldwell. “Because investors and consumers rely on LIBOR’s integrity, rate-rigging fundamentally undermines confidence in financial markets. Lloyds is the fifth major financial institution that has admitted LIBOR manipulation and paid a criminal penalty, and nine individuals have been criminally charged by the Justice Department. Our active investigation continues, as we work to restore trust in the markets.” “Lloyds manipulated benchmark rates, allowing its traders to increase their profits unfairly and fraudulently,” said Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division. “Lloyds’s conduct undermined financial markets domestically and abroad, and today’s charges send a clear message that we will continue to bring those responsible to justice.” “Manipulating financial trading markets to create an unfair advantage is against the law,” said Assistant Director in Charge Parlave. “Today’s agreement further underscores the FBI’s ability to investigate complex international financial crimes and bring the perpetrators to justice. The Washington Field Office has committed significant time and resources including the expertise of Special Agents, forensic accountants and analysts to investigate this case along with our Department of Justice colleagues. Their efforts send a clear message to anyone contemplating financial crimes: think twice or you will face the consequences.” Together with approximately $283 million in criminal and regulatory penalties imposed by other agencies in actions arising out of the same conduct – $105 million by the Commodity Futures Trading Commission (CFTC), and approximately $178 million by the U.K. Financial Conduct Authority (FCA) – the Justice Department’s $86 million criminal penalty brings the total amount to be paid by Lloyds to almost $370 million. According to signed documents, LIBOR is an average interest rate, calculated based upon submissions from leading banks around the world and reflecting the rates those banks believe they would be charged if borrowing from other banks. LIBOR serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products. The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion. At the time relevant to the conduct in the criminal information, LIBOR was published by the British Bankers’ Association (BBA), a trade association based in London. LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The LIBOR for a given currency at a specific maturity was the result of a calculation based upon submissions from a panel of banks for that currency (the Contributor Panel) selected by the BBA. From at least 2006 through the present, Lloyds (through its subsidiaries) has been a member of the Contributor Panel for a number of currencies, including United States Dollar LIBOR, Pound Sterling LIBOR, and Yen LIBOR. According to the statement of facts accompanying the agreement, between at least as early as 2006 and at least as late as July 2009, Lloyds’s LIBOR submitters for Dollar LIBOR, Yen LIBOR, and Pound Sterling LIBOR submitted LIBOR contributions intended to benefit their own trading positions or the trading positions of others, rather than rates that complied with the definition of LIBOR. When Lloyds LIBOR submitters contributed LIBOR submissions to benefit trading positions, the manipulation of the submissions affected the fixed rates on occasion. According to signed documents, on May 19, 2009, a money markets trader who was a former Dollar LIBOR submitter at a subsidiary of Lloyds wrote to the then-current Dollar LIBOR submitter: “have 5 yard [billion] 3 month liability rolls today so would be advantageous to have lower 3month libor setting if doesn’t conflict with any of your fix’s.” Later that day, the Dollar LIBOR submitter told the money markets trader in a phone call: “obviously we got the Libors down for you.” In another example, on March 6, 2009, a money markets trader who was a former Pound Sterling LIBOR submitter for a subsidiary of Lloyds told the then-current Pound Sterling LIBOR submitter: “Um, I’m paying on 12 yards [billions] of 1s today, . . . so if there is any way of making 1s relatively low it would just be helpful for us all.” That day, the Pound Sterling LIBOR submitter contributed a rate that was ten basis points lower than the previous day’s submission. Also according to the statement of facts, a Yen LIBOR submitter and a former submitter at Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) who traded money-markets and derivatives products had an agreement to submit Yen LIBOR contributions that benefitted their respective trading positions, rather than submissions that complied with the definition of LIBOR. For example, on July 28, 2006, the Rabobank submitter wrote to the Yen LIBOR submitter: “morning skipper…..will be setting an obscenely high 1m again today…poss 38 just fyi.” The Yen LIBOR submitter responded: “(K)…oh dear..my poor customers….hehehe!! manual input libors again today then!!!!” Both banks’ submissions on July 28 moved up one basis point, from 0.37 to 0.38. This ongoing investigation is being conducted by special agents, forensic accountants, and intelligence analysts of the FBI’s Washington Field Office. The prosecution of Lloyds is being handled by Trial Attorney Patrick Pericak of the Criminal Division’s Fraud Section and Trial Attorney Michael T. Koenig of the Antitrust Division. Assistant U.S. Attorneys Chris Mattei and Michael McGarry of the U.S. Attorney’s Office for the District of Connecticut, along with the Criminal Division’s Office of International Affairs, have provided valuable assistance in this matter. The investigation leading to these cases has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad. The Justice Department acknowledges and expresses its deep appreciation for this assistance. In particular, the CFTC’s Division of Enforcement referred this matter to the department and, along with the FCA, has played a major role in the investigation. Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance. In particular, the Securities and Exchange Commission has played a significant role in the LIBOR investigation, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation. This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes. |
Category Archives: Antitrust Monitor by GeyerGorey LLP
Stucke and Grunes quoted in NYT: “When Media Mergers Limit More Than Competition”
Connolly’s Cartel Capers: Whatever Happened to…Mark Whitacre?
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Mark Whitacre was the former Archer Daniels Midland (ADM) executive who blew the whistle on the international lysine price-fixing conspiracy of the early 1990’s. He is the highest ranking Fortune 500 executive to become an FBI whistleblower. Whitacre’s actions launched the age of international price-fixing prosecutions that dominate cartel enforcement to this day. Mr. Whitacre has written an essay, “When Good Leaders Lose Their Way,” 45 Loy. U. Chi. L.J. 525 (2014), that recounts how he became involved in the conspiracy; why he decided to confess to the FBI; his two year saga as an FBI uncover operative across the globe; his decision to embezzle $9.5 million from ADM (his “self-help” severance pay); his resulting ten-year prison sentence; and how he landed on his feet today as the COO of a biotech company with his family intact. Whitacre’s journey illustrates how a serious antitrust and ethics compliance program may have prevented a journey of misery for him and his company.
Whitacre got involved in the lysine cartel because of tunnel vision focus on short-term profit driven by the lure of stock options and other financial benefits and trappings of life at the top. His wife, who noticed the changes in Whitacre and his material focus, became the impetus for him to turn himself in to the FBI. For two years Whitacre reported to work as a loyal executive of ADM, all the while equipped with recording devices to “get the goods” on his superiors and co-workers. By his account, after two years of this double life he made some extraordinarily bad decisions to try secure his financial future. He embezzled almost $10 million from ADM and was caught. He compounded this mistake by turning down what his lawyer called the “deal of a lifetime” and a possible 6 month sentence, which was supported by FBI agents with whom he had worked. He ended up serving 8 years and 8 months in federal prison. Upon his release, however, he has been able to resume a successful career as the CEO of a biotech company fueled by an entirely new set of principles. Whitacre has his own web page, Website of Mark Whitacre http://www.markwhitacre.com/career.html. This web site contains, among other things, interviews of FBI agents who handled Whitacre during his two years of undercover activity. To read more about the actual workings of the lysine cartel, see: “The Fly On The Wall Has Been Bugged– Catching An International Cartel In The Act,” speech by Scott D. Hammond, Deputy Assistant Attorney General for Criminal Enforcement, Antitrust Division, May 15, 2001. http://www.justice.gov/atr/public/speeches/8280.pdf. Copies of the lysine tapes and transcripts are available at no charge by mailing or faxing (202/616-4529) your request to the United States Department of Justice, Antitrust Division, Freedom of Information Act Unit, Liberty Square Building, 450 Fifth Street, NW, Suite 3200, Washington, 20530
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Connolly’s Cartel Capers: Reform the Antitrust Sentencing Guidelines for Individuals
The Need to Reform the Antitrust Sentencing Guidelines for Individuals (continued)
In an earlier post, I explained why I think the antitrust sentencing guidelines for individuals are in need of serious reform (here). The main defect in the current guidelines is that the primary driver of an individuals’ sentence is the volume of commerce of the conspiracy. As discussed in the previous post, under this formulation, the President of a successful bid-rigging scheme is likely to be found less culpable than a salesperson in an international company who is directed by his boss to attend cartel meetings and report back. Also, there is very little difference in culpability under the guidelines between the CEO who initiates and commits his company to a cartel and one of his employees who he directs to go to meetings or talk to a competitor. Both are tagged with the same volume of commerce (if their temporal participation in the cartel was the same).
Besides being unfair, or rather because of this, the individual sentencing guidelines are routinely ignored by the Courts. The guidelines have been advisory since the decision in United States v.Booker. To date, in antitrust cases, courts sentencing a defendant under the current guidelines have (I believe) always departed downward from the government’s sentencing guidelines recommendations—at least after conviction at trial. Courts have rejected the guidelines and instead focused on the factors set forth in 18 U.S.C. Section 3553 (Imposition of Sentence)(Factors to be Considered in Sentencing.) This statute directs the court to impose a “sentence sufficient, but not greater than necessary.” In determining the sentence, the court is directed to consider various factors including “the nature and circumstances of the offense and the history and characteristics of the defendant.” The sentence should “reflect the seriousness of the offense,” and “afford adequate deterrence.” Applying these factors, courts have found departure from the antitrust sentencing guidelines warranted.
Connolly’s Cartel Capers: Upcoming ABA Program: Rigging Bids on the Courthouse Steps- Real Estate
Upcoming ABA Program: Riggings Bids on the Courthouse Steps: Real Estate
My partner, Allen Grunes, will be the moderator for this ABA teleconference on July 16, 2014 beginning at noon. Mr. Grunes is a former Antitrust Division prosecutor and the panel will include Niall Lynch, Latham & Watkins, San Francisco, CA; Michael Tubach, O’Melveny & Myers, San Francisco, CA; and Wendy Waszmer, King & Spalding, New York, NY. The session will cover the DOJ’s recent real estate foreclosure and municipal tax lien auction bid rigging prosecutions. Several cases allege not only antitrust but also fraud and other criminal statute violations. These excellent panelists, including former prosecutors, will discuss some of the unique features of these cases, DOJ’s enforcement message, and what to expect next. To tune in, register here
[Read Remainder of Blog Post here…]
Connolly’s Cartel Capers: Consciousness of Innocence (continued)
Consciousness of Innocence (continued)
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On July 8, 2014 Rengan Rajaratnam was acquitted by a federal jury of participation in an insider trading conspiracy. The verdict was the government’s first trial loss in a wide-ranging probe that has led to 85 convictions of traders, analysts, lawyers and executives, with most sentenced to prison. Raj Rajaratnam, the defendant’s older brother, is currently serving an 11 year jail term. In an earlier post http://cartelcapers.com/blog/fugitves-return-us-upon-indictment-admissible-show-consciousness-innocence/ I reported that in a pretrial motion, Rajaratnam’s counsel persuaded the court that he should be able to introduce evidence that he was in Brazil at the time he learned of his indictment and he immediately returned to the United States to face the charges. This evidence, Rajaratnam argued, and the court agreed, could be considered by the jury as “consciousness of innocence.” The jury acquitted Rajaratnam, and no doubt many factors were at play, but in fact, Rajaratnam did introduce such evidence at trial. [Read more…]
Connolly’s Cartel Capers: Seventh Circuit Panel to Rehear Motorola Mobility v. AU Optronics
Seventh Circuit Panel to Rehear Motorola Mobility v. AU Optronics: A Preview of Some of the FTAIA Issues in Component International Price Fixing Cases
The Seventh Circuit has decided to rehear the appeal from a judgment dismissing nearly Motorola’s entire $3.5 billion antitrust claim against foreign manufacturers of LCD panels. The Court has not yet set a schedule for the filing of supplemental briefs.
In Motorola Mobility v. AU Optronics Corp, No. 14-8003, 2014 WL 1243797 (7th Cir. Mar. 27, 2014)(vacated), the Seventh Circuit (J. Posner) upheld a lower court ruling dismissing most of Motorola’s damage claims from price fixing of LCD panels. The commerce at issue was LCD panels sold by defendants to Motorola’s foreign subsidiaries and incorporated into products such as cell phones. The finished product was imported into the U.S. The Court found that a damage claim based on the purchases by Motorola’s foreign subsidiaries was barred by the FTAIA. The Court held that because the price-fixed panels were sold to customers overseas, the effect on U.S. commerce was indirect, even though the price of the finished product later imported into the U.S. may have been inflated by the component price fixing.
The Motorola Mobility Court rejected the view that the component price fixing had a “direct, substantial and reasonably foreseeable effect” on U.S. commerce. The Court noted “nothing is more common nowadays than for products imported into the United States to include components that the producers had bought from foreign manufacturers.” From this the Court concluded: “The position for which Motorola [and the U.S.] contends would if adopted enormously increase the global reach of the Sherman Act, creating friction with many foreign countries and ‘resent[ment at] the apparent effort of the United States to act as the world’s competition police officer,’ a primary concern motivating the foreign trade act.” The DOJ joined in the request for en banc review. Motorola Mobility involves the same LCD panel cartel that the Antitrust Division successfully prosecuted, sending many foreign defendants to prison.
Connolly’s Cartel Capers: Extradition In Cartel Cases–ABA Criminal Cartel Practice and Procedure Program Summary
Extradition In Cartel Cases–ABA Criminal Cartel Practice and Procedure Program Summary
When I was the Chief of the Philadelphia Field Office, we had the first successful extradition by the Antitrust Division of a fugitive defendant. In 2010 a British executive, Ian Norris, was extradited to the U.S. The UK authorities declined to extradite Norris to face the antitrust violation he was charged with, but he was extradited to face charges of obstruction of justice in connection with an international cartel grand jury investigation. He was ultimately convicted at trial of one count of obstruction and sentenced to 18 months in prison.
Connolly’s Cartel Capers: Plea Agreements in a Criminal Antitrust Trial
The Proper Use of Plea Agreements in a Criminal Antitrust Trial
Criminal antitrust trials occur relatively infrequently these days, so an occasional review of some of the issues that arise at trial can be useful as a refresher. Many government witnesses at a criminal antitrust trial are testifying pursuant to some type of agreement with the government. Such agreements include amnesty, immunity, non-prosecution/cooperation agreements and plea agreements. The essence of the agreement is that the witness will receive some type of benefit in the form of a reduced punishment (or immunity). In return, the witness agrees to cooperate with the government and testify at trial. If the witness does not give truthful testimony, he/she is theoretically subject to prosecution for perjury, and may also lose the benefits conferred by the agreement
A recent Second Circuit decision, U.S. v. Certified Environmental Services, Inc., No. 11-4872 (2d Cir. May 28, 2014), provides a chance to review the proper use of plea agreements at trial. The court reversed convictions on several counts related to a scheme by defendants to violate various state and federal environmental regulations. The convictions were reversed based, in part, on the government having improperly bolstered the witness’s credibility by referring to the cooperation agreement requirement that the witness tell the truth.
Connolly’s Cartel Capers: Antitrust Sentencing Guidelines Comments
Sentencing Commission Seeking Comments on Possible Changes to Antitrust Guideline
The United States Sentencing Commission periodically reviews and revises current guidelines and submits proposed guideline amendments to the Congress for approval not later than the first day of May each year. The Sentencing Commission is currently seeking comments on possible priority policy issues for the amendment cycle ending May 1, 2015. One of the priority guidelines the Commission is seeking comment on is the guideline for sentencing antitrust individuals and corporations for Bid Rigging, Market Allocation and Price Fixing, §2R1.1. Comments are due by July 29, 2014.
An area that is of great interest to me is how the guidelines calculate guideline range individual jail sentences. This area needs major reform if this guideline is to be rational and equitable and taken seriously by the Courts. I’ll just touch on one critical aspect of the individual sentencing guideline in this post. The current guideline gives far too much weight to volume of commerce as a measure of culpability. In most international cartels, (such as the Liquid Crystal Display cartel) even a mid-level executive (i.e. sales manager) who is directed by a superior to attend cartel meetings may be facing the maximum ten years in prison under the Sherman Act. By contrast, a hypothetical business owner in the U.S. who rigs a $2 million construction contract and pockets a $200,000 overcharge would be far less culpable under the current guideline. The hypothetical calculations look like this: