WASHINGTON — Two former Coöperatieve Centrale  Raiffeisen-Boerenleenbank B.A. (Rabobank) Japanese Yen derivatives traders and  the trader responsible for setting Rabobank’s Yen London InterBank Offered Rate  (LIBOR) were charged as part of the ongoing criminal investigation into the  manipulation of LIBOR.

Acting Assistant Attorney General Mythili Raman of the  Justice Department’s Criminal Division, Deputy Assistant Attorney General Brent  Snyder of the Justice Department’s Antitrust Division and Assistant Director in  Charge Valerie Parlave of the FBI’s Washington Field Office made the  announcement.

Earlier today, a U.S. Magistrate  Judge sitting in the Southern District of New York signed a criminal complaint  charging Paul Robson of the United Kingdom, Paul Thompson of Australia, and Tetsuya  Motomura of Japan with conspiracy to commit wire fraud and bank fraud as well  as substantive counts of wire fraud.  All  are former employees of Rabobank, which on Oct. 29, 2013, entered into a  deferred prosecution agreement with the Department of Justice as part of the  department’s LIBOR investigation and agreed to pay a $325 million penalty.  Each defendant faces up to 30 years in prison  for each count upon conviction.

“Today, less than three months  after Rabobank admitted its involvement in the manipulation of LIBOR, we have charged  three of its senior traders with participating in this global fraud scheme,”  said Acting Assistant Attorney General Raman.  “As alleged, these three  traders – working from Japan, Singapore and the U.K. – deliberately submitted  what they called ‘obscenely high’ or ‘silly low’ LIBOR rates in order to  benefit their own trading positions.  The illegal  manipulation of this cornerstone benchmark rate undermines the integrity  of the markets; it harms those who are relying on what they expect to be an  honest benchmark; and it has ripple effects that extend far beyond the trading  at issue here.  The Justice Department has now charged eight individuals  and reached resolutions with four multi-national banks as part of our ongoing  and industry-wide LIBOR probe and, alongside our law enforcement and regulatory  partners both here and abroad, we remain committed to continuing to root out  this misconduct.”

“The  conspirators charged today conspired to rig the interest rates used by  derivative products throughout the financial industry to benefit their own  trading books,” said Deputy Assistant Attorney General Snyder. “Today’s charges  demonstrate the department’s commitment to hold individuals accountable for  schemes that undermine the integrity of markets that rely on competition to  flourish.”

“Manipulation  of benchmark rates that are routinely referenced by financial products around  the world erodes the integrity of our financial markets,” said Assistant  Director in Charge Parlave.  “The charges  against these individuals represent another step in our ongoing efforts to find  and stop those who hide behind complex corporate and securities fraud schemes.  I commend the Special Agents, forensic  accountants and analysts as well as the prosecutors for the significant time  and resources they committed to investigating this case.”

According to the complaint,  LIBOR is an average interest rate, calculated based on submissions from leading  banks around the world, reflecting the rates those banks believe they would be  charged if borrowing from other banks.   LIBOR is published by the British Bankers’ Association (BBA), a trade  association based in London.  At the time  relevant to the criminal complaint, LIBOR was calculated for 10 currencies at  15 borrowing periods, known as maturities, ranging from overnight to one  year.  The published LIBOR “fix” for Yen  LIBOR at a specific maturity is the result of a calculation based upon  submissions from a panel of 16 banks, including Rabobank.

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.

According to allegations in the complaint,  all three defendants traded in derivative products that referenced Yen  LIBOR.  Robson worked  as a senior trader at Rabobank’s Money Markets and Short Term Forwards desk in  London; Thompson was Rabobank’s head of Money Market and Derivatives Trading  Northeast Asia and worked in Singapore; and Motomura was a senior trader at  Rabobank’s Tokyo desk who supervised money market and derivative traders employed  at Rabobank’s Tokyo desk.  In addition to  trading derivative products that referenced Yen LIBOR, Robson also served as  Rabobank’s primary submitter of Yen LIBOR to the BBA.

Robson, Thompson and Motomura  each entered into derivatives contracts containing Yen LIBOR as a price  component.  The  profit and loss that flowed from those contracts was directly affected by the  relevant Yen LIBOR on certain dates.  If  the relevant Yen LIBOR moved in the direction favorable to the defendants’  positions, Rabobank and the defendants benefitted at the expense of the  counterparties.   When LIBOR moved in the opposite direction, the defendants and  Rabobank stood to lose money to their counterparties.

The complaint alleges that from about May 2006 to at least  January 2011, Robson, Thompson, Motomura and others agreed to make false and  fraudulent Yen LIBOR submissions for the benefit of their trading positions.  According to the allegations, sometimes  Robson submitted rates at a specific level requested by a co-defendant and  consistent with the co-defendant’s trading positions.  Other times, Robson made a higher or lower  Yen LIBOR submission consistent with the direction requested by a co-defendant  and consistent with the co-defendant’s trading positions.  On those occasions, Robson’s manipulated Yen  LIBOR submissions were to the detriment of, among others, Rabobank’s  counterparties to derivative contracts.

In addition to allegedly manipulating Rabobank’s Yen LIBOR  submissions, Robson, on occasion and on behalf of one or more co-defendants,  coordinated his Yen LIBOR submission with the trader responsible for making Yen  LIBOR submissions at another Yen LIBOR panel bank.  At times, Robson allegedly submitted Yen  LIBOR at a level requested by the other trader, and, at other times, that trader  submitted Yen LIBOR at a level requested by Robson.

As alleged  in the complaint, Thompson, Motomura and another Rabobank trader described in  the complaint as Trader-R made requests of Robson for Yen LIBOR submissions  through electronic chats and email exchanges.   For example, on May 19, 2006, after Thompson informed Robson that his  net exposure for his 3-month fixes was 125 billion Yen, he requested by email  that Robson “sneak your 3m libor down a cheeky 1 or 2 bp” because “it will make  a bit of diff for me.”  On or about May  19, 2006, Robson responded: “No prob mate I mark it low.”

On Sept. 21, 2007, Trader-R  asked Robson by email, “where do you think today’s libors are?  If you can I would like 1mth higher  today.”  Robson responded, “bookies  reckon .85,” to which Trader-R replied, “I have some fixings in 1mth so would  appreciate if you can put it higher mate.”   Robson answered, “no prob mate let me know your level.”  After Trader-R asked for “0.90% for 1mth,”  Robson confirmed, “sure no prob[ ] I’ll probably get a few phone calls but no  worries mate… there’s bigger crooks in the market than us guys!”

As another example, on Aug. 4,  2008, in a Bloomberg chat, Motomura asked Robson, “Please set today’s 6mth  LIBOR at 0.96 I have chunky fixing.”  To this, Robson responded, “no  worries mate.”
The complaint alleges that  Robson accommodated the requests of his co-defendants.  For example, on Sept. 21, 2007, after Robson  received a request from Trader-R for a high 1 month Yen LIBOR, Rabobank  submitted a 1-month Yen LIBOR rate of 0.90, which was 7 basis points higher  than the previous day and 5 basis points above where Robson said that “bookies”  predicted it, and which moved Rabobank’s submission from the middle to the  highest of the panel.

According  to court documents, the defendants were also aware that they were making false  or fraudulent Yen LIBOR submissions.  For  example, on May 10, 2006, Robson admitted in an email that “it must be pretty  embarrasing to set such a low libor.  I  was very embarrased to set my 6 mth – but wanted to help thomo [Thompson].  tomorrow it will be more like 33 from  me.”  At times, Robson referred to the  submissions that he submitted on behalf of his co-defendants as “ridiculously  high” and “obscenely high,” and acknowledged that his submissions would be so  out of line with the other Yen LIBOR panel banks that he might receive a phone  call about them from the BBA or Thomson Reuters.

A criminal complaint is a formal  accusation of criminal conduct, not evidence.   A defendant is presumed innocent unless and until convicted.

The investigation is being  conducted by special agents, forensic accountants, and intelligence analysts in  the FBI’s Washington Field Office.  The  prosecution is being handled by Trial Attorneys Carol L. Sipperly, Brian Young  and Alexander H. Berlin of the Criminal Division’s Fraud Section, and Trial  Attorneys Ludovic C. Ghesquiere and Michael T. Koenig of the Antitrust  Division.  Former Deputy Chief Glenn Leon  and Senior Counsel Rebecca Rohr of the Criminal Division’s Fraud Section, along  with Assistant Chief Elizabeth Prewitt and Trial Attorneys Eric Schleef and  Richard Powers of the Antitrust Division, have also provided valuable  assistance.  The Criminal Division’s  Office of International Affairs has provided assistance in this matter as well.

The broader investigation  relating to LIBOR and other benchmark rates 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 Commodity Futures Trading  Commission’s Division of Enforcement referred this matter to the department  and, along with the U.K. Financial Conduct Authority, has played a major role  in the LIBOR investigation.  The department  has worked closely with the Dutch Public Prosecution Service and the Dutch  Central Bank in the investigation of Rabobank.   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 series of investigations, 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.  For more  information about the task force visit: www.stopfraud.gov.