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The “Everybody Was Doing It” defense didn’t work when I was a kid and it didn’t work for Tom Hayes as his defense in the first Libor rate rigging trial. But, the most I got upon conviction (summary–without trial) was 14 days grounded. Mr. Hayes got 14 years in prison. Ouch!
After a nine-week trial in London and seven days of deliberations, Hayes, a 35-year-old former UBS and Citigroup trader, was found guilty on eight counts of conspiracy to defraud. He was immediately sentenced to 14 years in prison. Hayes was the first Libor rate rigging individual to face trial (here).
Hayes was charged in the UK with being the “ringleader” of the Libor rate rigging scheme. Hayes claimed that the rate rigging was industry wide. He also claimed he was “confused about everything,” including what rules may have been broken. He added: “As far as I was concerned, any rules I’d broke were retrospectively being applied. And I wasn’t sure … Libor wasn’t a regulated product. We had no compliance training. No rules were outlined to us.” Hayes didn’t deny he knew he was engaging in “dodgy” activity but pleaded “I knew I was operating in a grey area. I knew that I probably shouldn’t do it but like I said I was participating in an industry wide practice at UBS that pre-dated my arrival and post-dated my departure. A full story is here in The Telegraph.
Hayes initially agreed to plead guilty and cooperate in return for a lighter sentence. He gave a full confession to Britain’s Serious Fraud Office. During 82 hours of interviews with SFO investigators in the months following his arrest in December 2012, Hayes admitted the conduct he was charged with. But he told the court he had only confessed because he was desperate to be charged in Britain to avoid extradition to the United States, where he also faces fraud-related charges. [Hayes was charged in the United States on December 12, 2012 with fraud and antitrust counts (here)]. Hayes subsequently withdrew from a cooperation agreement with the SFO and pleaded not guilty in December 2013.
At trial, Hayes appealed to the jury arguing that: a) he was being singled out for an industry wide practice; and b) he had no training on the rules.
“The practice was tried and tested, it was so endemic within the bank (UBS), I just thought … this can’t be a big issue because everybody knows about it … (it was) such an open secret.” “Senior management were keen to use Libor to effectively lie about their cost of borrowing by 50 to 100 [basis] points and portray a sense of strength,” Mr Hayes told investigators after his arrest in 2012. (here).
Going to trial was the last in a string of poor decisions made by Mr. Hayes–the jury convicted him on 8 counts of fraud and the 14 year sentence immediately followed.
I have to confess, I feel sorry for Mr. Hayes. A sentence of 14 years seems excessive–although to many I’m sure it seems appropriate for such a widespread financial scandal. The sentencing poses a dilemma for a Judge and I am glad I am not one. From my perspective, it seems unfair for one guy to be punished so harshly for an industry wide practice. Maybe five years would have been sufficient. I don’t think anyone disputed Hayes characterization that the Libor rigging practice preceded his participation and continued after he left. But, Hayes wrote everything down [“(I was) either the stupidest fraudster ever because I wrote everything down, or there was an element of me that genuinely didn’t think about it,” Hayes has said in documents shown to the court.]. And there were tapes–lots of tapes.
There have been other Libor defendants charged so Hayes likely will not be the only individual convicted. But, it is unlikely any superiors who were aware of the practice will ever be charged. I don’t have any inside knowledge of this case, but as a general rule there is often little evidence other than the testimony of a subordinate that superiors knew of and approved of the conduct. But, a subordinate testifying against a superior is subject to legitimate attack on credibility grounds that the defendant would implicate anyone to try to save their own skin. Those that actively engage in the illegal conduct, like Hayes, often leave a paper (or electronic) trail of evidence. An assertion that a boss knew of the illegal conduct is generally a one on one credibility test, and a compromised witness is rarely enough to provide proof beyond a reasonable doubt.
A judge, of course can only sentence the individual defendant that has been convicted. In some ways, the fact that so few involved in the crime may eventually be convicted argues for a higher sentence–like that imposed by the Court here. If the chance of conviction is small, for sufficient deterrence, the penalty must be high.
Even as a prosecutor, I was saddened by how much an otherwise industrious and law-abiding person could screw up their lives–and adversely affect their families–by not thinking through the consequences of what they were doing. There are many “bottom-line” reasons why companies ought to have serious ethics and compliance programs, but to me there is no more compelling reason than it is something every company owes their employees. Yes, work hard and make money for the shareholders–but don’t sacrifice yourself and family in the process. It ain’t worth it and you’re not going to get a medal if you get caught. You may get 14 years.
Thanks for reading.