| 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. |
Tag Archives: London Interbank Offered Rate
ICAP Brokers Face Felony Charges for Alleged Long-Running Manipulation of LIBOR Interest Rates
Two former derivatives brokers and a former cash broker employed by London-based brokerage firm ICAP were charged as part of the ongoing criminal investigation into the manipulation of the London Interbank Offered Rate (LIBOR), the Justice Department announced today.
Darrell Read, who resides in New Zealand, and Daniel Wilkinson and Colin Goodman, both of England, were charged with conspiracy to commit wire fraud and two counts of wire fraud in a criminal complaint unsealed in Manhattan federal court earlier today. They each face a maximum penalty of 30 years in prison for each count upon conviction.
“By allegedly participating in a scheme to manipulate benchmark interest rates for financial gain, these defendants undermined the integrity of the global markets,” said Attorney General Eric Holder. “They were supposed to be honest brokers, but instead, they put their own financial interests ahead of that larger responsibility. And as a result, transactions and financial products around the world were compromised, because they were tied to a rate that was distorted due to the brokers’ dishonesty. These charges underscore the Justice Department’s determination to hold accountable all those whose conduct threatens the integrity of our financial markets.”
“These three men are accused of repeatedly and deliberately spreading false information to banks and investors around the world in order to fraudulently move the market and help their client fleece his counterparties,” said Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division. “Our criminal investigation of the manipulation of LIBOR by some of the largest banks in the world has led us from New York to London, to Tokyo, and other financial hubs around the globe. These important charges are just the latest law-enforcement action in the Criminal Division and Antitrust Division’s global LIBOR investigation, and reflect the Department’s continued dedication to detecting, and prosecuting, financial fraudsters who affect U.S. markets, whether they work at a bank, or a brokerage, and whether they carry out their fraud from a desk in the United States, or abroad.”
“The complaint unsealed today charges Colin Goodman, Daniel Wilkinson and Darrell Read for conspiring to manipulate benchmark interest rates that determined the profitability of their client’s trades,” said Scott D. Hammond, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program. “In exchange for bigger bonus checks, the three defendants undermined financial markets around the world by compromising the integrity of globally used interest rate benchmarks. The Department continues to demonstrate its commitment to protecting the interest of American citizens in free and fair financial markets.”
“Corporate and securities fraud involving the manipulation of these rates causes a worldwide impact on trading positions and erodes the integrity of the market and confidence in Wall Street,” said Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office. “Unraveling such complex financial schemes is difficult and time consuming. Today’s charges are the result of the hard work of the FBI special agents and forensic accountants who dedicated significant time and resources to investigating this case.”
According to the criminal 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 a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks for that currency (the contributor panel) selected by the BBA.
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 estimated at approximately $450 trillion.
According to allegations in the criminal complaint filed in this case, between July 2006 and September 2010, Wilkinson was a desk director employed in the London office of ICAP, where he supervised a group of derivatives brokers – including Read – specializing in Yen-based financial products. Generally, the desk’s clients were derivatives traders at large financial institutions, and the transactions brokered by Wilkinson, Read and others on the desk essentially consisted of bets between traders on the direction in which Yen LIBOR would move. Between July 2006 and September 2009, the desk’s largest client was a senior trader at UBS (UBS Trader) in Tokyo, to whom Read spoke almost daily. Because of the large size of the client’s trading positions, even slight moves of a fraction of a percent in Yen LIBOR could generate large profits. For example, UBS Trader once told Read that a 0.01 percent – or one basis point – movement in the final Yen LIBOR fixing on a specific date could result in $3 million profit for his trading positions. A significant part of both Read’s and Wilkinson’s compensation was tied to the brokerage fees generated by UBS Trader and paid to ICAP.
Goodman was a cash broker at ICAP’s London office during the relevant time period. In addition to brokering cash transactions, Goodman distributed a daily email to individuals outside of ICAP, including derivatives traders at several large banks as well as those responsible for providing the BBA with LIBOR submissions at certain banks. Goodman’s email contained what was termed his “SUGGESTED LIBORS,” purported predictions of where Yen LIBOR ultimately would fix each day across eight specified borrowing periods. Read and Wilkinson, along with Goodman himself, often referred to Goodman as “lord libor.”
The complaint alleges that Read, Wilkinson and Goodman, together with UBS Trader, executed a sustained and systematic scheme to move Yen LIBOR in a direction favorable to UBS Trader’s trading positions.
According to the criminal complaint, the primary strategy employed by Read, Wilkinson and Goodman to execute the scheme was to use Goodman’s “SUGGESTED LIBORS” email to disseminate misinformation to Yen LIBOR panel banks in hopes that the banks would rely on the misinformation when making their own respective Yen LIBOR submissions to the BBA for inclusion in the published fix. Rather than providing good faith predictions as to where Yen LIBOR would fix, Goodman instead often used his daily email to set forth predictions which benefitted UBS Trader’s trading positions.
Beginning in or about June 2007, Goodman was paid a bonus through the desk Wilkinson supervised, allegedly intended, at least in part, to reward Goodman for his role in their effort to influence and manipulate the published Yen LIBOR fix.
As a second strategy, Read and Wilkinson allegedly further agreed to contact interest rate derivatives traders and submitters employed at Yen LIBOR panel banks in an effort to cause them to make false and misleading submissions to the BBA at UBS Trader’s behest.
As alleged in the charging document, Read, Wilkinson, Goodman, UBS Trader, and other co-conspirators often executed their scheme through electronic chats and email exchanges. For example, on June 28, 2007, in an email message, Read told Wilkinson: “DAN THIS IS GETTING SERIOUS [UBS TRADER] IS NOT HAPPY WITH THE WAY THINGS ARE PROGRESSING . . . CAN YOU PLEASE GET HOLD OF COLIN AND GET HIM TO SEND OUT 6 MOS LIBOR AT 0.865 AND TO GET HIS BANKS SETTING IT HIGH. THIS IS VERY IMPORTANT BECA– — USE [UBS TRADER] IS QUESTIONING MY (AND OUR) WORTH.”
The complaint alleges that the defendants were aware of the effects that Goodman’s false and fraudulent “SUGGESTED LIBORS” had on submissions by Yen LIBOR panel banks. For example, on Nov. 20, 2008, Read asked UBS Trader, “you have a really big fix tonight I believe? if Colin sends out 6m at a more realistic level than 1.10 [%] i reckon [the two panel banks] will parrot him, it might mean 6m coming down a bit.” On the following day, Nov. 21, 2008, Goodman moved his suggestion for 6-month Yen LIBOR down by nine basis points. The two other banks mirrored Goodman’s suggestion, moving their 6-month Yen LIBOR submissions down by nine basis points.
According to allegations in the complaint, Read counseled UBS Trader how to most effectively manipulate Yen LIBOR. For example, UBS Trader told Read in a July 22, 2009, electronic chat that “11th aug is the big date…i still have lots of 6m fixings till the 10th.” Read responded to UBS Trader, “if you drop [UBS’s] 6m dramatically on the 11th mate, it will look v fishy… . I’d be v careful how you play it, there might be cause for a drop as you cross into a new month but a couple of weeks in might get people questioning you.” UBS Trader replied, “don’t worry will stagger the drops…ie 5bp then 5bp,” and Read told UBS Trader, “ok mate, don’t want you getting into [expletive].” UBS Trader again assured Read that UBS and two additional panel banks would stagger their drops in coordination, and Read concluded, “great the plan is hatched and sounds sensible.”
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 of the FBI’s Washington Field Office. The prosecution is being handled by Deputy Chief William Stellmach and Trial Attorney Sandra L. Moser of the Criminal Division’s Fraud Section and Trial Attorneys Eric Schleef and Kristina Srica of the Antitrust Division. Trial Attorneys Alexander Berlin and Thomas B.W. Hall, Law Clerk Andrew Tyler, and Paralegal Specialist Kevin Sitarski of the Criminal Division’s Fraud Section, along with Assistant Chief Elizabeth Prewitt and Trial Attorney Richard Powers of the Antitrust Division, and former Trial Attorney Luke Marsh 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 investigation. The Securities and Exchange Commission has also provided valuable assistance for which the Department is grateful. The Department also expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation. Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation, and the Department is grateful for their cooperation and assistance as well.
Finally, the Department acknowledges ICAP’s continuing cooperation in the Department’s ongoing investigation.
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.
UBS Securities Japan Co. Ltd Sentenced for Long-running Manipulation of Libor
UBS Securities Japan Co. Ltd. (UBS Securities Japan), an investment bank, financial advisory securities firm and wholly-owned subsidiary of UBS AG, was sentenced today for its role in manipulating the London Interbank Offered Rate (LIBOR), a leading benchmark used in financial products and transactions around the world, the Justice Department announced.
UBS Securities Japan was sentenced by U.S. District Judge Robert N. Chatigny in the District of Connecticut. UBS Securities Japan pleaded guilty on Dec. 19, 2012, to one count of engaging in a scheme to defraud counterparties to interest rate derivative trades by secretly manipulating LIBOR benchmark interest rates. UBS Securities Japan signed a plea agreement with the government in which it admitted its criminal conduct and agreed to pay a $100 million fine, which the court accepted in imposing sentence. In addition, UBS AG, the Zurich-based parent company of UBS Securities Japan, entered into a non-prosecution agreement (NPA) with the government requiring UBS AG to pay an additional $400 million penalty, to admit and accept responsibility for its misconduct as set forth in an extensive statement of facts and to continue cooperating with the Justice Department in its ongoing investigation. The NPA reflects UBS AG’s substantial cooperation in discovering and disclosing LIBOR misconduct within the financial institution and recognizes the significant remedial measures undertaken by new management to enhance internal controls.
Together with approximately $1 billion in regulatory penalties and disgorgement – $700 million as a result of a Commodity Futures Trading Commission (CFTC) action; $259.2 million as a result of a U.K. Financial Conduct Authority (FCA) action; and $64.3 million as a result of a Swiss Financial Market Supervisory Authority (FINMA) action – the Justice Department’s criminal penalties bring the total amount of the resolution to more than $1.5 billion.
“This action, and the resulting sentence, prove that no individual or firm is above the law – no matter what,” said Attorney General Eric Holder. “The Department of Justice will continue to stand vigilant against corporations or individuals who threaten the integrity of our financial markets, undermine the stability of our economy, or jeopardize the well-being of our citizens. And, when supported by the facts and the law, we will never hesitate to use every tool and authority available to us to hold accountable those who illegally take advantage of others for their own financial gain.”
“Through its guilty plea and sentence, UBS has been held to account for deliberately manipulating LIBOR, one of the cornerstone interest rates in our global financial system,” said Acting Assistant Attorney General Mythili Raman of the Criminal Division. “The $1.5 billion global resolution against UBS – of which this guilty plea and sentence are a critical element – is just one of several actions we have taken against financial firms throughout the world that sought to illegally influence LIBOR. As we continue our active and ongoing investigation of the manipulation of LIBOR, our prosecutors and agents will continue to tenaciously follow the evidence wherever it leads. Neither UBS, nor the individual UBS defendants we have charged in connection with this sophisticated scheme, nor any other bank or individual, is above the law.”
According to documents filed in these cases, 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 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 estimated at approximately $450 trillion.
LIBOR, published by the British Bankers’ Association (BBA), a trade association based in London, is 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 is the result of a calculation based upon submissions from a panel of banks.
Beginning in September 2006, UBS Securities Japan and a senior trader employed in the Tokyo office of UBS Securities Japan orchestrated a sustained, wide-ranging and systematic scheme to move Yen LIBOR in a direction favorable to the trader’s trading positions, defrauding UBS’s counterparties and harming others with financial products referencing Yen LIBOR who were unaware of the manipulation. Between November 2006 and August 2009, the senior trader or a colleague of the senior trader endeavored to manipulate Yen LIBOR on at least 335 of the 738 trading days in that period, and during some periods on almost a daily basis. Because of the large size of the senior trader’s positions, even slight moves of a fraction of a percent in Yen LIBOR could generate large profits. For example, the senior trader once estimated that a 0.01 percent movement in the final Yen LIBOR fixing on a specific date could result in a $2 million profit for UBS.
According to the charging documents, UBS Securities Japan and the senior trader employed three strategies to execute the scheme: causing UBS to make false and misleading Yen LIBOR submissions to the BBA; causing cash brokerage firms, which purported to provide market information regarding LIBOR to panel banks, to disseminate false and misleading information about short-term interest rates for Yen, which those banks could and did rely upon in formulating their own LIBOR submissions to the BBA; and communicating with interest rate derivatives traders employed at three other Yen LIBOR panel banks in an effort to cause them to make false and misleading Yen LIBOR submissions to the BBA.
In entering into the NPA with UBS AG, the Justice Department considered information from UBS and from regulatory agencies in Switzerland and Japan demonstrating that in the last two years UBS has made important and positive changes in its management, compliance and training to ensure adherence to the law. The Department received favorable reports from the FINMA and the Japan Financial Services Authority (JFSA) describing, respectively, progress that UBS has made in its approach to compliance and enforcement and UBS Securities Japan’s effective implementation of the remedial measures the JFSA imposed based on findings relating to the attempted manipulation of Yen benchmarks.
The investigation was conducted by the FBI’s Washington Field Office. The prosecution is being handled by Deputy Chiefs Daniel Braun and William Stellmach and Trial Attorneys Thomas B.W. Hall and Sandra L. Moser, along with former Trial Attorney Luke Marsh, of the Criminal Division’s Fraud Section. Assistant U.S. Attorneys Eric Glover and Liam Brennan of the U.S. Attorney’s Office for the District of Connecticut have provided valuable assistance. The Criminal Division’s Office of International Affairs also provided 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. The SEC has also played a significant role in the LIBOR series of investigations and, among other efforts, has made an invaluable contribution to the investigation relating to UBS. The Department of Justice also wishes to acknowledge and thank FINMA, the Japanese Ministry of Justice, and the JFSA. Various agencies and enforcement authorities from other nations also have participated in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the Department is grateful for their cooperation and assistance.
UBS Securities Japan to Plead Guilty to Felony Wire Fraud For Long Running Manipulation of LIBOR Benchmark Interest Rates
Two Former Senior UBS Traders Face Felony Charges Unsealed Today
UBS AG to Pay Substantial Penalty in Agreement Reflecting
Substantial Cooperation, Significant Changes
WASHINGTON — UBS Securities Japan Co. Ltd. (UBS Japan), an investment bank, financial advisory securities firm and wholly-owned subsidiary of UBS AG, has agreed to plead guilty to felony wire fraud and admit its role in manipulating the London Interbank Offered Rate (LIBOR), a leading benchmark used in financial products and transactions around the world, Attorney General Eric Holder announced today. The criminal information, filed today in U.S. District Court in the District of Connecticut, charges UBS Japan with one count of engaging in a scheme to defraud counterparties to interest rate derivatives trades by secretly manipulating LIBOR benchmark interest rates.
As part of the ongoing criminal investigation by the Criminal and Antitrust Divisions of the Justice Department and the FBI into LIBOR manipulation, two former senior UBS traders also are charged. Tom Alexander William Hayes, 33, of England, and Roger Darin, 41, of Switzerland, were both charged with conspiracy in a criminal complaint unsealed in Manhattan federal court earlier today. Hayes is also charged with wire fraud, based on the same scheme, and a price fixing violation arising from his collusive activity with another bank to manipulate LIBOR benchmark rates.
UBS Japan has signed a plea agreement with the government admitting its criminal conduct, and has agreed to pay a $100 million fine. In addition, UBS AG, the parent company of UBS Japan headquartered in Zurich, has entered into a non-prosecution agreement (NPA) with the government requiring UBS AG to pay an additional $400 million penalty, to admit and accept responsibility for its misconduct as set forth in an extensive statement of facts and to continue cooperating with the Justice Department in its ongoing investigation. The NPA reflects UBS AG’s substantial cooperation in discovering and disclosing LIBOR misconduct within the financial institution and recognizes the significant remedial measures undertaken by new management to enhance internal controls.
Together with approximately $1 billion in regulatory penalties and disgorgement – $700 million as a result of the Commodity Futures Trading Commission (CFTC) action; $259.2 million as a result of the U.K. Financial Services Authority (FSA) action; and $64.3 million as a result of the Swiss Financial Markets Authority (FINMA) action – the Justice Department’s criminal penalties bring the total amount of the resolution to more than $1.5 billion.
“By causing UBS and other financial institutions to spread false and misleading information about LIBOR, the alleged conspirators we’ve charged – along with others at UBS – manipulated the benchmark interest rate upon which many transactions and consumer financial products are based. They defrauded the company’s counterparties of millions of dollars. And they did so primarily to reap increased profits, and secure bigger bonuses, for themselves,” said Attorney General Holder. “Today’s announcement – and $1.5 billion global resolution – underscores the Justice Department’s firm commitment to investigating and prosecuting such conduct, and to holding the perpetrators of these crimes accountable for their actions.”
“UBS manipulated one of the cornerstone interest rates in our global financial system,” said Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division. “The scheme alleged is epic in scale, involving people who have walked the halls of some of the most powerful banks in the world. Today’s agreement by UBS Japan to plead guilty, the charges against individual alleged perpetrators of these crimes, and our agreement recognizing the steps being taken by UBS AG to right itself demonstrate the Justice Department’s determination to hold accountable those in the financial marketplace who break the law. We cannot, and we will not, tolerate misconduct on Wall Street of the kind admitted to by UBS today, and by Barclays last June. We will continue to follow the facts and the law wherever they lead us in this matter, as we do in every case.”
“The criminal complaint charges two senior UBS traders with colluding to manipulate Yen LIBOR interest rates for the purpose of improving trading positions held by Hayes and UBS,” said Deputy Assistant Attorney General Scott D. Hammond of the Justice Department’s Antitrust Division. “Coordinating the movement of interest rates even by a very small margin meant higher profits and bigger bonuses for the conspirators at the expense of those that relied on LIBOR as a reference rate.”
“The manipulation of LIBOR affects financial products including mortgages, credit cards, student loans and many other interest rate products,” said FBI Associate Deputy Director Kevin L. Perkins. “This practice further erodes Main Street’s confidence in Wall Street. The public expects our financial institutions to maintain proper oversight of their businesses and to ensure the public is not harmed by criminal activity within these institutions. In this case, UBS acknowledged its failures and cooperated with our investigation. The FBI would like to thank its federal partners in this investigation – the Department of Justice Criminal Division’s Fraud Section and Antitrust Division, Commodity Futures Trading Commission’s Division of Enforcement and the Securities and Exchange Commission’s Division of Enforcement whose joint efforts brought a successful resolution to this matter.”
According to documents filed in these cases, 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 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 estimated at approximately $450 trillion.
LIBOR, published by the British Bankers’ Association (BBA), a trade association based in London, is 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 is the result of a calculation based upon submissions from a panel of banks.
Between July 2006 and September 2009, Hayes was a senior trader employed in the Tokyo office of UBS Japan, which then operated under the name UBS Securities Japan Ltd. Among other financial products, Hayes traded in interest rate derivatives that essentially consisted of bets against other traders on the direction in which Yen LIBOR would move. UBS was a member of the Yen LIBOR panel, and Darin was, at certain times relevant to the criminal complaint, a trader responsible for making and supervising LIBOR submissions to the BBA on behalf of the bank. In a statement of facts attached to the NPA and plea agreement, Hayes is referred to as “Trader-1” and Darin is referred to as “Submitter-1.”
Beginning in September 2006, UBS Japan and Hayes orchestrated a sustained, wide-ranging and systematic scheme to move Yen LIBOR in a direction favorable to Hayes’ trading positions, defrauding UBS’ counterparties and harming others with financial products referencing Yen LIBOR who were unaware of the manipulation. Between November 2006 and August 2009, Hayes or one of his colleagues endeavored to manipulate Yen LIBOR on at least 335 of the 738 trading days in that period, and during some periods on almost a daily basis. Because of the large size of Hayes’ trading positions, even slight moves of a fraction of a percent in Yen LIBOR could generate large profits. For example, Hayes once estimated that a 0.01 percent movement in the final Yen LIBOR fixing on a specific date could result in a $2 million profit for UBS.
According to the charging documents, UBS Japan and Hayes employed three strategies to execute the scheme: from November 2006 through September 2009, Hayes conspired with Darin and others within UBS to cause the bank to make false and misleading Yen LIBOR submissions to the BBA; also, Hayes caused cash brokerage firms, which purported to provide market information regarding LIBOR to panel banks, to disseminate false and misleading information about short-term interest rates for Yen, which those banks could and did rely upon in formulating their own LIBOR submissions to the BBA; and Hayes communicated with interest rate derivatives traders employed at three other Yen LIBOR panel banks in an effort to cause them to make false and misleading Yen LIBOR submissions to the BBA.
As alleged in the charging documents, Hayes, Darin and other co-conspirators often executed their scheme through electronic chats. On Nov. 20, 2006, for example, Hayes asked a UBS Yen LIBOR submitter who was substituting for Darin, “hi . . . [Darin] and I generally coordinate ie sometimes trade if ity [sic] suits, otherwise skew the libors a bit.” Hayes went on to request, “really need high 6m [6-month] fixes till Thursday.” The submitter responded, “yep we on the case there . . . will def[initely] be on the high side.” The day before this request, UBS’s 6-month Yen LIBOR submission had been tied with the lowest submissions included in the calculation of the LIBOR fix. Immediately after this request for high submissions, however, UBS’s 6-monthYen LIBOR submissions rose to the highest submission of any bank in the contributor panel and remained tied for the highest, precisely as Hayes had requested.
Another example of such an alleged accommodation occurred on March 29, 2007, when Hayes asked Darin, “can we go low 3[month] and 6[month] pls? . . . 3[month] esp.” Darin responded “ok”, and the two had the following exchange:
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Hayes: |
what are we going to set? | |
|
Darin: |
too early to say yet . . . prob[ably] .69 would be our unbiased contribution | |
|
Hayes: |
ok wd really help if we cld keep 3m low pls | |
| Darin: | as i said before – i [don’t] mind helping on your fixings, but i’m not setting libor 7bp away from the truth. . . i’ll get ubs banned if i do that, no interest in that. | |
| Hayes: | ok obviousl;y [sic] no int[erest] in that happening either . . . not asking for it to be 7bp from reality anyway any help appreciated[.] |
Hayes received the help he requested.
In addition, the criminal complaint charges Hayes with colluding with a trader employed at another LIBOR panel bank in May 2009, in violation of the Sherman Antitrust Act. Hayes allegedly engaged in the collusive scheme to fix the price of derivative instruments whose price was based on Yen LIBOR. In electronic chats, Hayes asked the trader to move 6-month Yen LIBOR up due to a “gigantic” position Hayes had taken. For the trade in question, UBS trading records confirmed that each 0.01 percent movement in LIBOR would generate profits of approximately $459,000 for Hayes’ book. The trader at the other bank responded that he would comply, and his bank’s submission moved by 0.06 percent compared to its submission the previous day, for which Hayes thanked him.
In entering into the NPA with UBS AG, the Justice Department considered information from UBS, and from regulatory agencies in Switzerland and Japan, demonstrating that in the last two years UBS has made important and positive changes in its management, compliance and training to ensure adherence to the law. The department received favorable reports from the Swiss Financial Market Supervisory Authority (FINMA) and the Japan Financial Services Authority (JFSA) describing, respectively, progress that UBS has made in its approach to compliance and enforcement and UBS Japan’s effective implementation of the remedial measures the JFSA imposed based on findings relating to the attempted manipulation of Yen benchmarks.
The investigation is being handled by Deputy Chiefs William Stellmach and Daniel Braun and Trial Attorney Luke Marsh of the Criminal Division’s Fraud Section, and Assistant Chief Elizabeth Prewitt and Trial Attorney Richard Powers of the Antitrust Division, New York Field Office. Assistant Chief Rebecca Rohr and Trial Attorneys Alexander Berlin and Thomas Hall of the Criminal Division’s Fraud Section, Trial Attorneys Portia Brown and Wendy Norman of the Antitrust Division, and Assistant U.S. Attorneys Eric Glover and Liam Brennan of the U.S. Attorney’s Office for the District of Connecticut have also provided valuable assistance. The Criminal Division’s Office of International Affairs also provided assistance in this matter. The investigation is being conducted by the FBI’s Washington Field Office.
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 Commodity Futures Trading Commission’s Division of Enforcement referred this matter to the Department and, along with the FSA, has played a major role in the investigation. The Securities and Exchange Commission has also played a significant role in the LIBOR series of investigations and, among other efforts, has made an invaluable contribution to the investigation relating to UBS. The Department of Justice also wishes to acknowledge and thank FINMA, the Japanese Ministry of Justice, and the JFSA. 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.
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.
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