Tag Archives: Securities and Exchange Commission

SEC Awards Over $5 Million to Whistleblower, Provides Anonymity

Posted on by

Washington, D.C.- The Security and Exchange Commission’s (SEC) whistleblower program continues to build momentum, awarding its third-highest whistleblower payment ($5-6 million) as well as censoring his/her identity and former employer.

 The subsequent article is reproduced below, with original link following.

 

SEC Awards More Than $5 Million to Whistleblower Award is SEC Program’s Third Highest to Date

FOR IMMEDIATE RELEASE

2016-91

Washington D.C., May 17, 2016 — The Securities and Exchange Commission today announced that it will award between $5 million and $6 million to a former company insider whose detailed tip led the agency to uncover securities violations that would have been nearly impossible for it to detect but for the whistleblower’s information.

“Employees are often best positioned to witness wrongdoing,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.  “When they report specific and credible tips to us, we will leverage that inside knowledge to advance our enforcement of the securities laws and better protect investors and the marketplace.”

Today’s award is the SEC’s third highest to a whistleblower.  In September 2014, the agency announced a more than $30 million whistleblower award, exceeding the prior highest award of more than $14 million announced in October 2013.  Since the inception of the whistleblower program in 2011, the SEC has awarded more than $67 million to 29 whistleblowers, including one for more than $3.5 million announced last week.

“The whistleblower program has seen tremendous growth since its inception and we anticipate the continued issuance of significant whistleblower awards in the months and years to come,” said Sean X. McKessy, Chief of the SEC’s Office of the Whistleblower.

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

Whistleblowers may be eligible for an award when they voluntarily provide the SEC with unique and useful information that leads to a successful enforcement action.

Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.  All payments are made out of an investor protection fund established by Congress that is financed through monetary sanctions paid to the SEC by securities law violators.  No money has been taken or withheld from harmed investors to pay whistleblower awards.

For more information about the whistleblower program and how to report a tip: www.sec.gov/whistleblower.

Original Article

SEC Charges Three RMBS Traders With Defrauding Investors

Posted on by

FOR IMMEDIATE RELEASE

2015-181

Washington D.C., Sept. 8, 2015 —The Securities and Exchange Commission today announced fraud charges against three traders accused of repeatedly lying to customers relying on them for honest and accurate pricing information about residential mortgage-backed securities (RMBS).

The SEC alleges that Ross Shapiro, Michael Gramins, and Tyler Peters defrauded customers to illicitly generate millions of dollars in additional revenue for Nomura Securities International, the New York-based brokerage firm where they worked.  They misrepresented the bids and offers being provided to Nomura for RMBS as well as the prices at which Nomura bought and sold RMBS and the spreads the firm earned intermediating RMBS trades.  They also trained, coached, and directed junior traders at the firm to engage in the same misconduct.

In a parallel action, the U.S. Attorney’s Office for the District of Connecticut announced criminal charges against Shapiro, Gramins, and Peters, who no longer work at Nomura.

“The alleged misconduct reflects a callous disregard for the integrity and obligations expected of registered securities professionals,” said Andrew Ceresney, Director of the SEC’s Enforcement Division. “Not only did these traders lie to their customers, but they created a corrupt culture on Nomura’s trading desk by coaching more junior traders to employ the same deceptive and dishonest trading practices we allege in our complaint.”

According to the SEC’s complaint filed in federal court in Manhattan:

  • The lies and omissions to customers by Shapiro, Gramins, and Peters generated at least $5 million in additional revenue for Nomura, and lies and omissions by the subordinates they trained and coached generated at least $2 million in additional profits for the firm.
  • Nomura determined bonuses for Shapiro, Gramins, and Peters based on several factors including revenue generation.  Nomura paid total compensation of $13.3 million to Shapiro, $5.8 million to Gramins, and $2.9 million to Peters during the years this misconduct was occurring.
  • Customers sought and relied on market price information from these traders because the market for this type of RMBS is opaque and accurate price information is difficult for a customer to determine.  Therefore it was particularly important for the traders to provide honest and accurate information.
  • Shapiro, Gramins, and Peters went so far as to invent phantom third-party sellers and fictional offers when Nomura already owned the bonds the traders were pretending to obtain for potential buyers.

The SEC’s complaint charges Shapiro, Gramins, and Peters with violating Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 as well as Section 17(a) of the Securities Act of 1933.

The SEC separately entered into deferred prosecution agreements (DPAs) with three other individuals who have extensively cooperated with the SEC’s investigation and provided enforcement staff with access to critical evidence that otherwise would not have been available.

“The SEC is open to deferring charges based on certain factors, including when cooperators come forward with timely and credible information while candidly acknowledging their own misconduct,” said Michael Osnato, Chief of the SEC’s Complex Financial Instruments Unit.  “The decision to defer charges in this matter reflects the early and sustained assistance provided by these individuals.”

The SEC’s continuing investigation is being conducted by James R. Drabick, Susan Curtin, Rua Kelly, and Celia Moore.  The SEC’s litigation will be led by Ms. Kelly.

Two Former Rabobank Traders Indicted for Alleged Manipulation of U.S. Dollar, Yen Libor Interest Rates

Posted on by
Two former Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) derivative traders – including the bank’s former Global Head of Liquidity & Finance in London – have been charged in a superseding indictment for their alleged roles in a scheme to manipulate the U.S. Dollar (USD) and Yen London InterBank Offered Rate (LIBOR), a benchmark interest rate to which trillions of dollars in interest rate contracts were tied, the Justice Department announced today.  Six former Rabobank employees have now been charged in the Rabobank LIBOR investigation.

Assistant Attorney General Leslie R. Caldwell 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 Andrew G. McCabe of the FBI’s Washington Field Office made the announcement.

Earlier today, a federal grand jury in the Southern District of New York returned a superseding indictment charging Anthony Allen, 43, of Hertsfordshire, England; and Anthony Conti, 45, of Essex, England, with conspiracy to commit wire fraud and bank fraud and with substantive counts of wire fraud for their participation in a scheme to manipulate the USD and Yen LIBOR rate in a manner that benefitted their own or Rabobank’s  financial positions in derivatives that were linked to those benchmarks.

The indictment also charges Tetsuya Motomura, 42, of Tokyo, Japan, and Paul Thompson, 48, of Dalkeith, Australia, who were charged in a prior indictment with Paul Robson, a former Rabobank LIBOR submitter.  In addition to adding as defendants Allen and Conti, the superseding indictment alleges a broader conspiracy to manipulate both the USD LIBOR and the Yen LIBOR.

Robson and Takayuki Yagami, a former Rabobank derivatives trader, each pleaded guilty earlier this year to one count of conspiracy in connection with their roles in the scheme.

“Today, we have charged two more members of the financial industry with influencing Dollar LIBOR and Yen LIBOR to gain an illegal advantage in the market, unfairly benefitting their own trading positions in financial derivatives,” said Assistant Attorney General Caldwell.  “LIBOR is a key benchmark interest rate that is relied upon to be free of bias and self-dealing, but the conduct of these traders was as galling as it was greedy.  Today’s charges are just the latest installment in the Justice Department’s industry-wide investigation of financial institutions and individuals who manipulated global financial rates.”

“With today’s charges against Messrs. Allen and Conti, we continue to reinforce our message to the financial community that we will not allow the individuals who perpetrate these crimes to hide behind corporate walls,” said Deputy Assistant Attorney General Snyder.  “This superseding indictment, with its charges against Mr. Allen, makes an especially strong statement to managers in financial institutions who devise schemes to undermine fair and open markets but leave the implementation – and often the blame – with their subordinates.”

“With today’s indictments the FBI’s investigation into Rabobank’s manipulation of LIBOR benchmark rates expands in scope to include the U.S. Dollar,” said Assistant Director in Charge McCabe. “I would like to thank the special agents, forensic accountants, and analysts, as well as the prosecutors who have worked to identify and stop those who hide behind complex corporate and securities fraud schemes.”

According to the superseding indictment, at the time relevant to the charges, LIBOR was an average interest rate, calculated based on submissions from leading banks around the world, reflecting the rates those banks believed they would be charged if borrowing from other banks.   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 published LIBOR “fix” for U.S. Dollar and Yen currency for a specific maturity was 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.

Rabobank entered into a deferred prosecution agreement with the Department of Justice on Oct. 29, 2013, and agreed to pay a $325 million penalty to resolve violations arising from Rabobank’s LIBOR submissions.

According to allegations in the superseding indictment, Allen, who was Rabobank’s Global Head of Liquidity & Finance and the manager of the company’s money market desk in London, put in place a system in which Rabobank employees who traded in derivative products linked to USD and Yen LIBOR regularly communicated their trading positions to Rabobank’s LIBOR submitters, who submitted Rabobank’s LIBOR contributions to the BBA.  Motomura, Thompson, Yagami and other traders entered into derivative contracts containing USD or Yen LIBOR as a price component and they asked Conti, Robson, Allen and others to submit LIBOR contributions consistent with the traders’ or the bank’s financial interests, to benefit the traders’ or the banks’ trading positions.  Conti, who was based in London and Utrecht, Netherlands, served as Rabobank’s primary USD LIBOR submitter and at times acted as Rabobank’s back-up Yen LIBOR submitter.  Robson, who was based in London, served as Rabobank’s primary submitter of Yen LIBOR.  Allen, in addition to supervising the desk in London and money market trading worldwide, occasionally acted as Rabobank’s backup USD and Yen LIBOR submitter.  Allen also served on a BBA Steering Committee that provided the BBA with advice on the calculation of LIBOR as well as recommendations concerning which financial institutions should sit on the LIBOR contributor panel.

The charges in the superseding indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

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 Senior Litigation Counsel Carol L. Sipperly and Trial Attorney Brian R. Young of the Criminal Division’s Fraud Section and Trial Attorney Michael T. Koenig of the Antitrust Division.  The Criminal Division’s Office of International Affairs has provided assistance in this matter.

The Justice Department expresses its appreciation for the assistance provided by various enforcement agencies in the United States and abroad.  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 Securities and Exchange Commission also 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.   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.

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.com [external link].

Former Rabobank Trader Pleads Guilty for Scheme to Manipulate Yen Libor

Posted on by

A former Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) Japanese Yen derivatives trader pleaded guilty today for his role in a conspiracy to commit wire and bank fraud by manipulating Rabobank’s Yen London InterBank Offered Rate (LIBOR) submissions to benefit his trading positions.
Attorney General Eric H. Holder, Assistant Attorney General Leslie R. Caldwell 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.
Today, a criminal information was filed in the Southern District of New York charging Takayuki Yagami, a Japanese national, with one count of conspiracy to commit wire fraud and bank fraud.   Yagami pleaded guilty to the information before United States District Judge Jed S. Rakoff in the Southern District of New York.
“With this guilty plea, we take another significant step to hold accountable those who fraudulently manipulated the world’s cornerstone benchmark interest rate for financial gain,” said Attorney General Eric Holder.  “This conduct distorted transactions and financial products around the world.  Manipulating LIBOR effectively rigs the global financial system, compromising the fairness of world markets.  This plea demonstrates that the Justice Department will never waver, and we will never rest, in our determination to ensure the integrity of the marketplace and protect it from fraud.
“Today, a former Rabobank trader has pleaded guilty to participating in a scheme to manipulate the global benchmark interest rate LIBOR to benefit Rabobank’s trading positions,” said Assistant Attorney General Caldwell.    “This was the ultimate inside job.    As alleged, traders illegally influenced the very interest rate on which their trades were based, using fraud to gain an unfair advantage.    Takayuki Yagami is the ninth person charged by the Justice Department in connection with the industry-wide LIBOR investigation, and we are determined to pursue other individuals and institutions who engaged in this crime.”
“Today’s guilty plea is a significant step forward in the LIBOR investigation and demonstrates the Department’s firm commitment to individual accountability,” said Deputy Assistant Attorney General Snyder.  “We will continue to pursue aggressively other individuals involved in this or other illegal schemes that undermine free and fair financial markets.”
“Manipulating financial trading markets to create an unfair advantage is against the law,” said Assistant Director in Charge Parlave.  “Today’s guilty plea 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.”
According to court documents, 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 valued at approximately $450 trillion.
At the time relevant to the charges, 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 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.
Yagami admitted to conspiring with Paul Robson, of the United Kingdom, Paul Thompson, of Australia, and Tetsuya Motomura, of Japan.  Robson, Thompson and Motomura were charged with conspiracy to commit wire fraud and bank fraud as well as substantive counts of wire fraud in a fifteen-count indictment returned by a federal grand jury in the Southern District of New York on April 28, 2014.    All four are former employees of Rabobank.
Rabobank entered into a deferred prosecution agreement with the Department of Justice on Oct. 29, 2013 and agreed to pay a $325 million penalty to resolve violations arising from Rabobank’s LIBOR submissions.
According to allegations in the information and indictment, the four 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; Motomura was a senior trader at Rabobank’s Tokyo desk who supervised money market and derivative traders; and Yagami worked as a senior trader at Rabobank’s Money Market/FX Forwards desks in Tokyo and elsewhere in Asia.    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, Motomura and Yagami 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.
As alleged in court filings, from about May 2006 to at least January 2011, the four defendants 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, including Yagami, 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.    Thompson, Motomura and Yagami (described in the indictment as Trader-R) made requests of Robson for Yen LIBOR submissions through electronic chats and email exchanges.
For example, according to court filings, on Sept. 21, 2007, Yagami asked Robson by email, “wehre do you think today’s libors are?    If you can I would like 1mth higher today.” Robson responded, “bookies reckon .85,” to which Yagami 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 Yagami 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!”
The indictment alleges that Robson accommodated the requests of his co-defendants.    For example, on Sept. 21, 2007, after Robson allegedly received a request from Yagami 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 to Yagami 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.
The charges in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
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 Senior Litigation Counsel Carol L. Sipperly and Trial Attorney Brian R. Young of the Criminal Division’s Fraud Section, and Trial Attorney Michael T. Koenig of the Antitrust Division.    The Criminal Division’s Office of International Affairs has provided assistance in this matter.
The Justice Department expresses its appreciation for the assistance provided by various enforcement agencies in the United States and abroad.    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 Securities and Exchange Commission also 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.     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.
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.com.

 

Ralph Lauren Corporation Resolves Foreign Corrupt Practices Act Investigation and Agrees to Pay $882,000 Monetary Penalty

Posted on by

Ralph Lauren Corporation (RLC), a New York based apparel company, has agreed to pay an $882,000 penalty to resolve allegations that it violated the Foreign Corrupt Practices Act (FCPA) by bribing government officials in Argentina to obtain improper customs clearance of merchandise, announced Mythili Raman, the Acting Assistant Attorney General for the Criminal Division, and Loretta E. Lynch, the United States Attorney for the Eastern District of New York.

According to the agreement, the manager of RLC’s subsidiary in Argentina bribed customs officials in Argentina over the span of five years to improperly obtain paperwork necessary for goods to clear customs; permit clearance of items without the necessary paperwork and/or the clearance of prohibited items; and on occasion, to avoid inspection entirely.  RLC’s employee disguised the payments by funneling them through a customs clearance agency, which created fake invoices to justify the improper payments.  During these five years, RLC did not have an anti-corruption program and did not provide any anti-corruption training or oversight with respect to its subsidiary in Argentina.

In addition to the monetary penalty, RLC agreed to cooperate with the Department of Justice, to report periodically to the department concerning RLC’s compliance efforts, and to continue to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations.  If RLC abides by the terms of the agreement, the Department will not prosecute RLC in connection with the conduct.

The agreement acknowledges RLC’s extensive, thorough, and timely cooperation, including self-disclosure of the misconduct, voluntarily making employees available for interviews, making voluntary document disclosures, conducting a worldwide risk assessment, and making multiple presentations to the Department on the status and findings of the internal investigation and the risk assessment.  In addition, RLC has engaged in early and extensive remediation, including conducting extensive FCPA training for employees worldwide, enhancing the company’s existing FCPA policy, implementing an enhanced gift policy and other enhanced compliance, control and anti-corruption policies and procedures, enhancing its due diligence protocol for third-party agents, terminating culpable employees and a third-party agent, instituting a whistleblower hotline, and hiring a designated corporate compliance attorney.

In a related matter, the U.S. Securities and Exchange Commission today announced a non-prosecution agreement with RLC , in which RLC agreed to pay $$734,846 in disgorgement and prejudgment interest.

The case is being prosecuted by Trial Attorney Daniel S. Kahn of the Criminal Division’s Fraud Section and Sarah Coyne, Chief of the Business and Securities Fraud Section of the Eastern District of New York.  The case was investigated by the FBI’s New York Field Office.  The department acknowledges and expresses its appreciation for the assistance provided by the SEC’s Division of Enforcement.

Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

Parker Drilling Company Resolves FCPA Investigation and Agrees to Pay $11.76 Million Penalty

Posted on by
Parker Drilling Company Resolves FCPA Investigation and Agrees to Pay $11.76 Million Penalty
 Parker Drilling Company, a publicly listed drilling-services company, headquartered in Houston, has agreed to pay an $11.76 million penalty to resolve charges related to the Foreign Corrupt Practices Act (FCPA) for authorizing payment to an intermediary, knowing that the payment would be used to corruptly influence the decisions of a Nigerian government panel reviewing Parker Drilling’s adherence to Nigerian customs and tax laws.  Acting Assistant Attorney General Mythili Raman of the Criminal Division and U.S. Attorney Neil H. MacBride for the Eastern District of Virginia announced the charges.

The investigation of Parker Drilling stemmed from the Justice Department’s Panalpina-related investigations, which previously yielded criminal resolutions with Panalpina and five oil and gas service companies and subsidiaries and resulted in more than $156 million in criminal penalties.

Today, the department filed a deferred prosecution agreement and a criminal information against Parker Drilling in U.S. District Court for the Eastern District of Virginia.  The one-count information charges Parker Drilling with violating the FCPA’s anti-bribery provisions.

According to court documents, in  2001 and 2002, Panalpina World Transport (Nigeria) Limited, working on Parker Drilling’s behalf, avoided certain costs associated with complying with Nigeria’s customs laws by fraudulently claiming that Parker Drilling’s rigs had been exported and then re-imported into Nigeria.  In late 2002, Nigeria formed a government commission, commonly called the Temporary Import (TI) Panel, to examine whether Nigeria’s Customs Service had collected certain duties and tariffs that Nigeria was due. In December 2002, the TI Panel commenced proceedings against Parker Drilling.  The TI Panel later determined that Parker Drilling had violated Nigeria’s customs laws and assessed a $3.8 million fine against Parker Drilling.

According to court documents, rather than pay the assessed fine, Parker Drilling contracted indirectly with an intermediary agent to resolve its customs issues.  From January to May 2004, Parker Drilling transferred $1.25 million to the agent, who reported spending a portion of the money on various things including entertaining government officials.  Emails in which the agent requested additional money from Parker Drilling referenced the agent’s interactions with Nigeria’s Ministry of Finance, State Security Service, and a delegation from the president’s office.  Two senior executives within Parker Drilling at the time reviewed and approved the agent’s invoices, knowing that the invoices arbitrarily attributed portions of the money that Parker Drilling transferred to the agent to various fees and expenses.  The agent succeeded in reducing Parker Drilling’s TI Panel fines from $3.8 million to just $750,000.

Under the terms of the agreement, the Justice Department agreed to defer prosecution of Parker Drilling for three years.  Parker Drilling agreed, among other things, to implement an enhanced compliance program and internal controls capable of preventing and detecting FCPA violations, to report periodically to the department concerning Parker Drilling’s compliance efforts, and to cooperate with the department in ongoing investigations.  If Parker Drilling abides by the terms of the deferred prosecution agreement, the department will dismiss the criminal information when the term of the agreement expires.

In entering into the deferred prosecution agreement with Parker Drilling, the Justice Department took into account a number of considerations.  Parker Drilling conducted an extensive, multi-year investigation into the charged conduct; engaged in widespread remediation, including ending its business relationships with officers, employees, or agents primarily responsible for the corrupt payments, enhancing scrutiny of high-risk third-party agents and transactions, increasing training and testing requirements, and instituting heightened review of proposals and other transactional documents for all the company’s contracts; otherwise significantly enhanced its compliance program and internal controls; and agreed to continue to cooperate with the department in any ongoing investigation of the conduct.

Parker Drilling also reached a settlement of a related civil complaint filed by the U.S. Securities and Exchange Commission (SEC) charging Parker Drilling with violating the FCPA’s anti-bribery, books and records, and internal controls provisions.  As part of that settlement, Parker Drilling agreed to pay $3.05 million in disgorgement and $1.04 million in prejudgment interest relating to those violations.

The criminal case is being prosecuted by Trial Attorney Stephen J. Spiegelhalter of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Jasmine Yoon of the U.S. Attorney’s Office for the Eastern District of Virginia, and is being investigated by the FBI. The department’s Office of International Affairs assisted in the investigation.  The department also acknowledges and is grateful for the assistance of the Crown Prosecution Service, the United Kingdom’s Metropolitan Police Service, and SEC.

Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

UBS Securities Japan to Plead Guilty to Felony Wire Fraud For Long Running Manipulation of LIBOR Benchmark Interest Rates

Posted on by

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:

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.

# # #