Tag Archives: Wendy Norman

RBS Securities Japan Limited Agrees to Plead Guilty in Connection with Long-Running Manipulation of Libor Benchmark Interest Rates

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Second Financial Institution to Plead Guilty to Libor Fraud and Pay Substantial Criminal Penalties; RBS Parent Company Also Admits Fault in Deferred Prosecution Agreement

RBS Securities Japan Limited, a wholly owned subsidiary of The Royal Bank of Scotland plc (RBS), has agreed to plead guilty to felony wire fraud and admit its role in manipulating the Japanese Yen London Interbank Offered Rate (LIBOR), a leading benchmark used in financial products and transactions around the world, Assistant Attorney General Lanny Breuer of the Justice Department’s Criminal Division, Deputy Assistant Attorney General Scott D. Hammond of the Justice Department’s Antitrust Division and Special Agent in Charge Timothy A. Gallagher of the FBI’s Washington Field Office Criminal Division announced today.

A criminal information, being filed in U.S. District Court for the District of Connecticut, charges RBS Securities Japan with one count of wire fraud for engaging in a scheme to defraud counterparties to interest rate derivatives trades by secretly manipulating Yen LIBOR benchmark interest rates.  RBS Securities Japan has signed a plea agreement with the government admitting its criminal conduct, and has agreed to pay a $50 million fine.

In addition, the government is filing a criminal information in the District of Connecticut which charges parent company RBS as part of a deferred prosecution agreement (DPA).  The information charges RBS with wire fraud for its role in manipulating LIBOR benchmark interest rates, and with participation in a price-fixing conspiracy in violation of the Sherman Act by rigging the Yen LIBOR benchmark interest rate with other banks.  The DPA requires the bank to admit and accept responsibility for its misconduct as described in an extensive statement of facts, to continue cooperating with the Justice Department in its ongoing investigation and to pay a $100 million penalty beyond the fine imposed upon RBS Securities Japan.

Together with approximately $462 million in regulatory penalties and disgorgement – $325 million as a result of a Commodity Futures Trading Commission (CFTC) action and approximately $137 million as a result of a U.K. Financial Services Authority (FSA) action – the Justice Department’s criminal penalties bring the total amount of the resolution with RBS and RBS Securities Japan to approximately $612 million.

“As we have done with Barclays and UBS, we are today holding RBS accountable for a stunning abuse of trust,” said Assistant Attorney General Breuer.  “The bank has admitted to manipulating one of the cornerstone benchmark interest rates in our global financial system, and its Japanese subsidiary has agreed to plead guilty to felony wire fraud.  The department’s ongoing investigation has now yielded two guilty pleas by significant financial institutions.  These are extraordinary results, and our investigation is far from finished.  Our message is clear:  no financial institution is above the law.”

“RBS secretly rigged the benchmark interest rates upon which many transactions and consumer financial products are based,” said Deputy Assistant Attorney General Hammond. “RBS’ conduct not only harmed its unsuspecting counterparties, it undermined the integrity and the competitiveness of financial markets everywhere.”

“The manipulation of LIBOR by RBS and its subsidiary directly affected the rates referenced by financial products held by and on behalf of American companies and investors. The FBI works to uncover wrongdoing such as this in order to protect American consumers and the integrity of financial markets,” said Special Agent in Charge Gallagher.  “Today’s announcement is the result of the hard work of the FBI special agents, financial analysts, and forensic accountants as well as the prosecutors who dedicated significant time and resources to investigating this case.”

According to court documents, LIBOR is an average interest rate, calculated based upon 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.

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 for that currency (the Contributor Panel) selected by the BBA.  From at least 2006 through 2010, RBS has been a member of the Contributor Panel for a number of currencies, including Yen LIBOR and Swiss Franc LIBOR, which are the focus of the plea agreement and DPA.

According to the filed charging documents, at various times from at least 2006 through 2010, certain RBS Yen and Swiss Franc derivatives traders – whose compensation was directly connected to their success in trading financial products tied to LIBOR – engaged in efforts to move LIBOR in a direction favorable to their trading positions.  Through these schemes, RBS allegedly defrauded counterparties who were unaware of the manipulation affecting financial products referencing Yen and Swiss Franc LIBOR.  The alleged schemes included hundreds of instances in which RBS employees sought to influence LIBOR submissions in a manner favorable to their trading positions in two principal ways: internally at RBS through requests by derivatives traders for Yen and Swiss Franc LIBOR submissions, and externally through an agreement with a separately charged derivatives trader to request Yen LIBOR submissions.  The trader, Tom Alexander William Hayes, was formerly employed by a Japanese subsidiary of another Contributor Panel bank, UBS AG (UBS).

According to court documents, RBS employees engaged in this conduct through electronic communications, which included both emails and electronic chats.  For example, in an electronic chat on March 16, 2009, an RBS Swiss Franc derivatives trader, (Trader-7), sought to benefit his trading book by asking the RBS LIBOR submitter (Submitter-1), “can we pls get a very very very low 3m [3 month] and 6m [6 month] fix today [please]” because “we have rather large fixings!”  Submitter-1 responded, “perfect, if that’s what u want.”  After thanking Submitter-1, Trader-7 informed Submitter-1 that “from tomorrow . . .  we need them thru the roof!!!!!”

In another electronic chat on May 20, 2009, involving an RBS Yen derivatives trader, (“Trader-2”), Submitter-1, and others, the following exchange occurred:

Trader-2: high 3s and low 6s pls [Submitter-1]

Submitter-1: no problems

Trader-2: grazias amigo . . . where will you lower 6s to?

Submitter-1: 70

That day, RBS’s 6-month Yen LIBOR submission dropped two basis points from .72 to .70, before reverting to .72 the following two days.

RBS employees also allegedly furthered their collusive scheme with Hayes to fix the price of derivative instruments tied to Yen LIBOR through electronic communications.  For instance, in an electronic chat on April 20, 2007, Hayes requested that an RBS derivatives trader, (“Trader-3”), ask Submitter-1 for a low 3 month Yen LIBOR submission:

Hayes: . . . if you could ask your guys to keep 3m low wd be massive help as long as it doesn’t interfere with your stuff . . . tx in adavance.

Approximately 30 minutes later, Hayes and Trader-3 had the following exchange:

Hayes:   mate did you manage to spk to your cash boys?

Trader-3:  yes u owe me they are going 65 and 71

Hayes:  thx mate yes i do . . . in fact i owe you big time

Approximately 45 minutes later, Hayes sent the following message to Trader-3:

Hayes:  mater they set 64! . . . thats beyond the call of duty!

* * * *
Trader-3: no worries

By entering into a DPA with RBS, the Justice Department credits RBS’ cooperation in disclosing LIBOR misconduct within the financial institution, recognizes the significant remedial measures undertaken by RBS’ management to enhance internal controls, and acknowledges the additional reporting, disclosure and cooperation requirements undertaken by the bank.  The DPA does not prevent the Justice Department from prosecuting individuals for related conduct.

The pending charges against Hayes are merely accusations and he is considered innocent unless and until proven guilty.

The prosecution of RBS is being handled by Deputy Chief Patrick Stokes and Trial Attorney Gary Winters of the Criminal Division’s Fraud Section, and New York Field Office Assistant Chief Elizabeth Prewitt and Trial Attorneys Eric Schleef and Richard Powers of the Antitrust Division.  Deputy Chiefs Daniel Braun and William Stellmach, Assistant Chief Rebecca Rohr and Trial Attorney Alex Berlin of the Criminal Division’s Fraud Section, Trial Attorneys Daniel Tracer and Kristina Srica of the Antitrust Division, Jeremy Verlinda of the Antitrust Division’s Economic Analysis Group, Assistant U.S. Attorneys Eric Glover and Liam Brennan of the U.S. Attorney’s Office for the District of Connecticut and the Criminal Division’s Office of International Affairs have also provided valuable assistance in this matter.  The investigation is being conducted by special agents, forensic accountants and intelligence analysts of 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 CFTC’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.  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.

Former LIBOR Prosecutor, Wendy Norman, Joins GeyerGorey LLP

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Wendy Norman, former US Department of Prosecutor, to join GeyerGorey LLP. Acquisition complements firm’s growing practice.

FOR IMMEDIATE RELEASE

(Press Release) – Feb. 4, 2013 – GeyerGorey LLP today announced that former LIBOR prosecutor Wendy Bostwick Norman will be joining the firm’s Philadelphia operations.
Wendy brings to the firm 20 years of federal prosecution experience which followed more than a decade as an investigative agent with the New Jersey State Commission of Investigation, said firm partner Bradford Geyer.
“I couldn’t be more thrilled to have Wendy joining our firm,” added Geyer, “I have worked closely with Wendy on and off for more than 20 years and I know exactly what she brings to the table: legal acumen, strategic smarts and gravitas.  She knows how to identify and exploit opportunity at the earliest juncture and I have no doubt she will be a superb supplement to our team.”
Geyer and Norman met in 1992, the year Norman joined the Department of Justice, after graduating from Villanova Law School.  Ironically, both Norman and Geyer recall attending a training seminar in the early 1990s where firm partners Hays Gorey and Robert Zastrow were instructors.
Gorey stressed Norman’s well known reputation as a talented and conscientious federal prosecutor who was a “team player.”  Her wealth of experience investigating and prosecuting antitrust and related complex criminal frauds, including violations of the Foreign Corrupt Practices Act, ideally suits her to assist the firm’s clients, according to Geyer.  “We are pleased she agreed to join the firm, despite offers to work in New York and Washington, D.C.”
Norman won numerous awards and accolades while at the Department of Justice.  Among them, was the 2010 Antitrust Division Assistant Attorney General Award of Distinction for her work on the team that earned the conviction for obstruction of justice of Ian P. Norris, the former CEO of The Morgan Crucible Company plc; the 2001 Attorney General’s John Marshall Award for Outstanding Legal Achievement for her trial victory in United States v. Mitsubishi Corporation; and, in 1999, an award from the Attorney General for Outstanding Dedication and Effectiveness in Enhancing Crime Victim Fund Collections.
According Zastrow, “Wendy’s qualities fit our firm to a “T.”  She has the exact low ego, steely resolve and collaborative qualities we seek in our attorneys.  We want maximum brain power plugged into an issue.”

***Antitrust Monitor (2 of 2)*** Informal Blog Post by Robert Zastrow regarding Anheuser-Busch InBev’s Proposed Acquisition of Grupo Modelo

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Today’s Wall Street Journal article regarding Anheuser-Busch InBev’s Proposed Acquisition of Grupo Modelo ( US Fights AB InBev With Tested Game Plan by Brent Kendall), brought back memories of my life before Verizon when I was general counsel to the New York State Beer Wholesalers’ Association and prosecuting attorney in connection with the Heileman Schlitz merger.
I commend Mr. Kendall’s article, which emphasizes the degree to which DOJ now relies on “hot documents” in merger cases.  In this particular case, DOJ cites emails in which AB executives worried about pricing pressure from Modelo.  The key issue is likely to be whether Modelo was a cause for particular concern, or whether other premium brands, e.g. Heineken, posed similar issues, not because the premium brands were sold at the same price as Bud, but because if the gap between Bud and Modelo narrowed, customers would trade up.  Presumably, this would not include construction workers such as my wife’s crew chief, who had a large Bud tattoo on his right arm!
This article underscores the importance of early attorney involvement in merger planning.  How easier it would have been for AB had the lawyers emphasized the importance of documents to the marketing and sales staffs.  And, even if the company seeks counsel later, it is never a bad idea for counsel to get the files from a small number of marketing and sales executives to see what they say about the target.   Acquirers can pay premiums reaching the billions if a merger does not consummate, and an early assessment of the risk caused by bad documents is essential.
I vividly recall sitting on a panel in the mid 90’s with a former AAG, who shall go nameless.  He assured the audience that corporate counsel would soon develop procedures for monitoring emails and insuring that incriminating statements were not recorded.  The Bar did not realize then how ubiquitous electronic communications would become — there was barely an Internet then — and how difficult it would be to monitor hundreds of executives who were generating content at their computers all day.

GeyerGorey LLP Establishes 24/7 Client Emergency Hotline

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GeyerGorey LLP announced today that it had established a 24/7 Client Emergency Hotline that will always be answered “live” by a GeyerGorey attorney.  Current clients should expect to be provided with this telephone number in a separate, confidential communication.

Press Release

 

***Antitrust Monitor (Inaugural Issue): 2013 Forecast***

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Renewed Vigilance Regarding Civil Enforcement; Continued Consolidation, Integration and Acceptance of Structural Changes at Criminal Program; Higher Morale

Baer’s Confirmation is unlikely to change momentum, policies or priorities.

As the Obama Administration prepares for a second term, Bill Baer has been confirmed as Assistant Attorney General.  The Antitrust Division’s informal profile photo of Baer captures his genuine humility and good will that many Antitrust Division attorneys will immediately recognize from numerous interactions with him when he represented clients as a partner at Arnold & Porter.  Baer’s easygoing nature is no contrivance and he will build on this long track record of good relations with many of the attorneys and mid-level managers at the Antitrust Division.  In addition to the normal productivity enhancements associated with having confirmed leadership at the helm, Baer’s tenure at the FTC suggests that he will implement an effective management style and push more expansive enforcement goals.  We also believe that Baer’s confirmation will improve morale (discussed more fully below) and Baer will quickly calm the ripples caused by programmatic changes that resulted in field office closure and attrition of seasoned prosecutors in the criminal program.

Continued Civil Enforcement Vigilance 

In its first term, the Obama Administration took some modest steps toward its goal of revitalizing civil enforcement.  The Division repudiated the Bush administration’s monopolization guidelines and expressed a greater willingness to challenge unilateral conduct and exclusionary business arrangements, although it only brought one monopolization case.  That the Obama administration managed a slight increase in second requests is significant since it occurred in the midst of significantly dampened merger activity caused by the financial crisis.  Perhaps the most telling metric was discovered by the Stanford Law Review (SLR Online, 65 STAN. L. REV. ONLINE 13, July 18, 2012):

“[t]he Bush Administration conducted 0.04 investigations per Hart-Scott filing; Obama conducted 0.05 investigations per filing. The Bush Administration made 0.013 second requests for information per Hart-Scott filing; Obama’s made 0.020—a 50% increase on a per capita basis.

Combine this 50% increase with a few more high profile enforcement actions that included AT&T/T-Mobile, H&R Block/TaxAct, NASDAQ/NYSE, and BCBS/Physicians Health, and the Obama administration can make a plausible case that it has already reinvigorated enforcement. During his Senate confirmation hearings in July, Baer told lawmakers that he supported Congressional action to repeal the Supreme Court’s Leegin decision which imposed rule of reason analysis for resale price maintenance where per se analysis, albeit with loopholes, had sufficed in the past.

This was music to Democratic ears in the Senate that clearly prefer more aggressive enforcement.  Senator Herb Kohl, D-Wis had expressed concerns back in July regarding Google potentially using its market power in search engine technology to favor its products and services.  Baer did not answer Kohl’s question as to Google, but he did share his enforcement philosophy generally: “being vigilant whether its Microsoft or Alcoa Aluminum about firms that are successful, and we don’t want to penalize success but to make sure it’s not improperly translated into unfair advantage in other markets, is really a key part of what antitrust is all about.”  This comment suggests a revival of monopoly leveraging, always a favorite of Democrat administrations even if the courts have been less receptive.

Will Baer lead the Division on a path to reinvigoration?  He may have provided an answer last week when he came out of the box swinging against the merger between Bazaarvoice and Powerreviews Inc. (involving online customer reviews for retailers) and Oklahoma Chiropractors (which challenged joint contracting agreements with insurers).  Of these first two significant actions of Baer’s tenure, Bazaarvoice is the one that is suggestive of reinvigoration and expansion.  The customer reviews market is evolving at rocket speed, there are challenges for the government regarding market definition and it is unclear that the barriers to entry can be all that high, particularly when well-funded behemoths like Google and Facebook seem to have position for market entry.  Notably, the company was vocal in its frustration about the “six months” it spent in negotiations with the Antitrust Division, suggesting that it could have announced this challenge prior to Baer taking the helm.  The fact that Baer announced it after he assumed his duties suggests that he sees a strong case.   Certainly it would not have escaped Baer’s attention that a decision like this would allow many to interpret this is a bullish signal that Baer plans to reinvigorate, revitalize and expand the Antitrust Division’s mission regarding civil enforcement.

At the FTC, Chairman Leibowitz, a Democrat, has served as an FTC commissioner for eight years and as chairman for almost four years. As rumors circulate regarding his likely departure, President Obama must consider potential replacements. The president could appoint a new chairman from the sitting Democratic commissioners, or he could choose someone from outside the agency. The president recently nominated Joshua Wright, a Republican, to replace outgoing Republican commissioner J. Thomas Rosch, whose term expired in September. Commissioner Rosch has indicated that he will stay in his position until the Senate confirms Wright. Although no more than three of the FTC’s five commissioners, who each serve seven-year terms, can be of the same political party, President Obama’s reelection ensures a Democratic majority at the FTC. Three of the five FTC commissioners will continue to be Democrats, and the chairman, who appoints the directors of the Bureaus of Competition and Consumer Protection, will also be a Democrat.  Accordingly, there is little reason to expect a new direction in antitrust enforcement priorities.

Continued Consolidation and Integration of Structural Changes at Criminal Program 

In the first Obama term, cartel enforcement was the Division’s top criminal priority to the exclusion of things like procurement fraud.  Almost certainly, these headwinds still exist, but time will tell whether Baer can be successful at reducing impediments to opening investigations that do not present themselves on first impression as Section 1 conduct.  Although people can argue over the causes, the Antitrust Division grand jury investigations plummeted from over 150 to fewer than 60 overall and new openings fell from 66 to 29.  Most of this came at the expense of Department’s procurement fraud program and overall anti-competitive deterrence in the area of government procurements has been grievously affected as a result.

On paper, cartel enforcement was little changed from the Bush years, although some of the Division’s numbers were marginally inflated by splitting criminal information’s in non-traditional ways and there is a widespread concern that the pipeline of “small” or “bread and butter” investigations is dry.  Airline Shipping and Auto Parts are behemoth investigations that generate a wealth of statistics, but there are 90 fewer industries that are the subject of grand jury investigations and it is impossible to measure deterrence that is not happening.

In procurement fraud, the Bush administration gave the Antitrust Division a long leash and authorized its use of resources in most allegations that affected the pre-award contract process.  As the Obama Administration strained its resources to support invigorated civil enforcement and it pushed investigative resources toward financial crimes, the administration implemented a series of policy changes that significantly reduced Antitrust Division criminal investigations.  First, it was made much more difficult for attorneys to open grand jury investigations involving matters that did not present themselves on first impression as suspected antitrust conspiracies.  Since very few antitrust criminal cases ever “present” as fully-fledged antitrust conspiracies (i.e.. evident participation by more than one competitor), investigation requests plummeted.  This effect was particularly pronounced in procurement because so few government contracts are awarded through an invitation for bid (”IFB”) process and more are awarded sole source, best value and through a request for proposal procedure where price is not the only factor.  These contracting schemes make it difficult, if not impossible as a matter of law, to use the Sherman Act to prosecute schemes affecting contracts that were not awarded through an IFB process.

Second, the Antitrust Division implemented a new, computerized tracking system that made it harder to keep open investigations that were not being actively investigated.  Because grand jury authority is held at the AAG level in contrast to the Criminal Division (delegated to the DAAG) and the United States Attorneys’ Offices (delegated to line assistants), getting grand jury investigations opened takes the Antitrust Division greater resources than other components.  Line attorneys refer to this process with dread as “the investigation to get grand jury investigative authority.”  Because the Antitrust Division has to invest greater resources into securing grants of grand jury authority and because this authority requires higher levels of approval, it is relatively unusual to reopen a grand jury investigation after closure.  In the past, keeping investigations “on the books” might allow a staff to focus on another industry or to offer help to another investigative staff on an investigation that had “gone hot.”  It also might allow another contract to be awarded or another coordinated price increase to be implemented that might significantly further the investigation.  For these and other reasons, putting open cases on the back burner became verboten and if investigations did not hit success early on they got closed.  The new case matter tracking system often pushes staffs to make tactical decisions that would be better made later after the emergence of new leads, information or evidence.  Ironically, in some respects, the Antitrust Division now pursues an operations policy that reminds line attorneys of some partner investigative agencies who years ago would have to close investigations and then struggle to reopen them if a staff determined that a three month delay was advisable.  Because case filings (i.e. stats) are the paramount metric, this provides disincentives to working any case that is at all considered “marginal” and the Division’s deterrence footprint has shrunk.

Third, by January 30, 2013, the Division will have closed four of its seven field offices, a move that has adversely impacted morale.  Although this was sold as a serious consolidation plan for which many employees would avail themselves and relocate to Washington D.C. or the remaining field offices (San Francisco, New York, and Chicago), this does not seem to be happening in any great numbers.  Using the Philadelphia and Cleveland Field Offices as examples, we count a total of three attorneys who will be staying with the Division.

Baer’s mission is not an easy one.  He joins the Antitrust Division just prior to the formal shut down of four offices and significant attrition; he joins an Antitrust Division that has fewer raw materials in the investigations pipeline.  Still we have caucused Antitrust Division attorneys who are staying with the agency and there is reason for optimism.  As word filters back that Antitrust Division attorneys who severed or retired were dealt with fairly and considerately, active concerns will dissipate and we believe Baer can drive a newly structured criminal program to fire on all cylinders by the end of this fiscal year.   There could be reinvigorated activity as a rumored new section formed in Washington D.C. (staffed by detailees and transferring attorneys) and offices in San Francisco, Chicago (currently slated for one additional expat prosecutor) and New York receive transferring prosecutors and lateral hires to stem attrition, and we expect to see vibrant competition by attorneys for investigations.  Most notably, the rumored new section in Washington D.C., that will be comprised of expats from some of the closed field offices, will see the National Criminal Enforcement Section (NCES) as its main competition and we expect fierce competition to develop creative strategies for generating new cases.

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

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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.

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