The situation sounds almost like a bad, high-concept synopsis for a Hollywood movie — maybe “Rain Man” meets “Wall Street” — but the reality is far less glamorous.
In the U.K., Tom Hayes, described by the Serious Fraud Office (SFO) as “the first individual to be charged and stand trial” in an ongoing criminal investigation meant to uncover how some influential traders were conspiring to manipulate the London Interbank Offered Rate, a.k.a. LIBOR, the benchmark rate that banks use when they borrow from one another and it impacts the calculations on a variety of loans.
Hayes, as the SFO points out, is “one of three individuals arrested and interviewed on 11 December 2012 by officers from the SFO and City of London Police. On 18 June 2013, he attended Bishopsgate police station where he was charged with eight counts of conspiracy to defraud.”
The legal action culminated on Monday, August 3, when Hayes, who once had been cooperating with authorities but then switched his plea to not guilty, “was found guilty by a jury of all eight counts of conspiracy to defraud,” and was sentenced to a total of 14 years in prison, according to the SFO.
The jury found Hayes guilty of manipulating the LIBOR benchmark, and “the jury heard how Hayes repeatedly asked rival traders and brokers, as well as submitters in his own banks, to move Yen LIBOR submissions up or down to suit his needs, often by offering to reward them for their efforts,” say SFO officials.
The 35-year-old Hayes “from Hampshire, a former derivatives trader at UBS and Citigroup” was charged with conspiring with “numerous other individuals to procure or make submissions of rates into the Yen LIBOR setting process that were false or misleading, thereby intending to prejudice the economic interests of others.”
Hayes was convicted for the activities that took place in two episodes: the first was between August 2006 and December 2009, when he was with UBS; and the second episode was from December 2009 to September 2010 while he worked for Citigroup.
He was quickly sentenced after the conviction to “9.5 years imprisonment for each of counts 1-4, to run concurrently, and to 4.5 years imprisonment for each of counts 5-8, to run concurrently to each other, but consecutively to counts 1-4, resulting in a total sentence of 14 years imprisonment,” according to the SFO. “Confiscation proceedings against Hayes have been adjourned to a later date.”
According to media reports, Hayes’ lawyers say that their defendant was convinced that he was acting in a legal, honest way. In addition, it’s been reported that Hayes has a diagnosis of a mild form of autism once known as Asperger’s syndrome.
It is not clear what role this condition may have played in governing his behavior. Yet his behavior earned him the nickname of “Rain Man,” after the character played by Dustin Hoffman in the 1988 movie by the same name. Some in the media have speculated that his condition may have made him the fall guy/ringleader for the traders allegedly conspiring to influence the LIBOR rate.
But this movie will have a sequel.
“The trial of some of Hayes’ alleged co-conspirators begins on 21 September 2015,” according to the SFO. “A further trial of individuals charged with the manipulation of U.S. Dollar LIBOR begins on 11 January 2016.” Actually, the SFO, which started its investigation in July 2012, has charged 13 individuals as part of the overall investigation.
Regardless of what happens in the next round of legal battles, it’s stunning that a trader will be getting 14 years for LIBOR manipulation when so many large firms have been paying huge fines for their LIBOR misdeeds and not admitting any guilt. It’s also stunning that someone affiliated with A-List firms is actually going to prison for breaking the law.
But can one conviction compensate for the global damage done by LIBOR manipulators?
“The seriousness of the offense is hard to overstate,” said Justice Jeremy Cooke, who sentenced Hayes. “A message has been sent out to the world of banking accordingly [that] probity and honesty are essential.”
I think this time the message will be heard loud and clear.
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