ZURICH/NEW YORK (Reuters) – U.S. prosecutors charged two former UBS traders yesterday with taking part in a multi-year scheme to manipulate Libor and other benchmark interest rates, making them the first individuals to be criminally accused in the international scandal.
Earlier yesterday, the Swiss bank admitted to fraud and bribery in connection with efforts to rig the interest rates and agreed to pay $1.5 billion in fines to regulators in the United States, UK and Switzerland.
The charges against the two traders, Tom Hayes and Roger Darin, resulted from a broad investigation into the activities of more than a dozen banks in the setting of prices for Libor and related rates.
In settling with U.S., UK and Swiss authorities, UBS not only paid one of the largest fines ever imposed on a bank, its Japanese subsidiary pleaded guilty to one U.S. criminal count of fraud relating to manipulation of benchmark rates, including the yen Libor.
The Japanese subsidiary is where authorities allege much of the manipulation of interest rates occurred, as employees of the bank looked to profit on derivatives trades linked to the rates.
UBS is the second large international bank to reach a settlement with U.S. and UK authorities, and other settlements are expected to follow in the next few months. In June Barclays Plc agreed to pay $453 million in fines to settle allegations its employees attempted to manipulate Libor rates.
The investigation and it findings – that attempts to manipulate Libor were fairly widespread in the banking industry – have cast doubts on the reliability of Libor as a benchmark for setting interest rates. The probe has also raised questions about why bank regulators were slow to uncover the manipulation, which Reuters previously reported dated back to at least the late 1990s. “The bank’s conduct was simply astonishing,” Lanny Breuer, who heads the U.S. Justice Department’s criminal division, said in announcing the settlement. “Make no mistake – for UBS traders, the manipulation of Libor was about getting rich.”
The Justice Department charged Hayes and Darin with conspiracy, according to a criminal complaint unsealed in U.S. district court in Manhattan yesterday. Hayes was also charged with wire fraud and an antitrust violation.
U.S. and UK investigators portrayed Hayes as a ringleader of sorts for UBS’ manipulation of rates.
The two men are both believed to be in Europe, according to a U.S. official. Last week, British police arrested Hayes and two other men in connection with the Libor probe. The two others were Terry Farr and James Gilmour, both of whom worked at interdealer broker RP Martin.
The $1.5 billion UBS penalty is the second largest ever imposed on a bank, exceeded only by the $1.9 billion that HSBC
agreed to pay to settle U.S. charges in connection with the laundering of drug cartel money.
“We deeply regret this inappropriate and unethical behavior. No amount of profit is more important than the reputation of this firm,” said UBS Chief Executive Sergio Ermotti.
The criminal complaint against Hayes and Darin also detailed how some former UBS employees are cooperating in the probe, in exchange for a promise that they won’t be prosecuted.
