by
Lindsay Fortado,
Phil Mattingly and
Silla Brush,
Bloomberg Businessweek, December 19, 2012
UBS AG’s $
1.5 billion fine for
rigging global interest rates expands the scandal to include bribery of brokers and
U.S. criminal charges against two former traders.
Tom Alexander William Hayes and
Roger Darin were charged with
conspiracy in a criminal complaint unsealed today, the U.S. Justice Department said. Hayes also was charged with
wire fraud and a
price-fixing violation for activity with another bank aimed at
manipulating the London Interbank Offered Rate, the department said.
“Make no mistake, for
UBS traders, the
manipulation of Libor was
about getting rich,”
Assistant Attorney General Lanny Breuer, the head of the
Justice Department’s criminal division, said in a news conference in
Washington. The charges are the
first brought by the Justice Department against individuals alleged to have
manipulated Libor and
comparable benchmarks in
Europe and
Japan.
The
U.S. Commodity Futures Trading Commission’s $700 million fine is the
largest in the Washington-based agency’s history,
David Meister, the commission’s head of enforcement, said at the news conference. The
total penalties of $1.5 billion represent about
one-third of the bank’s 2011 net income.
UBS fell
0.3 percent to 15.20 francs in
Swiss trading after rising as much as 2.4 percent during the day.
Conspiracy, Fraud The U.S. government said the two men were part of a
conspiracy to commit wire fraud from September 2006 to 2009. Hayes, 33, served as a
senior yen swaps trader at UBS in
Tokyo, while Darin, 41, worked as a
short-term interest rates trader at UBS in
Singapore, Tokyo and
Zurich, the U.S. said.
Prosecutors allege that Hayes and Darin “conspired with others known and unknown within UBS to cause the bank to
make false and misleading yen Libor submissions to the
British Bankers’ Association.”
Darin didn’t respond immediately to a voice-mail message, and Hayes couldn’t immediately be reached.
U.K. fraud prosecutors opened a criminal probe this year and last week arrestedHayes, according to people familiar with the matter.
UBS was ordered to pay a total of about
$1.5 billion to U.S., U.K. and
Swiss regulators for
trying to rig global interest rates, including Libor,
over a six-year period. Regulators found that traders at the
Zurich-based bank made more than
2,000 requests to its own rate submitters, traders at other banks and brokers to
manipulate rate submissions through 2010.
UBS
Japan agreed to plead guilty in connection with the rate-rigging investigation, while UBS AG (UBSN), the parent company, entered a
non-prosecution agreement with the Justice Department.
‘Robust’ Resolution The U.S. Justice Department
weighed the consequences to market confidence among the bank’s trading counter-parties before entering a non-prosecution agreement with the UBS parent company, Breuer said at the news conference. “Our goal here is not to destroy a major financial institution,” he said. “By any fair criteria this is a very real, very robust and very forceful resolution.”
According to transcripts released by the
U.K. Financial Services Authority today, an employee identified as
Trader A led efforts to influence
Japanese Yen Libor submissions included paying brokers as much as
15,000 pounds ($24,400) a quarter and offering a payment to another for helping him keep that day’s rate low. Trader A worked at UBS in
Tokyo from 2006 to 2009 and directly contacted employees at other banks to
influence their submissions at least
80 times.
Yen Libor “I need you to keep it as low as possible,” Trader A wrote to the broker on Sept. 18, 2008, referring to six-month yen Libor. “If you do that ...
I’ll pay you, you know, $50,000, $100,000... whatever you want ... I’m a man of my word,” according to the transcripts.
Meister said UBS’s actions involved at least
five interdealer brokers. “These brokers are supposed to be honest middlemen,” he said. “The brokers here were anything but honest.”
“As one broker told a
UBS derivatives trader, according to the statement of facts appended to our agreement with the bank, ‘Mate, you’re getting bloody good at this Libor game. Think of me when you’re on your yacht in Monaco, won’t you?’” Breuer said.
Tripled Barclays The financial penalties are
more than triple the
290 million-pound fine
Barclays Plc (BARC) agreed to pay in June in the first settlement of Libor-rigging allegations. Barclays Chief Executive Officer
Robert Diamond and Chairman
Marcus Agius resigned in the face of
political outrage over the scandal. UBS CEO
Sergio Ermotti joined the bank in April 2011, after the period covered during the rate-rigging investigations.
“UBS’s misconduct is, although similar in nature,
considerably more serious than Barclays’ because it was
more widespread within the firm,” the FSA said. “More individuals, including
managers and senior managers, participated in or knew about the manipulation.”
Libor, a benchmark for more than
$300 trillion of financial products worldwide, is derived from a survey of banks conducted each day on behalf of the
British Bankers’ Association in London. Lenders are asked how much it would cost them to borrow from one another for 15 different periods, from overnight to one year, in currencies including dollars, euros, yen and francs.
Trader A boasted that he was able to
rig the benchmark because he was “mates with the cash desks” at one unnamed bank and that they “always helped each other out,” a transcript of a Feb, 2, 2007 chat showed, according to the FSA.
‘Pervasive’ Practice At least
45 bank employees, including some managers, knew of the “pervasive” practice and a further
70 people were included in open chats and messages where attempts to
manipulate Libor and
Euribor were discussed, the FSA said.
During the six-year period,
four of UBS’s traders, one of whom was a manager, made more than
1,000 written requests to 11 interdealer brokers at six brokerage firms, asking them to influence other panel banks that contributed to
Japanese Yen Libor submissions.
During 2007,
Trader A made more than
450 requests to manipulate Yen Libor submissions as he held large trading positions tied to the rate that matured at different times that year.
“
Trader A embarked on a
coordinated campaign to influence three month Japanese Yen Libor for the benefit of those positions,” the FSA said. “For this purpose,
Trader A made internal requests, broker requests and external requests.”
Trader A set up a
complex system of payments to
fellow UBS employees, counterparts at other banks and interdealer brokers to facilitate the manipulation of yen Libor, according to the FSA settlement.
Wash Trades Between Sept. 19 and Aug. 25, 2008,
Trader A and a colleague entered into nine so-called wash trades as a means of rewarding an unidentified broker with more than
170,000 pounds for
helping rig the rate. Wash trades are where a trader puts through two or more risk-free trades through a broker which cancel each other out while leading to a payment of brokerage fees to the broker arranging the trade.
In another arrangement, the
trader bribed counterparts at other banks with so-called
facilitation trades, where they agreed to submit favorable rates in exchange for beneficial trades with UBS. On the occasions where
Trader A’s interests were in conflict with other traders within the bank, he entered facilitation trades with his colleagues.
On Feb 5, 2007, the trader contacted “
Manager A” on an electronic chat: ’’ ...last 3m fix if you cld keep high (6m wd prefer high but not urgent) and if we cld keep 1m low wd be appreciated, if doesn’t suit let me know and maybe we can offset our fixes thx any help much appreciated.’’
Employees Departed Thirty to 40 people have left the bank as a result of the investigations, Ermotti told reporters on a conference call, adding that
behavior of some employees was “unacceptable.” He said he doesn’t expect any more departures.
The fine is
another blemish on UBS, which is scaling back its investment bank to concentrate on
wealth management. UBS said in October it may post a loss for 2012 after taking an impairment charge of
3.1 billion francs related to goodwill and other non-financial assets at the securities unit, in addition to costs tied to
firing 10,000 people by 2015. The bank said it expects to report a
fourth-quarter loss of between
2 billion francs and
2.5 billion francs, primarily as a result of
litigation provisions and regulatory matters.
Showing ‘Determination’ “We want to move forward and I think we’re showing our determination in the bank to move forward and to change the bank for good,” Ermotti said.
One year ago,
Japanese regulators penalized UBS’s
Japanese operations, curtailing the bank’s ability to participate in the
Tokyo interbank derivative market for a week, and ordering the bank to improve its regime of compliance and internal controls.
Ermotti said he doesn’t expect further sanctions from the
Japanese regulator and that the bank is “confident” it will be able to continue to operate in Japan and globally as normal.
UBS was
fined 29.7 million pounds last month by the FSA and told by the
Swiss regulator it may have to increase capital levels for operational risks after a $2.3 billion loss from unauthorized trading by
Kweku Adoboli. The former trader in UBS’s
London office was sentenced to seven years in jail on Nov. 20 for fraud in relation to the loss, the
largest from unauthorized trading in British history.
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