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London Trader Convincted in Libor Scandal

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London Trader Convincted in Libor Scandal

The first hammer has dropped on an individual banker in the Libor rigging scandal that exploded back in 2012. Tom Hayes, a 35-year-old derivatives broker, was convicted of manipulating the Libor (essentially the world's benchmark interest rate) while working at CitiGroup and UBS between 2006-2010.

Libor. Source: ValueWalk
Source: ValueWalk

Though far from the only guilty culprit in the scandal that affected some $450 trillion in financial assets and derivatives, Hayes played a visible and central role in the day-to-day operations of the scam. Evidence presented in court revealed phone conversations that implicated Hayes in directing his contacts at other banks; Mr. Hayes had initially admitted to the charges in the hopes of avoiding extradition to the United States before reversing his story and filing a Not Guilty plea.

Revisiting the Libor Scandal

After the explosive revelation in 2012 that the Libor had been manipulated by overzealous brokers and traders for years, the major banks whose employees were participants in the rate-rigging scheme were put to task by various financial regulators in the U.K. and the States. Hundreds of millions of dollars in fines were levied to the biggest offenders: Deutsche Bank, UBS, RBS, JPMorgan, Credit Suisse, Lloyds, Rabobank, and Barclays. To date, the banks have forfeited a total of £4 billion ($6.25 billion).

Essentially, traders were able to manipulate the Libor through collusion among traders across the different banks in the criminal indictments. (In most cases, however, the banks escaped real criminal consequences on the condition that they pay the steep fines and submit to closer monitoring  of their regulatory compliance. Any subsequent violations during a probationary period will "snap back" the criminal proceedings.)

The Role of the London Trader

Though he is being touted throughout the media as the "London Trader," Tom Hayes was operating out of the Tokyo branch of UBS when much of the fraud was committed. Cleverly, Hayes was never the direct party to Libor submissions. Instead, he had a small network of colleagues at other banks who, in exchange for bribes and other corrupt concessions, would provide Hayes with the necessary movements in Libor that would net him successful trades.

Hayes was immensely successful in this scheme for years, racking up hundreds of millions of pounds in profits for the banks that employed him while also pocketing a few million pounds for himself. This self-enrichment was overlooked for a time but, while at Citi, Hayes and his methods were uncovered.

Source: Telegraph (U.K.)
Source: Telegraph (U.K.)

Mr. Hayes remains adamant that all of his actions were transparent to his superiors, and that management at the banks were well aware of what (and how) he was generating such fantastic profits. It's worth noting that the scandal was rather lucrative for the banks, as well, and it was likely a consideration that was "priced in" to the banks agreeing to settle with financial regulators. (In the end, if the illicit profits outweigh the fines, it's still a net gain.)

This represents the first time an individual has been sentenced by a jury in Britain for the massive rigging scandal. Hayes received 14 years in prison—a hefty price to begin with—but could also face extradition to the U.S. and additional charges under U.S. law.

About the Author

Everett Millman

Everett Millman

Analyst, Commodities and Finance
Managing Editor

Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.

In addition to blogging, Everett's work has been featured in CoinWeek, Advisor Perspectives, Wealth Management, Activist Post, and has been referenced by the Washington Post.

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