In 2012, news broke that European bankers had been manipulating a critical exchange rate — known colloquially as the “LIBOR” — in order to benefit trades they had made to profit off of those rates. This week, the first trader, Tom Hayes, who those familiar with the case called “the ringmaster” received a hefty sentence for his crime.
According to The Economist, “Judge Cooke said he wanted to ‘send a signal’ to errant bankers, at least a dozen others of whom are now facing charges in Britain on LIBOR’s rigging alone.
This post first appeared at Baseline Scenario.
Tom Hayes was a trader at UBS and Citigroup who was very, very good … at rigging LIBOR. This week, he was convicted in the United Kingdom of conspiring to manipulate the benchmark interest rate and sentenced to 14 years in prison.
There’s little doubt that Hayes was guilty as charged. In his defense, he argued that he had no idea what he was doing was wrong. But contrary to what some armchair attorneys think, that doesn’t matter. In general, the famous mens rea (guilty mind) requirement isn’t that you know you are breaking the law at the time; it suffices if (a) you know you are doing a thing and (b) that thing is against the law. There’s no question that Hayes knew he was conspiring to rig LIBOR, and that’s enough for the prosecution.
And on one level, it’s good that he was convicted and got a stiff sentence. That prospect should help deter criminal activity of all kinds by bankers and traders who have historically been shielded by prosecutors’ unwillingness to go after individual defendants (except in insider trading cases).
When it comes to Tom Hayes, there is a lot of evidence for the former. Apparently, when he was being recruited from UBS in 2010, he boasted to a Citi executive about how he rigged LIBOR. Back in 2007, that same executive had said in an internal email, “We will continue to pressure the brokers to talk [LIBOR] down and generally press lower” — when asked by a colleague to help lower Citi’s own LIBOR submissions. When Citi attempted to hire Hayes, his boss at UBS tried to arrange a large bonus for him to stay, citing his “strong connections with Libor setters in London.”
It’s hard to believe that senior executives at UBS and Citi didn’t know that LIBOR was being fixed. If they weren’t in on it directly, it’s likely that they turned a blind eye — precisely because they knew that it was good for the bottom line. Hayes himself generated $260 million in profits for UBS in just three years.
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