The Rigging Triangle Exposed: The JPMorgan-British Petroleum-Bank Of England Cartel Full Frontal

Tyler Durden's picture

The name Dick Usher is familiar to regular readers: he was the head of spot foreign exchange for JPMorgan, and the bank's alleged chief FX market manipulator, who was promptly fired after it was revealed that JPM was the bank coordinating the biggest FX rigging scheme in history, as initially revealed in "Another JPMorganite Busted For "Bandits' Club" Market Manipulation." Subsequent revelations - which would have been impossible without the tremendous reporting of Bloomberg's Liam Vaughan - showed that JPM was not alone: as recent legal actions confirmed, virtually every single bank was also a keen FX rigging participant. However, the undisputed ringleader was always America's largest bank, which would make sense: having a virtually unlimited balance sheet, JPM could outlast practically any margin call, and make money while its far smaller peers were closed out of trades... and existence.

But while the past year revealed that FX rigging was a just as pervasive, if not even more profitable industry for banks than the great Libor-fixing scandal (for details see "How To Rig FX Like A Pro "Bandit", And Make Millions In The Process"), the conventional wisdom was that it involved almost exclusively bankers at the largest global banks including JPM, Goldman, Deutsche, Barclays, RBS, HSBC, and UBS.

Now, courtesy of some more brilliant reporting by Vaughan, we can finally link banks with the other two facets of what has emerged to be an unprecedented FX-rigging "triangle" cartel: private sector companies that have no direct banking operations yet who have intimate prop trading exposure, as well as central banks themselves.

By "banks" we, of course, refer to the ringleader itself: JP Morgan, and its former head of spot forex trading in London, Dick Usher. As for the company that benefited from its heretofore secret participation in the biggest FX rigging scandal in history, it is none other than British Petroleum.

We learn about all this thanks to a story that begins with, of all thing, a story about freshwater fishing at a lake in Essex called "Wharf Pool."

As Bloomberg reports, "an hour away by train, in London’s financial district, the lake’s owners ply their trade. Wharf Pool was purchased for about 250,000 pounds ($388,000) in 2012 by Richard Usher, the former JPMorgan Chase & Co. trader at the center of a global investigation into corruption in the foreign-exchange market, and Andrew White, a currency trader at oil company BP Plc. "

The plot thickens: was there more than a passing connection between the head FX trader at JPM and White "who’s known in the market as Tubby, is one of half a dozen spot currency traders working for British Petroleum (BP) in London. He and his colleagues, most of them ex-bankers, decide which firms will carry out their foreign-exchange transactions. That makes them prized clients for banks seeking a slice of the business and a glimpse into potentially market-moving trades. Passing on information was a way to curry favor."

In short, a typical Over The Counter relationship between a banker and a buyside client, one which is largely unregulated and where the bank hopes to be able to frontrun the client's orders by providing the client with confidential market moving information, thus generating more business with the client in the future. In this case, however, the buyside client was not a typical hedge fund, but the FX trading group at one of the world's largest energy companies: a group which trades enormous amounts of FX every single day, both with intent to hedge, and to generate a profit.

The trading unit’s primary role is to manage the firm’s exposure to financial risks, including fluctuations in interest rates and foreign exchange, according to the company’s website. Unlike at most corporations, it also is run as a profit center, which means that in addition to hedging risks, traders can place their own bets on the direction of markets. The company doesn’t break out how much money the treasury unit makes

Basically, BP's energy operations were just a balance sheet funding cover: what its FX traders did in the front office was trade for a profit pure and simple, just like any prop trading desk or hedge fund anywhere else in the world. And it did so in collusion with a small group of market rigging individuals all located at the biggest, market-moving banks around the globe.

A quick reminder on the "Cartel":

The four banks in the Cartel controlled about 45 percent of the global spot-currency market, according to a survey by Euromoney Institutional Investor Plc, so information about their plans was valuable. Some days they worked together to push around the 4 p.m. fix, settlements with the banks show.

 

The Cartel chat room was started by Usher as early as 2009, according to a person with knowledge of the matter. Usher had risen quickly to the top of his profession. After joining HBOS Plc in 2001, he was hired by Royal Bank of Scotland Group Plc in 2003 and a year later collected an industry award on his employer’s behalf.... The four members of the chat room ribbed each other like high school buddies. Usher was referred to as Feston because he resembled an overweight version of British chef Heston Blumenthal, according to people who have seen the chats. Matt Gardiner, a UBS trader based in Zurich, was called Fossil because he was a few years older than the others. Rohan Ramchandani, Citigroup’s cricket-loving head of spot trading, was called Ruggy, while Chris Ashton, the last one to join, was dubbed Robocop.

Now we can add BP too, a BP which doesn't even hide the prop-trading nature of its FX "hedging" group, which is located two blocks away from, wait for it, JPMorgan!

The two dozen traders in BP’s treasury trading unit are housed above a Porsche showroom on the second and third floors of the company’s office in Canary Wharf, an area of reclaimed docklands three miles east of the City of London, the historic financial district. The building, two blocks from JPMorgan’s, was completed in 2003 on the cusp of an oil boom. Lights in meeting rooms flick from green to white when someone enters, in keeping with the company’s corporate colors.

And while until today the last sentence would be pure conjecture, thanks to Bloomberg's release of exchanges between JPM and BP revealing the extent to which the "cartel" would stoop in order to make money for its members on a daily, risk-free basis, it is not a fact.

From Bloomberg:

Copies of messages sent to BP traders over the course of a year were provided to Bloomberg News by a person with access to the online conversations. The person, who redacted the names of banks sending the messages and dates of conversations, said they came from firms whose senior foreign-exchange traders belonged to a chat room called “The Cartel” that was set up by Usher and included dealers at JPMorgan, Citigroup Inc., Barclays Plc and UBS Group AG.

 

The information offered an insight into currency moves minutes, sometimes hours before they happened. The messages could drag the U.K.’s biggest energy company into a scandal that has enveloped 11 banks and led to more than 30 traders from London to Singapore losing or being suspended from their jobs. Last month six banks were fined $4.3 billion for passing along information about their clients and working together to rig foreign-exchange markets.

Presenting BP: collusive, insider trading hedge fund extraordinaire. All comparisons and similarities to Enron are purely coincidental.

With revenue of almost $400 billion last year and operations in about 80 countries, BP trades large quantities of currency each day. Traders at the company regularly received valuable information from counterparts at some of the world’s biggest banks -- including tips about forthcoming trades, details of confidential client business and discussions of stop-losses, the trigger points for a flurry of buying or selling -- according to four traders with direct knowledge of the practice.

Of course, in any non-banana republic, whose regulatory and enforcement divisions were not captured by the same megacorp that is in question here, this would have been the basis for a massive lawsuit, one which would ultimately seek to break apart the company's "profitable" FX trading division from its core energy business. But not in this republic: after all, between one of the world's biggest banks and one of the world's biggest corporations, and a corrupt, crony government it should be clear to everyone by now just who calls the shots.

BP of course is quick to note that it did nothing illegal: after all the last thing the company needs is its own Enron-type scandal, where an ancillary business manages to drag down the entire company. Sure enough it has promptly denied everything:

BP said in a statement that it conducted an internal review after regulators began probing currency markets. “BP’s FX desk has relationships as a customer with 26 relationship banks, including JPMorgan, Citibank and Barclays,” the London-based company said. “BP has a robust framework of compliance requirements and internal controls which are constantly reviewed, and maintains an open dialogue with the appropriate regulators.”

 

The firm, the third-largest publicly traded company in the U.K., hasn’t been investigated by regulators looking into currency manipulation, according to a person with knowledge of the matter. Chris Hamilton, a spokesman for the U.K. Financial Conduct Authority, declined to comment, as did representatives of JPMorgan, Barclays, Citigroup and UBS.

So how does one explain the joint equity interest in - for example - the little fishing lake ?

“BP’s Code of Conduct includes mandatory requirements for employees to disclose potential conflicts of interests internally,” the company said in response to a question about the commercial relationship between Usher and White through the fishing lake. “Following such disclosure, steps are taken to manage and monitor these appropriately. It is our policy not to comment on individuals.”

In other words, one can't.  Which is how BP likes it. Which is also why Bloomberg was quite cautious with how it phrases BP's involvement into something that could promptly turn out to be Britain's own Enron:

While there’s no evidence that any BP traders were members of the Cartel, Usher participated in at least one chat room with White, according to a person who has examined conversations that included both men. It couldn’t be determined from the messages reviewed by Bloomberg News who sent the information to BP or whether BP employees acted on any of the tips.

They did, and this is how we know: "Traders at BP haven’t been accused of any wrongdoing. Last year, within hours of regulators announcing probes, the chats between BP and the banks were shut down, people with knowledge of the matter said. Soon after, a compliance officer was placed on the desk for the first time, one of them said."

Not exactly something one would do if one was, for lack of a better term, innocent.

And while we hold our breath until UK's justice (don't laugh please) system assigns blame - by which we mean a $19.95 one time settlement with a promise by BP it will never do it again - here is a glimpse at the full extent of just how this rigging took place:

In the clubby, lightly regulated world of foreign exchange, traders passed around tips to their circle of trusted contacts like candy. The victims: mutual-fund investors, pensioners and day traders who took the other side of a transaction at a lower price than they would have if they had the same information.

 

...

 

In an undated message seen by Bloomberg News, a trader at a bank told BP he would be buying U.S. dollars against Australian dollars at the WM/Reuters fix at 4 p.m. in London, the one-minute window during which traders around the world exchange billions of dollars of currency on behalf of pension funds and asset managers. The message was received at BP about 30 minutes before the fix. By tipping his hand, the sender was telling BP about a potential fall in the Australian currency

 

At about 3 p.m. in London on a different afternoon, BP traders were informed that banks were selling dollars against the yen at 4 p.m. In a third message, this one arriving as the oil company’s traders drank their first coffee of the morning, a trader at a bank said he had just sold a quantity of an emerging-market currency, to whom and the price he received.

 

The settlements the banks reached with regulators reveal that in the minutes before 4 p.m. the traders would meet on chat rooms to discuss their positions and how they planned to execute them. Sometimes they also agreed to work together to push exchange rates around to boost their profits –- something they called “double-teaming.”

All of the above would be, if proven, criminal but in line with expectations: after all when given a carte blanche to do anything they want, humans will do just that, even if it means trample every regulation known to man. In fact, the bigger one's balance sheet, the greater one's percevied (and realized) leeway of sneaking between the legal cracks, facilitated by the number of politicians and regulators that have been coopted and outright purchased courtesy of said big balance sheet.

However, the true punchline is this: "[Usher] joined JPMorgan as head of spot foreign exchange in 2010, where he became a member of the now-defunct Bank of England’s Chief Dealers Sub Group, a collection of about a dozen currency traders and central bank officials who met at restaurants and bank offices to discuss industry developments."

In other words, all of this rigging, all of the FX manipulation, all of the criminal abuse of naive, innocent market participants took place with the Bank of England's own seal of approval. Which, of course, is why the BofE itself had to scapegoat its own sacrificial lamb to avoid any further connection to this criminal cartel - something it did in early November when it fired its Chief FX dealer, Martin Mallett, who on November 12 "was dismissed by the Bank of England yesterday for “serious misconduct relating to failure to adhere to the Bank’s internal policies,” according to a statement by the central bank today."

And just like that all loose ends have been cut off, although if we were Mr. Mallett, we would certainly keep away from loose nail guns, hot tubs or airplanes for the next several months.

In the meantime, after the mandatory pause of 3-6 months, all rigging, all manipulation, and all criminal abuse with blessing from the central bank itself will quietly return, because until the great (and as increasingly more predict, very violent) reset finally comes, nothing can possibly change in a system as corrupt as this one.

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MrButtoMcFarty's picture

Nothing changes until some Banksters get shot in the face...

alexmark2013's picture
The principles behind world conflict and war cannot be understood without a substantial understanding of how the monetary system operates. http://investmentwatchblog.com/the-principles-behind-world-conflict-and-war-cannot-be-understood-without-a-substantial-understanding-of-how-the-monetary-system-operates/
Joe A's picture

They are just doing God's work. But which God?

Kreditanstalt's picture

I think today's 3:00~3:30~4:00 buying panic/ramp is now UNDERWAY....!

Q-Q-Q's picture

'In other words, all of this rigging, all of the FX manipulation, all of the criminal abuse of naive, innocent market participants took place with the Bank of England's own seal of approval'.

 

 

 

"Of course we have your custodial gold, no seriously nothing to worry about, trust us"

Kreditanstalt's picture

YES.  ALL the rigging is government-supported.  ALL OF IT.

But try telling that to the indebted consuming CNBC-soaked masses...they're too busy searching for some villain to blame for their troubles, anyone instead of themselves.

They'd prefer to blame "speculators" or "evil corporations" or "banksters" or "globalization" or "Capitalism" or the free markets.

And...they LOVE their govenments!

Atomizer's picture

Communist Network Broadcasting Cunts (CNBC)

Atomizer's picture

Clap, clap, clap.. Bravo ZH members. Your now are becoming grounded in understanding the white rabbit hole. I compliment you, carry on.

Pavement - Strings of Nashville

JPMorgan's picture

And that's why I'm into PMs, because it's bloody obvious at this point the game is totally rigged (including PMs).

But at least (in the end) if it does all go tits up you are left with a tangible asset! not a totally wiped out pension and a bank/saving account they can steal and seize anytime they like. 

So suppress away, I couldn't give a shit, just means more for me.

Sub MOA's picture

O/T  but needs some attention 

End of 'Israeli occupation'? Arabs support Palestinian draft UN resolution

http://rt.com/news/218647-palestinian-occupation-draft-resolution/

Hamm Jamm's picture

 banker scum !

trial by fire for all bankers

bring peace to the world !

 

 

 

First There Is A Mountain's picture

Yawn. What a revelation!! Graft, thievery and corruption among our financial institutions and largest corporations? Well I never. This will certainly spur the masses to action, no? Finally something your average American can sink his teeth into - FX manipulation. Now if this story was about Lebron James point shaving or Tiger Woods nailing a tranny it would blow the fuck up, but Forex? Nah. Everyone can go back to sleep. Approximately 2% of people I meet even vaguely grasp the inverse relationship between bond yield and price. Even less understand the carry trade and leverage. And hey - I'm a fucking compliance officer in a good size brokerage and I'm referring to people I FUCKING SUPERVISE on a daily basis. 

This is a nice read for a select few but these revelations elicit a blink and nod at best. This country is fucked and all of us are going to go down with this ship unfortunately. Nothing short of another NFL strike or cable outage will make a dent. I don't give a fuck anymore. Fact is, we're all going to be longing for these carefree days of struggling to get by on dwindling incomes very shortly. We'll look back wistfully on getting fist fucked by local, state and federal governments as well as big corporations once we're playing evade the MRAP and hungry mobs.....

 

 

Monty Burns's picture

Sadly you're 100% correct.  As I said above, it's only when the bread and circuses stop that Joe Public will finally unass himself from his seat in front of the lobotomy tube.

Otrader's picture

The Rothschilds

   "The few who understand the system, will either be so interested from it's profits or so dependant on it's favors, that there will be no opposition from that class." — Rothschild Brothers of London, 1863

 

As long as we have bread and circus there will be no opposition.

Monty Burns's picture

"As long as we have bread and circus there will be no opposition."

Now that is a fact. Big question is, how long can the bread and circuses Ponzi be kept upright? I thought it would have fallen over long ago.

tumblemore's picture

There's a lot of truth in that but if it was 100% true we'd be speaking Babylonian. They can't control their greed so whenever they *win* they always destroy the economy.

eclipse001's picture

I'm SO SHOCKED! (read aloud with the most sarcasm you can manage dripping from your lips) 

Catullus's picture

I worked for two energy companies (merchant power) whose prop trading desks nearly took us down. What interestingly enough happens to us when the underlying starts to nose dive like nat gas and power (and now oil)? We got margin called. That's when the shit hits the fan.

What I want to know is whether the majors ever get margin called... Or do they only ever call the small and mid tier shops and then pass the info along to the majors to fuck us?

Shitgum Suicide's picture
Shitgum Suicide (not verified) Dec 30, 2014 4:59 PM

Oh how I want thee to die. Let me count the ways.
How about #531?

http://www.spike.com/video-clips/978lnu/1000-ways-to-die-toilet-rolled

observiate's picture

i grant you, Mr. Durden, many things are rigged.  maybe even most things.  but the statement that everything is rigged a gross over-generalization.  oil price crash this year proves that, pretty simply.  the riggers cannot, at the end of all things, trump supply and demand.  those who seek to rig, in the end, still do not control the saudi king, or putin, or the west texas producers, etc.

and yes i understand my example is not purely correlateable, but that goes back to the concept of everything being rigged, versus most things being rigged, versus many things being rigged, versus some things being rigged.

one simply must distinguish these things to gain a fuller understanding.

oh yes, sure, they can try to rig, and try they do. and succeed they do, many times and much of the time,  as has been indicated by many zero hedge posts and articles.  but 100% rigged all of the time? the answer is a simple, no.

ArgieBargie's picture

"oil price crash this year proves that, pretty simply"

 

That is proof enough is it not? !!!  Just another orchestration.  

Vooter's picture

To paraphrase: Kill 'em all, and let God sort out who was running scams and who wasn't.

Clesthenes's picture

“all of us are going… down with this ship unfortunately.”

Speak for yourself.  I first began hearing this excuse (for indolence) 40 years ago, along with “everything will fall apart in a matter of days; we don’t have time to do anything sensible, or fact-based.”

Needless to say, the excuse was groundless.

Yes, we are hanging on the cusp of an epic catastrophe; after all, what else should we expect of a nation that consents to the establishment of a currency unit that requires the financial cannibalization of its children and grandchildren.

And, no, I don’t intend to go down with the system; nor do I try to persuade others to go down with it.

Instead, I propose a historically-proven method by which to make those guilty accountable for what they have done.

We have, you see, the same power American Founders had, and yet, Americans refuse to use this power.

Why?  There are three main reasons for this failure: one is that Americans have no knowledge of such power; the second, they’ve been herded into a kind of impotent stupor by medication and indoctrination; the third, that they aid, benefit or are/were complicit in such evil.

There’s a remedy for all three of these failures: 1) learn, and use, the law and procedures of redress (full article); 2) follow a health regimen that has REDUCED – not slowed – my biological age 50 years (it also un-does the damage done by medication and indoctrination); and, 3) see number one.

This health regimen has given me the coordination, health and physical condition of a professional athlete around the age of 20; I’m 70 years of age (for validation, video and webpage – each leads to the other).

Not only do Americans not use such power, they also know practically nothing about IDEALS won/confirmed by the Revolution.

For example, Founders repeatedly declared that “no man is obligated to obey any law or pay any tax unless he has given consent to it”.  Did they mean this literally?  Of course they did.  From the first English settlement to the Revolution this was how affairs of the colonies were managed.  Every “law” and every “tax” had its origin in contracts between colonial assemblies and those who petitioned for redress of grievances.  The terms of the contract were sometimes referred to as “laws” of the contract while its money payments were treated as “taxes”.  And only petitioners were obligated to obey such “laws” and pay such “taxes”.  When redress was completed, related “laws” and “taxes” expired.

There, in one paragraph I conveyed to you more real history than you learned in 12 years of elementary and high schools, and 4-6 years of university indoctrination.  You won’t learn this and other lessons from professors, or judges, or lawyers; the first two depend on continued grievances for their pensions, the third never learned such history, or law.

This right of consent was won with the Revolution… and who knows it?

Monty Burns's picture

I'd love to think you're right but don't forget that the law is written and amended by the whores/politicians in Congress and Senate. And legal disputes are adjudicated by..........courts appointed by the self-same whores. The game is rigged from start to finish.

Clesthenes's picture

I am well aware of this situation: mainly by observation and partly by experience.

So, what happens when government becomes destructive of our rights?  The Declaration of Independence gives us a clue: “abolish or reform” such government.  This applies even if government has been captured by whores.

 

But this is impossible as long as Americans remain ignorant of the power they have.  Please study links in my comment.

bugs_'s picture

BP spills coffee

ufos8mycow's picture

This can't be true because noone has died from accidental nail gun discharge.

prymythirdeye's picture

It is unbelievable to think what a low-life, common criminal Jamie Dimon really is.  No skill or critical thinking necessary when you're playing a game you not only created, but also can change at will to suit your needs.  And he thinks he's such hot shit flashing the presidential cufflinks.  Jamie, you're no different than the common ghetto thug robbing old ladies for their next hit.....no different at all except your hit is the next hustle, the next fraud you will inflict on your fellow man. The table is tilted folks, the game is rigged...G.C.

smacker's picture

OK, now we know the Bank of England was up to its neck in the FX rigging, as if we didn't know.

It was also inconceivable that it wasn't up to its neck in LIBOR rigging too.

If the question is "is there any financial crookery the BoE is not up to its neck in", the answer is probably "NO". Its hands-on corruption is only dwarfed by Westminster itself. And Washington is no different, except on a bigger scale.

Radical Marijuana's picture

A racket is best described, I believe, as something that is not what it seems to the majority of the people. Only a small “inside” group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many.

--- Smedley Butler

Apostate2's picture

Great read.

Welcome back Tyler.

alrightee_then's picture
alrightee_then (not verified) Dec 30, 2014 6:13 PM
Rhal's picture

That accounts for my sore nether regions...

That's it! invest in proctology!

Dre4dwolf's picture

Suing JPMORGAN has become an "industry". 28 billion in reserves for "litigation" . . .  lol . . . more like "settlements".

If you aren't "litigating" against this company , you are an idiot.

 

general ripper's picture

Of course it's rigged. It's been rigged almost since inception. It was designed to be rigged.

Platypus's picture

Oh please !!!!!!!!!!!!  Exchange of information among forex participants always existed. People call their friends, their broker, their bank , etc to get a tip. When somebody gets good info, why not to act on it? If you have friends with deep pockets to help you its even better. If you don't like the way the game is played there is a easy way of not getting burn. DON"T PLAY IT !! Do you guys want some cheese with all that whine!!

 

Kelley's picture

Well, there is your vote at least for MOAR corruption.

 

There is this little thing called laws. Some of those laws prohibit a major bank from telling one of its fatcat clients they plan to buy or sell a currency that afternoon, thereby enabling the client to join in on the profits.

 

The bank gets to charge its brokerage fee in return for the advance notice.

Platypus's picture

I'm talking reality here pal...not how things should be in a perfect world. Don't like the game? DON"T PLAY IT!! It is that simple. Now more cheese please to go with all this whine :) ) !!

Vooter's picture

There are many, many ways to "settle accounts" in this world--THAT'S reality.

GreatUncle's picture

You can only go all in rigging, corruption etc if ..................................

the "FIAT" global reserve currency the mighty dollar has your back.

gwar5's picture

Its fascism, bitches.

AE911Truth's picture

I have friends who's retirement savings (on which they absolutely depend for survival) were totally wiped out during the financial crisis of 2008 and subsequent turmoil. These were smart people who scrimped and saved for 40 years. They just did not know they were saving in a criminally rigged system. They were told there was rule of law and acted accordingly. When fraud can be proven (and has been given the record fines paid by the global financial institutions) restitution is justified. The trillions in damages (millions of savers each lost millions of Dollars) are not recovered by billions in fines. Not even close. When fines are one tenth of a percent of the profits, this is not justice. When the damaged parties are not made whole (not even close) this is not justice. Justice requires disolving the criminal Network of Global Corporate Control and distributing their assets to the persons whose life savings were not lost, not destroyed, but stolen.

Rhal's picture

I sympathize with your friends. Indeed they should be owed at least their principal back. But this is just beginning. By the time this washes out there may not be anyone left standing to pay.

AE911Truth's picture

WRT: "By the time this washes out there may not be anyone left standing to pay."

There are more than 1.7 million tons of physical gold to pay.

Demand full payment in gold.

https://s3.amazonaws.com/khudes/mboard3.pdf

 

Vooter's picture

"By the time this washes out there may not be anyone left standing to pay."

They'll have to pay with something else, then...

Powder's picture

Rich and powerful people getting together to bolster their postions in the social fabric... whodathunkit?

ZeroRights's picture

Who is Jon Corzine?