How The FBI Laid A Trap For A Financial Scandal’s Mastermind

Tyler Durden's picture

How did authorities zero in on Tom Hayes, the disheveled, socially awkward mastermind of the Libor scandal? An excerpt from David Enrich's new must read book ‘The Spider Network

A Trap for a Trader

On a mild, damp March afternoon in 2011, Sarah Tighe and her husband Tom Hayes arrived in the prenatal wing of London’s University College Hospital. They were there for Ms. Tighe’s 12-week pregnancy scan.

The pregnancy was off to a difficult start. Ms. Tighe had suffered from severe morning sickness. Mr. Hayes, a disheveled, mildly autistic 32-year-old mathematician, hadn’t been helping matters. He didn’t seem especially concerned with her discomfort. Instead he was preoccupied with his favorite British soccer team, Queen’s Park Rangers, and his firing months earlier from Citigroup, which had accused him of trying to manipulate an important interest rate called Libor.

Rebuffed by several other banks where he’d sought jobs, Mr. Hayes was slowly coming to terms with the fact that his career as a wildly successful trader had come to an end. More troubling, he’d heard rumors that governments were investigating his conduct.

As a midwife moved an ultrasound wand over Ms. Tighe’s growing midsection, Mr. Hayes’s cellphone rang. The call was from a number—and country code—that he didn’t recognize. Anxiously lying on an examination table, Ms. Tighe told her husband to ignore the call.

Mr. Hayes stood up, walked out of the room and answered the phone.


Tom Hayes in July 2013
Tom Hayes in July 2013 Photo: Euan Cherry/UPPA/ZUMA PRESS

The authorities were hunting for bankers to hold accountable for the industry’s many sins, and Mr. Hayes was blundering into an elaborate trap, cementing his status as their top target.

A couple of weeks earlier, on March 11, a violent earthquake had rumbled up from more than 15 miles beneath the surface of the ocean off Japan’s northeastern coast. It shook buildings all over the country, but the worst damage came from the sea. The shifting underwater plates unleashed a tsunami of biblical proportions, with a wall of water 30 feet high bulldozing Japan’s coastal prefectures. Thousands of people would perish.

In Tokyo, Mirhat Alykulov felt the quake and its aftershocks and then watched, awe-struck, as news reports showed the extent of the damage caused by the tsunami. He decided it was time to get out of town. He packed his bags and, without telling anyone, got on a plane to Washington.

Like Mr. Hayes, Mr. Alykulov was in trouble. He had grown up on a chicken farm in Kazakhstan, learned English while in high school in Pennsylvania, gone to college in Tokyo and then, finally, landed a job as a junior trader in the Tokyo office of Swiss bank UBS.

His co-workers had given him the nickname “Derka Derka” because of his hard-to-place accent and Eurasian looks. It derived from a refrain in the deliberately offensive 2004 movie “Team America: World Police.” The “Team America” puppets depicting Middle Eastern terrorists used the phrase “Derka derka Muhammad jihad” instead of speaking actual Arabic. “Ha ha, that’s great,” his boss said when he learned of the nickname.

Mr. Alykulov and Mr. Hayes sat next to each other in UBS’s Tokyo offices, where Mr. Hayes had a reputation as an elite, combustible and obsession-prone trader. (Each day, Mr. Hayes entered the building through a lucky turnstile, often wearing lucky bumblebee socks and toting a lucky keychain.)

Mr. Hayes soon became the younger man’s mentor, teaching Mr. Alykulov the tricks of the trade. Mr. Alykulov did his best to overlook Mr. Hayes’s social awkwardness, which garnered him the nicknames “Rain Man” and “Kid Asperger.” Once, at a dinner party, Mr. Hayes told Mr. Alykulov’s girlfriend all about his dandruff problem; she later sent Mr. Alykulov to work with a bottle of special shampoo to present to Mr. Hayes.

Despite Mr. Hayes’s propensity to explode at colleagues, Mr. Alykulov recognized that he was a brilliant trader. Mr. Hayes, not the best at reading interpersonal cues, concluded that he and Mr. Alykulov were pals.

Mr. Hayes jumped to Citigroup in 2009. After Citigroup fired him the following year, UBS opened an internal investigation into Mr. Hayes’s activities when he worked there. The Swiss bank uncovered evidence of a widespread campaign by Mr. Hayes, Mr. Alykulov and many others—including their managers and some executives—to skew the London interbank offered rate, or Libor. The scheme was designed to increase the profits that the traders reaped from instruments known as interest-rate derivatives whose values were based on Libor.

UBS shared its findings with governments all over the world, which then launched civil and criminal investigations. Before long, authorities in the U.S. had zeroed in on Mr. Hayes as the apparent ringleader.

UBS suspended Mr. Alykulov, although he was still getting paid—that way, the bank could ensure that he and others in similar situations would cooperate with the American officials who were leading the investigations. But his career prospects were in doubt. It was a jarring, embarrassing turn for someone who not long ago had thought he had a bright future as a trader.

After a few glum days lamenting his suspension, Mr. Alykulov started trying to figure out what to do with his life. He decided to learn another language. He set off for a monthslong trip to Spain, keeping in close touch all the while with Nate Muyskens, the tall Washington trial lawyer with a buzzcut whom UBS had hired to represent him. Mr. Muyskens told him that he was eventually going to need to come to Washington to meet with FBI agents and Justice Department prosecutors.

Mr. Alykulov returned to Japan in time for the earthquake—and then left Tokyo in such a blur that he forgot to pack a suit. On the car ride into Washington from Dulles International Airport, Mr. Alykulov stopped at a department store and dropped $500 on a new outfit so that he could look presentable when he showed up at the Justice Department. He charged the suit to UBS—the trip was on behalf of his employer, after all.

By the time he arrived in downtown Washington, Mr. Alykulov had worked himself into a lather. He was convinced that this trip would culminate with him in a jail cell. The easygoing Mr. Muyskens, whose clients ranged from bank traders to Justin Bieber, told him to chill: All that he had to do was cooperate, he explained, and the Justice Department would promise not to prosecute him.

But Mr. Alykulov wasn’t wild about that idea. He knew Mr. Hayes by now was one of the main targets. Mr. Alykulov didn’t much like Mr. Hayes, but he knew his former boss regarded him as a friend. The thought of knifing someone in that situation made Mr. Alykulov a little queasy. Plus, he was genuinely fond of Mr. Hayes’s wife.

When the time came for their appointment at the Justice Department’s Bond Building, Mr. Muyskens had to physically push Mr. Alykulov out the door to walk the few blocks down New York Avenue. When he got there, Mr. Alykulov seemed to have trouble explaining what he’d actually done wrong.

Gradually, though, he overcame his compunctions, telling himself that he had an obligation to UBS and its thousands of employees to help resolve this mess. He spent dozens of hours serving as a much-needed Sherpa for the prosecutors and FBI agents.

Mr. Hayes, Mr. Alykulov told the government investigators, had orchestrated the whole thing. What about current UBS employees and executives? Mr. Alykulov played down their involvement. Mr. Hayes, he made clear, was the mastermind.

As Mr. Muyskens had promised, Mr. Alykulov was granted a nonprosecution agreement that stated that Justice wouldn’t go after him as long as he cooperated fully. All he had to do was help to get the investigators closer to Mr. Hayes.

The FBI agents tried to convince Mr. Alykulov that they hadn’t been able to track down Mr. Hayes’s phone number. Mr. Alykulov would be doing everyone a big favor, they said, by reaching out to his former boss over Facebook to establish contact. The sooner the investigators got in touch with Mr. Hayes, the better it would be for him.

Mr. Alykulov typed out a Facebook message: “We need to talk.” He wrote that the Justice Department wanted to speak with him and that he wanted to get Mr. Hayes’s advice on what to do. Mr. Hayes still hadn’t spoken to any regulators, and he was eager for any scraps of information he could pick up about the course of the U.S. investigations. He sent Mr. Alykulov his cellphone number.


Tom Hayes and his wife arrived at court on Aug. 3, 2015, hours before the jury reached its verdict.
Tom Hayes and his wife arrived at court on Aug. 3, 2015. Photo: Peter Nicholls/Reuters

A couple of days later, the call came during Ms. Tighe’s pregnancy scan. Mr. Alykulov said that he was phoning from Kazakhstan, and FBI agents had devised an elaborate system to make it look like the call was coming from Mr. Alykulov’s native country—hence the long, strange phone number on Mr. Hayes’s screen.

Audio of the call was being recorded and piped live into a room at the Bond Building, where prosecutors and FBI agents sat around a conference table listening. They had prepared a list of questions for Mr. Alykulov to ask Mr. Hayes. The goal was to get him to acknowledge that what he’d been doing was wrong or to make some other sort of incriminating statement—perhaps encouraging Mr. Alykulov to lie or destroy evidence.

Mr. Alykulov—trying to fight back a debilitating sense of anxiety and betrayal and to contain his surging adrenaline—started the call by repeating what he’d said in the Facebook message: Justice wanted to schedule an interview.

“Should I talk to them? What should I tell them?”

“The U.S. Department of Justice, mate, you know, they’re like…the dudes who, you know…put people in jail,” Mr. Hayes answered. “Why the hell would you want to talk to them?”

Ms. Tighe finished her ultrasound. She walked into the prenatal wing’s waiting room, its walls covered with posters featuring cherubic babies and signs barring phone calls. Mr. Hayes was pacing and talking on his cell. Ms. Tighe could tell from his expression—his whole face was screwed up in a confused, agitated look—that something strange was going on.

Mr. Alykulov had just mentioned that he had printed out emails in which Mr. Hayes had asked his subordinate to help move Libor. “What should I do with them?” he asked.

“Why are you printing emails?” Mr. Hayes asked, furrowing his brow. Ms. Tighe started listening carefully to his end of the conversation. They were clearly talking about Libor and the Justice Department. She motioned for him to get off the phone; when that failed, she whispered, urgently, for him to tell Mr. Alykulov not to destroy evidence or to lie. One thing she had learned about Mr. Hayes during their four years together was that if you wanted him to do something, you needed to tell him in direct, unequivocal terms. Subtleties and shades of gray were lost on him. If this was a setup, she didn’t want her naive husband stumbling right into it.

Mr. Hayes complied, then asked Mr. Alykulov whether the Justice Department wanted to talk to him as well as to Mr. Alykulov. Mr. Alykulov said he didn’t know. Mr. Hayes, growing apprehensive about Mr. Alykulov’s carefully worded queries and nervous tone, asked whether he was recording the call.

“I did this, too,” Mr. Alykulov said, referring to his efforts to get Libor moved in favorable directions. “Why would I record it?”

With Mr. Hayes still on the phone, Ms. Tighe took an elevator downstairs to collect the test results that would show whether the fetus was at risk of Down syndrome. She couldn’t believe that she was going through this alone. The results showed virtually no risk of the syndrome. Angry despite the good news, she rode the elevator back up and found Mr. Hayes still on the phone. He was in the process of telling Mr. Alykulov to just blame his managers.

“That’s what I’m going to do,” Mr. Hayes said.

At the Bond Building, FBI agents thought that Mr. Hayes’s suggestion that Mr. Alykulov shouldn’t talk to the investigators might be enough for an obstruction-of-justice charge. A couple of days later, however, they decided to take another shot, hoping for cleaner evidence.

Mr. Hayes was finishing up lunch at the Cuckfield pub in East London with his stepbrother, who worked at a nearby hospital, when his phone rang. The Cuckfield, housed in a 19th-century stone inn, had a beer garden in the back, and Mr. Hayes stood there in the early-afternoon sunshine.

Mr. Alykulov started in with what struck him as a series of leading questions: “Should I tell them about your friend at RBS?” Mr. Hayes had a contact, Brent Davies, who used to work at Royal Bank of Scotland and whose help Mr. Hayes had sought in moving Libor.


Mr. Hayes left Westminster Magistrates Court in London on June 20, 2013.
Mr. Hayes left Westminster Magistrates Court on June 20, 2013. Photo: Neil Hall/Reuters

“Brent? What’s he got to do with it?” Mr. Hayes asked.

“Should I tell them about your friend at Deutsche?” That was a Deutsche Bank trader named Guillaume Adolph.

“Well, I wouldn’t mention it,” Mr. Hayes said, “but if they ask, you should tell them.” In any case, he added, everything was done in writing, so it wasn’t much of a secret.

The phone call ended. Mr. Hayes and Mr. Alykulov would never speak again.

This piece is adapted from Mr. Enrich’s new book, “The Spider Network: The Wild Story of a Math Genius, a Gang of Backstabbing Bankers, and One of the Greatest Scams in Financial History,” to be published on March 21 by HarperCollins.

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Giant Meteor's picture

I thought this was going to be about the FED 

Imagine my disappointment ..

Belrev's picture

Now that he is out of money, did the chick dump him? I mean it was love until he ran out of cash.

Manthong's picture

The whole F’n financial scam is a :”step-on-dick” swindle.

Belrev's picture

This capitalist system is meaningless from standpoint of view of life and love. No love, no marriages, just whore women for hire as "wives" and "girlfriends".

max2205's picture

And their bosses and bosses bosses?........

Delving Eye's picture

Even after the scandal, the LIBOR is still a scam whose rate is based on what kind of second home, yacht, island and mistress its governors want to buy next.

I am definitely in the wrong line of business. "/

GreatUncle's picture

Nothing you can do about it, not born of the right class.

fleur de lis's picture

The whole thing is a nothing burger.

So they caught a couple of miscreant dweebs.

So what.

Did they go after Madoff, Clinton, Podesta, Soros, etc.,. for all their malicious abuses of the system and all the lives they destroyed with impunity?

Nope.

The FBI knows who they can cross and who they can't.

Not defending unprofessional behavior but there are so many others who are doing us far greater harm but they are too deep into the swamp.

Those two idiots made the mistake of trying to outsmart the system without the right connections.

They make for good FBI sting practice, that's all.

 

 

DownWithYogaPants's picture

These banks don't let you take out or put in more than 10kbucks at a time without reporting it but they let traders like this do whatever right?

riiiiiiiiiiiiiiiiiiiiight!   UBS dindu nuffins.  riiiiiight.

Chris88's picture

"These banks don't let you take out or put in more than 10kbucks at a time without reporting it"

That's the government, actually.  You think the banks like filing CTRs and having additional compliance costs?

booboo's picture

Be glad you're not my friend, a conscious has a purpose, it is your inner friend but can be a motherfucker to live with when you betray...your SELF

El Oregonian's picture

Isn't it like those sleazy-slimeballs to groom willing half-wits into framing them to cover their tracks. Those puppet-masters are a heartless, souless bunch.

Giant Meteor's picture

Run by candy assed facebag cucks hanging out in cuck bars and prenatal care units.

I'm starting to wonder which one was pregnant ...

Talk about your plausible deniability ..

JRobby's picture

Moral (as usual) if you are guilty, be the first to cooperate.

GOVT likes that in a stooge.

Dubaibanker's picture

So they are writing books on how bankers cheat?! Sweet!

I hope it is made mandatory reading with practical tests each semester in all CA, LLB, LLM, MBA and all other finance degrees!

/s

cue in cue's picture
cue in cue (not verified) SilverRoofer Mar 19, 2017 10:28 AM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

Giant Meteor's picture

Well my friend that makes you todays winner. You now have primary dealer status. Enjoy the rate fixing ...

gregga777's picture

Still pimping out your mother, wife and little sisters, are you?

DrZipp's picture

Your mom gives shitty rimjobs.  I want my $5 back.

Giant Meteor's picture

Thank You, an excerpt ..

"Even today, there is little value in insuring the survival of our nation if our traditions do not survive with it. And there is very grave danger that an announced need for increased security will be seized upon by those anxious to expand its meaning to the very limits of official censorship and concealment. That I do not intend to permit to the extent that it’s in my control. And no official of my Administration, whether his rank is high or low, civilian or military, should interpret my words here tonight as an excuse to censor the news, to stifle dissent, to cover up our mistakes or to withhold from the press and the public the facts they deserve to know."

John F. Kennedy. 35th President of the United States

 How far the nation has fallen,

radio man's picture

let me disturb you further. The establishment is reading ZH, and you. Karl Rove gave op the ghost on Fox News Sunday.He uttered a biblical phase I hadn"t heard in years until ZH posted an artical on the tenth of March. ZH posted a piece about the uncivil war and the "Pox" .Suddenly the word pox surfaces in the drive-by media. Of course, their pox is not nessesarily mine.The establishment reads what they fear most, so carry on and let there be a pox upon their house.

Giant Meteor's picture

I've noticed. And let me just say, I will not be making the rounds on the morning talk shows ...

Snípéir_Ag_Obair's picture

heh heh heh Cuckfield Pub...
heh heh...

Dilluminati's picture

On a mild, damp March afternoon in 2011, Sarah Tighe and her husband Tom Hayes arrived in the prenatal wing of London’s University College Hospital. They were there for Ms. Tighe’s 12-week pregnancy scan.

...

Mr. Hayes was finishing up lunch at the Cuckfield pub in East London with his stepbrother, who worked at a nearby hospital, when his phone rang. The Cuckfield, housed in a 19th-century stone inn, had a beer garden in the back, and Mr. Hayes stood there in the early-afternoon sunshine.


WTFUD's picture

Ernest Hemingway, NO, Mills & Blow-Me.

The terrorists ordered pig-tartare with extra crispy bacon bits and a light tossed salad . . . the bomb went off, tits and ass ran in every direction . . . there'd be no happy ending as the wee-boy died.

Dilluminati's picture

well the photo and his nickname suggest punching above his weightclass

ohhh well..  for those of us who do without the new cars, boat, vacations, and such

who pay our bills and taxes, have no interest, wear not the latest label fashion

but get our kids through school

I look at these people who are corrupt and have no empathy for them

I grab a book and with dogged detrmination learn on my own

again I have no respect for these types, I do not share their values

 

To Hell In A Handbasket's picture

"Another one bites the dust
Another one bites the dust
And another non-Jew and another non-Jew
Another one bites the dust hey
Hey I'm gonna get you too
Another one bites the dust"

Son of Captain Nemo's picture

Authorities "laying a trap"...

4 years later... Did the "authorities" SUCCEED?!!!

Son of Captain Nemo's picture

I bet the U.K. and American CBs wish they could go back to the debt they had 4 years ago!

Fixed it!!!

GRDguy's picture

The pussies always seem to catch the little fish, but don't dare stalk the big ones.

It must come from who actually writes their paychecks.

mofreedom's picture

"We're powerless to protect you, not punsh you"  B.Hussein.O.

jmack's picture

  Thats because the big fish just call up the whitehouse  or some contact intermediary one step removed from the white house and get the dish on what the FBI is investigating and how to defend themselves before hand.   Just like clintons round of golf with obama, and his meet with lynch on the tarmac.   The Banksters do the same thing.

gregga777's picture

No, it is far worse than you depict.  The elected and appointed political officials and the high-level career employees are all on the take.  FBI Director James "Hillary's Bitch" Comey and other top officials are on the take.  The entire US SEC (Swindlers Excuse Commission) is either on the take or looking the other way in order to get hired by some CON Street outfit.  The Department of Injustice officials and lawyers are all on the take.  The entire system is corrupt and rotten to the core.  

moneybots's picture

"FBI Director James "Hillary's Bitch" Comey"

 

Comey wouldn't have bothered with a news conference, in which he laid out the evidence against Hillary, if he was Hillary's pet. There would have been no Comey press conference and Lynch would simply have announced that Comey had informed her that his recommendation was no prosecution. End of story.

Rufus Temblor's picture

Reminds me of the economist working for GS who was charged with insider trading and received a 7 year sentence.  He tipped off the govt desk that the treasury would suspend auctions of 30 year treasuries.  The traders leapt on that to buy the 30 year.  Later, they, and Hank Paulson, if memory serves, told the DOJ that millions of dollars of capital were put at risk based on info received from the economist but which they thought had been publicly announced by the US Treasury, as if they always receive their news second hand when placing capital at risk.  Goldman made millions when the 30-year rallied, the economist got a 7 year jail sentence, and Hank Paulson became Secretray of theTreasury.

BenBache's picture

The have very small rods.

Solio's picture

Look, it's the few rogue traders in some back office never the the owners of the system.

What da system, boss?

BenBache's picture

The LIBOR scandal comes done to some autistic mathematician and has nothing to do with the ruling classes treating the rest of us as chumps and slaves.  Thank god for the revelation.  Now I can sleep well knowing that honesty and decency has prevailed and the FBI has protected us from evil.  Without the super rich to protect us and make the word perfect, what would we do?

rosiescenario's picture

....and us US taxpayers via our Fed helped bailout DB one of the leaders in the rate fixing.....not to mention bailing out the other participants in this scam.

Uncle Sugar's picture

How about getting the low hanging fruit like Jon Corzine

Giant Meteor's picture

See not only would I read that shit, but I would ENJOY reading it ...

Unlike the little bed time story about, Ace Ventura, Pet Detectives 

See Above ..

gregga777's picture

Everyone above Hayes in the chain of command should be hung.  That probably wouldn't dissaude any future crimes by the banking gangsters and CON Street Swindlers but at least it would be quite pleasing esthetically.

GreatUncle's picture

You are right it would not deter future crimes, but a warning for those that would commit such crimes, not jail time you are going to get.

Now step up and try it if you want, get caught though you know the score.

It is why French politicians and aristocracy cave so easily when the population gets seriously riled. Been there, done it, and the guillotine is a lasting reminder of there is a limit you are not supposed to cross ever.

gregga777's picture

Capitalsim is dead and buried.  There are only Criminal Crony Capitalists, banking gangsters and CON Street Swindlers.  And they are all aided and abetted by the United States of America's Feral Gangster Government.  

Honest Sam's picture

Eeerr,uuh....  no, not really.

We have at least a dual economic system.  

Summarized, it is this:  

Allow all financial institutions of any size to Privatize ALL their profits (capitalism) but SOCIALIZE or COMMUNIZE all losses of the banks.

The human beans who actually pay taxes get the losses of the financial institutions shoved up their asses, and the Jews of Wall Street get to keep every single scheckel of proifts. 

I don't know that to call that kind of system, but "Fascism" is about as accurate a one as any.  Conspiracy, for sure.

Especially in light of "Ice-Nine", confiscation of ALL consumer deposits in banks, asset managers, money market accounts and CDs that the Bamster signed a few years ago.  One of those clandestine, no one ever heard about, Fascist imperialist jukes and jives of his admenstruation, for the next financial crisis.  

And Trump is not yet reversing that little ice pick in the eyes of the people. 

See: Jefferson, Baruch, and Jackson

LA_Goldbug's picture

"The FBI agents tried to convince Mr. Alykulov that they hadn’t been able to track down Mr. Hayes’s phone number. Mr. Alykulov would be doing everyone a big favor, they said, by reaching out to his former boss over Facebook to establish contact. The sooner the investigators got in touch with Mr. Hayes, the better it would be for him."

Give me a break. Do they think we are Idiots ????

NotBuyingIt's picture

Yup, they OBVIOUSLY think we are idiots. Or helpless...

moneybots's picture

"The authorities were hunting for bankers to hold accountable for the industry’s many sins..."

 

Where? Not one banker has been criminally prosecuted for record massive financial crimes. William Black, who prosecuted a thousand in the savings and loan scandal, said the banking scandal was 70 times bigger. Yet not a single criminal prosecution. Instead, the tax payers were extorted of 700 billion dollars, to protect the bankers.

Giant Meteor's picture

Correct ..

See this is why shit like the above gets absolutely ZERO play with me. Nada, zilch. It is meaningless. There are no "heros" nor even villains in this pablum. For Christ sakes, it reads like mother fucking goose ...

This, THESE fools are the enemies of our time? Holy shit,  the quality of propaganda is slipping by the hour.