For years we had been wondering when it would start: by "it" we mean angry ex-bankers, disgruntled due to either the terms of their termination, their compensation, or generally unhappy with their treatment by their former employee, standing up and blowing the whistle on crimes they witnessed while (un)happily employed.
Then, over the past month, the answer has emerged as not one, not two, but at least six individual case have emerged in which former currency traders at Citigroup, HSBC, Lloyds and other banks have seen former employees sue their previous bosses. As Bloomberg reports, "some of the traders say they were unfairly swept up in clear-outs of currency desks at the center of regulatory probes into the manipulation of foreign-exchange markets."
And now they want revenge.
The reason for the wrath is that as a result of the crackdown on FX manipulation more than 30 traders were fired, suspended or put on leave over the last two years. However, as the Tom Hayes of Libor manipulation "rain man" fame has shown, in many cases those fired were merely the lowest men on the totem pole, and their termination was meant to cover up the crimes of individuals much higher up in the food, and value, chain. Indeed, Bloomberg adds, in the years after the 2008 financial crisis, fired bankers were telling London employment judges they had been made scapegoats for systemic failings.
Since most employment claims in the U.K. must be filed within three months of a dismissal to be allowed to proceed, they tend to come in clusters: and once one former worker shows there is little to lose, others quickly join in.
More importantly, since damages in employment cases are normally capped at about 78,300 pounds ($121,000), unless there is a finding of discrimination or the claimant wins status as a whistle-blower, employees are suddenly incentivized to expose all the crime they have been directly or indirectly witnessed to make sure their last potential parting gift from the financial industry is large enough.
And since few have the desire or eligibility to work in finance, they may as well go out with a bang: currency traders have little to lose by filing employment claims, according to James Davies, a London-based employment lawyer at Lewis Silkin. “If your reputation is already tarnished in the financial services sector then you’re less likely to be concerned by any adverse publicity arising from making a claim,” he said. “You’re also more likely to have the resources to make it possible to litigate.”
Here are some examples of the already filed cases, chronicled by Bloomberg:
Carly McWilliams, Perry Stimpson, David Madaras and Robert Hoodless all filed suits against Citigroup after they were fired amid the bank’s internal rigging investigation. Serge Sarramegna and Paul Carlier are suing HSBC and Lloyds for unfair dismissal and so-called public interest disclosure, or whistle-blowing, in relation to foreign-exchange practices. Only Stimpson’s case has reached trial so far. Carlier’s case could start as soon as Wednesday, the same day as a trial involving another Lloyds employee, Andrew Reed, is scheduled to begin. Including two discrimination complaints, as many as four banker lawsuits could be heard in London employment tribunals tomorrow.
Of all those, the case of Stimpson is by far the most interesting one.
Perry Stimpson Photographer: Luke MacGregor/Bloomberg
Testifying at a London tribunal last week, Stimpson alleged improper conduct was endemic in the bank’s currency-trading and claimed he saw managers deliberately flout the bank’s code of conduct. The former FX trader spored nobody, and named former managers and specific examples of their misbehavior. Rules of client confidentiality could “be bent at the request of senior management,” he said.
"I’m not here to mudsling, I’m here so the truth about foreign exchange at Citigroup is heard once and for all," Stimpson said at the start of the case. The bank and the managers say his allegations are unfounded.
Maybe they are, but a deeper dive into his allegations reveals something far more troubling: Citigroup may have been sending details of its central bank customers' trading activity to other clients, Stimpson said in a witness statement to a London court on Thursday.
Here is the kicker according to Reuters:
"Our Investor Desk would comply with a weekly request from (a client) for details of Central Bank activity that Citi had transacted," Stimpson said in his witness statement to an employment tribunal in London. Stimpson did not specify which central banks he was referring to.
If anyone is confused, this means that not only do central banks trade FX on a day to day basis, something which has become increasingly clear in the past couple of years by merely observing the rigged market, but Citi was actively leaking this data to select clients!
Stimpson adds that Jeff Feig, who was Citi's global head of trading at the time, called a halt to sending round the "central bank survey", as Stimpson said it was referred to, in mid-2013 because he decided it was wrong. He did not elaborate.
Jeff Feig quit Citi in a hurry when the FX manipulation scandal was just getting started last September to join Fortress Macro as co-investment chief. He "unexpectedly" quit Fortress in this July, less than a year on the job, for "reasons unknown." Surprisingly, it may not just be the FX manipulation catching up with him: his biggest position had been a EURCHF bet which blew up in January after the shocking SNB peg-breaker announcement. Guess he didn't see that one coming.
Other unprecedented and criminal violations was Citigroup's "common practice on the Investor Desk to cut and paste details of Citibank's order book on to Bloomberg chats at the request of customers." Stimpson said in his statement.
While unproven yet, these allegations are nothing short of a bombshell, and explain why Citigroup and its peers have rushed in an epic scramble to settle all FX manipulation allegations as fast as possible, to avoid precisely details such as these from coming out.
They did not , however, anticipate scapegoats such as Perry daring to fight back.
Of course, Citi has neither seen, nor heard, nor said nothing: a Citi spokesman said: "All of the allegations of wrongdoing being made by Mr Stimpson have been investigated and were found to be without merit."
You mean to say the bank investigated itself and found that it did not engage in grossly criminal behavior such as leaking central bank trades to private clients? Unpossible!
On the other hand, Citi has its scapegoating narrative well laid out: it said Stimpson was dismissed for serious breaches of contract, alleging he shared confidential client information with traders at other banks via electronic chatrooms. Stimpson was dismissed last November in the wake of an industry scandal that resulted in banks paying more than $10 billion in fines for failing to stop traders attempting to manipulate the $5 trillion-a-day forex market.
Because where there is gross currency manipulation, it is always just one or two traders who did it. Nobody else! They never got the idea by watching their bosses and superiors do just that, and greenlight their own manipulation. Duh.
Ironically, Citi's story falls apart when one digs through the evidence: Stimpson said he was strongly encouraged to gather and share more market information with colleagues and traders at other banks in order to have a broader understanding of market conditions to help the bank in its trading. Maintaining contacts to gather information became one of his annual goals that would help dictate his year-end bonuses.
"Dude, get yourself on a chat," his then line manager Bob de Groot told him in 2009, according to Stimpson's statement. "Perry has made a good effort to talk to other participants in the market, he could give a little more effort in sharing information and ideas across the business," is what de Groot wrote in his 2009 year-end review, Stimpson claimed in his statement.
It gets worse:
In his testimony, Stimpson said Citigroup staff breached confidentiality around some clients and that some senior staff used inside information to trade, in contravention of the bank's own code of conduct.
In his witness statement, Stimpson said Michael Plavnik, then head of the short-term interest rate trading desk, looked to profit from trading euros around that day's "fixing", the daily process of setting what are effectively benchmark exchange rates used by many funds, companies and central banks around the world.
Plavnik had heard Citi's spot FX desk had a large order to buy euros at the fix. Armed with that knowledge, he bought 200 million euros before the fix to sell them back into the market at the fixing rate, Stimpson claimed in his statement.
And, lo and behold, a Citi spokesman told Reuters that "Plavnik has not been found to have committed any misconduct." That is to say, who knows how many more senior bankers Plavnik could take down with him if charges were filed against even a mid-level maret rigger.
Instead he was rewarded, more for not getting caught than any other reason: Plavnik has since been promoted to global head of short-term interest rate trading.
That said, Stimpson is not innocent either: "Stimpson, who is representing himself, admitted that he had signed Citi codes of conduct, which covered a wide range of issues from ethics to client confidentiality, but barely paid any attention to their content."
Neither did anybody else, and until all these market manipulators finally end up in jail, nobody ever will.
In the meantime, however, expect many more such scapegoats to emerge and explain to the world how all such former "conspiracy theories" were really "conspiracy fact" - who knows, maybe one day a former Fed trader will give the full explanation of just how the NY Fed's market group manipulates the S&P500 on a day to day basis with the generous help of Citadel's E-mini spoofing algorithms...