As regular readers know, we have covered the manipulation of LIBOR for many years now going back to January 2009, and while our conspiracy theory once again became conspiracy fact, we do still follow the fallout of the scandal and the predictable scapegoating of lower level traders.
The first bank to admit that it engaged in massive manipulation of the LIBOR rate was Barclays back in 2012, and traders are still being scapegoated tried in court to this day. As Bloomberg reports, five traders learned their fate recently, nearly four years since the bank admitted to the charge. Three traders were convicted, while the jury was unable to reach a verdict on the final two.
Jonathan Mathew, 35, Jay Merchant, 45, and Alex Pabon, 38, were convicted last week of conspiring with other Barclays employees to rig the London interbank offered rate between June 1, 2005, and August 31, 2007.
The jury on Monday couldn’t reach verdicts on Stylianos Contogoulas, 44, and Ryan Reich, 34. The judge placed reporting restrictions on the initial verdicts last week until the jury finished its deliberations. A sixth ex-trader, Peter Johnson, the main Libor submitter, pleaded guilty to manipulating the rate in October 2014.
After Prosecutors spent the trial using emails and testimony to try link the traders to the conspiracy, the jury deliberations lasted 10 days over parts of three weeks, leading to the three convictions and two no verdict decisions.
As Bloomberg explains, the UK's Serious Fraud Office (SFO) is giving themselves a pat on the back with the three convictions, as they come after the acquittal of six brokers accused of conspiring with Tom Hayes, a former UBS trader who was convicted last August.
The verdicts are an important boost for prosecutors at the SFO, who had a mixed record in Libor cases before this week. Tom Hayes, a former UBS Group AG and Citigroup Inc. trader, in August became the first person to be convicted by a jury. That success was quickly tainted by the acquittal of six brokers accused of conspiring with Hayes in January.
While the results will buoy the embattled SFO after the defeat in the broker case, London criminal lawyer David Corker said that questions remain about why the prosecutions were only started “after loud political pressure.”
The cases “were about conduct widely condoned or encouraged at the time in a broken, poorly regulated system and these defendants were foot soldiers for the most part in a global financial system beyond their full understanding,” Corker said.
Prosecutors described the Barclays conspiracy as no better than a "bookmaker who says ‘if you look at the betting slip, there is nothing to say I cannot bribe the jockey or nobble the horse.’"
The SFO can't boast of any convictions other than lower level traders of course, as the absolutely laughable narrative that no supervisors were aware of anything continues to be used as a means not to get at the actual root of the corruption. Jay Merchant, one of the traders found guilty, has repeatedly said that senior Barclays managers approved requests being made to the cash desk, despite providing no documentation to back up the claim. Hell, Tom Hayes even provided evidence in court of a LIBOR manipulation manual distributed to traders and nothing came of it, so we are not surprised at all that the allegations Merchant is making are falling on completely deaf ears. Always easier to convict the lower level types and pretend all is well than to actually dig into the problem and find out just how far the rabbit hole goes.
Bloomberg notes that the scapegoating trials will continue, as the UK has put 13 individuals before the London courts to date, and seven more ex-traders from Barclays and Deutsche Bank are scheduled to stand trial in September 2017 who are accused of rigging EURIBOR. In the US, there isn't much activity - surprise surprise - as two former Rabobank traders were convicted at trial last November, and five other traders between Rabobank and Deutsche bank have plead guilty.
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Here are the five traders that were accused of rigging LIBOR (just by themselves of course) as profiled by Bloomberg.
London cash desk
Mathew was portrayed as the nice, but ever so slightly dim Libor submitter who only got a job at Barclays because of his dad. A homebody who married his childhood sweetheart, he struggled through school, never went to university and his first finance job as a clerk at Cazenove in 1999 paid 10,500 pounds ($13,925) a year. With becoming a trader firmly in his sights, he took the regulator's exams and failed three times before passing.
Once on the cash desk, he managed the Canadian dollar book under the tutelage of Peter Johnson, the man the prosecution would hang the whole conspiracy around. Mathew told tales of trading floor hazing that resulted in regular humiliation, including being "whacked" round the head with a 12-inch baseball bat.
Since losing his job at the bank Mathew has trained as a chef and volunteered for a homelessness charity.
"I just felt married to the lie," Mathew said of being dishonest with prosecutors and regulators in a string of interviews. "I could not see a way out and I didn’t know what to do."
London swaps desk
Verdict: Jury unable to reach a verdict
Contogoulas served 19 months in the Greek military and worked as a computer engineer for five years before moving into financial services. Married with a wife and two children, his family stayed in Athens for the duration of the trial. He'd often leave early on Fridays to fly back to see them.
He believed what he was doing wasn't improper or unfair, while prosecutors mocked him for not knowing what the word manipulation meant.
"There was no monetary advantage" to passing on requests to fix the rate at a certain level," Contogoulas told the jury. "As far as I was concerned it was part of my job, a very small part of my job but I still had to do it."
New York and London swaps desk
Born in Kolkata, Merchant showed great promise with a tennis racket in his hand, training six days a week from the age of four. He won a scholarship to Southern Illinois University where he was the best player on the squad, according to a teammate. After a stint as hitting partner to the Williams sisters, he turned his back on a professional tennis career to focus on finance. Joining Barclays in 2002 to work on the short-end book before the euro desk and then on the dollar desk in New York with the "glamor boys" and "big dogs" of the trading floor.
Merchant repeatedly said that senior Barclays managers approved requests being made to the cash desk, despite providing no documentation to back up the claim. Prosecutors said Merchant took young and inexperienced traders Alex Pabon, Ryan Reich and Contogoulas, under his wing and brought them in on the conspiracy to rig rates. Merchant was the best paid of all the defendants, making 2.2 million pounds in 2007.
"Everybody knew the banks set Libor to their own commercial interests," – Merchant said. "No one was trying to influence anything. We were just doing our job."
New York swaps desk
Alex Jesus Julian Huffy Pabon was born in Louisiana and studied industrial engineering at Texas A&M University before getting a masters degree at the University of California, Berkeley, in financial engineering.
He came close to tears describing attempts to leave Barclays in 2006 because he was burnt out. He said he made Libor requests at the direction of Merchant and was trying to help Johnson better reflect the derivatives market.
Prosecutors highlighted the lack of evidence of any information given in his requests to Peter Johnson other than what suited his trading book and accused him of purely looking to gain an advantage over his counterparties.
"I guess it's three months between when I first tried to resign and when I actually resigned," Pabon said, explaining his departure from the bank in 2006. "I didn't really see anything getting better at Barclays. So, you know, this time I thought that I would resign and it would stick."
New York swaps desk
Verdict: Jury unable to reach a verdict
Over 6-feet-tall with a shaved head, Reich played baseball at Princeton University and gives everything "100 percent." Princeton's head baseball coach testified as a character witness for him at trial.
Reich, who was born on the "Jersey Shore,” was only 24 when he joined Barclays. He said he never asked for false rates outside the acceptable range and there weren't clear guidelines. Prosecutors claimed Reich knew sending Libor-submission requests was dishonest.
"I'm a bit dull, I guess," Reich said while describing himself during his testimony. "I didn't drink in high school so that was kind of a thing. Most people do that. I didn't do that. I've never taken a drug. I'm not a big partier. I go to bed early. I like to exercise. I like sports."