The US legal system has a message for those who not only feel like manipulating the currency market, but have picked a delightfully appropriate name for their FX rigging operation: just do it.
Moments ago, the three former British currency traders who formed the core of the infamous currency rigging "Cartel", were found not guilty of using an online chatroom to fix prices in the $5.1 trillion-a-day foreign exchange market.
According to Bloomberg, a New York federal jury rejected the government’s claim that Richard Usher, Rohan Ramchandani and Christopher Ashton, better known as "The Cartel," rigged the market from 2007 to 2013 by coordinating trades and manipulating prices on the spot exchange rate for euros and U.S. dollars.
They wept in relief as the verdict was handed down in Manhattan federal court Friday after the jury deliberated for less than a day.
Usher, a former JPMorgan foreign-exchange trader, Ramchandani, former trader at Citigroup, and Ashton, the ex-head of spot FX trading at Barclays, were charged in January 2017. The case followed an investigation into conduct that was exposed by Bloomberg in 2013.
The three men faced as long as 10 years in prison had they been convicted, but since their conviction would make any future FX rigging that much more problematic, or simply because the government was incompetent and was unable to prove a slam dunk case, they are now free.
The acquittal is that much more bizarre because previously four banks, JPMorgan, Citigroup, Royal Bank of Scotland and Barclays all pleaded guilty to manipulating currency markets in 2015 and agreed to pay $2.5 billion in fines. At the time, UBS - which ratted everyone else out - received immunity from antitrust charges for being the first institution to report misconduct in the FX market, although it pleaded guilty to a related fraud and paid a $203 million penalty. Overall, more than a dozen financial institutions have paid about $11.8 billion in fines and penalties globally, with another $2.3 billion spent to compensate customers and investors.
As Bloomberg notes, The three men, who were based in London, waived extradition to New York to fight the single charge of conspiracy to restrain trade. None of the defendants took the stand to testify.
So how did they walk free when their own employers admitted to currency manipulation?
Matt Gardiner, a former currency trader at Barclays and UBS Group AG who helped organize the group, testified for the government in exchange for an agreement that he won’t be prosecuted. Gardiner said the group agreed on trading strategies and would congratulate each other when their bets paid off. He also testified that he had no idea the group was doing anything illegal until he began negotiating with U.S. prosecutors. In closing arguments, lawyers for the defendants urged jurors to reject his testimony.
Jurors heard testimony that the men spent almost all of their work days in the chatroom, where they exchanged market color, inside jokes and personal information.
Prosecutors showed transcripts of some of the chats, recorded phone calls and trading records which showed coordination among the group. The defense said the chats reflected innocent banter and that the traders sought to profit off one another. We profiled some of these exchanges previously in "Accused "FX Cartel" Members Joined Forces After Trying To "End" Each Other."
Speaking before the acquittal, Mayra Rodriguez Valladares, a former foreign-exchange analyst for the New York Fed, said that the verdict would "send a general signal to the market that the FX code is not going to be seen as having any teeth,” referring to the FX Global Code, a set of guidelines aimed at raising standards after the rigging scandal. "They’ll go back to same old, same old,” of the acquittal in an interview before the verdict. “It’s business as usual, everybody does it."
Especially the Fed, her former employer.
Javier Paz, founder of research and advisory firm Forex Datasource told Bloomberg before the verdict that the investigation has signaled to traders that “illegal actions carry a high risk of betrayal.” Whether the case will have a longer term impact remains to be seen.
“There’s definitely more awareness by clients of what could go wrong in trades, there is much more employer oversight, and, as we saw on this case, there’s government oversight and appetite to prosecute wrongdoers,” Paz said.
However, Pax was "under no illusion that banks and bankers will stop misbehaving long term. The kinds of lessons being experienced today have a way of being forgotten in a few years."
They certainly won't stop misbehaving if after years of documented manipulation, a jury of their peers finds them innocent.