U.K. Fraud Agency Makes First Arrests Over Libor-Rigging
A former Citigroup Inc. (C) trader is among three people held in the first U.K. arrests as part of global probes into tampering with the London interbank offered rate, according to two people familiar with the matter.
Thomas Hayes, a former trader at UBS AG and Citigroup, was arrested by the Serious Fraud Office and City of London Police today, said the people, who asked not to be identified citing the continuing investigation. The other two men arrested worked at brokerage firm RP Martin Holdings Ltd., according to one of the people and a third person familiar with the investigation, who also requested anonymity. The employees are Terry Farr and Jim Gilmour, people with knowledge of the investigation said.
The three men who were arrested, ranging in age from 33 to 47, are all British nationals living in the U.K. and were taken to a London police station for questioning, the SFO said in an e-mailed statement. They were later released on bail.
Global authorities are investigating claims that more than a dozen banks altered submissions used to set benchmarks such as Libor to profit from bets on interest-rate derivatives or make the lenders’ finances appear healthier. Swiss lender UBS is expected to face a fine as early as this week that may surpass the record 290 million pounds ($466.6 million) paid in June by Barclays (BARC) Plc, the U.K.’s second-biggest bank, to settle claims it attempted to manipulate Libor.
The agency and police also searched three homes in Surrey and Essex, according to the SFO statement. Arrests in the U.K. are made early in investigations, allowing people, who may not be charged, to be questioned under caution.
Libor, a benchmark for more than $300 trillion of financial products worldwide, is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association in London. The rates help determine borrowing costs for everything from mortgages to student loans.
Hayes, a Tokyo-based trader for Citigroup, was previously dismissed for suspected involvement in the rate manipulation, a person familiar with the situation said earlier this year.
Jeff French, a spokesman for Citigroup in London, declined to comment or provide contact information for Hayes. A number for Hayes couldn’t immediately be located.
Japan’s Financial Services Agency said last year that Citigroup’s local securities unit would be banned from trading tied to the London and Tokyo interbank offered rates for two weeks starting on Jan. 10. Citigroup was forced to write off $50 million as it exited trades made by Tokyo-based employees, a person familiar with the matter said earlier this year.
The Japanese regulator said a director and a trader at Citigroup engaged in “seriously unjust and malicious” conduct by asking bankers to alter data they submitted while setting a benchmark Japanese lending rate. The regulator took no action against the employees. Japan’s FSA also ordered a Japanese division of UBS (UBSN) to suspend trading in derivatives related to Yen Libor and Euroyen Tibor from Jan. 10 to Jan. 16.
Hayes joined Citigroup in December 2009 and was dismissed after he was reported for inappropriate conduct by a rate setter there in June. He had previously worked for UBS, and for Royal Bank of Scotland Group Plc between 2001 and 2003, according to a U.K. FSA database.
David Jones, an SFO spokesman, declined to comment beyond the statement. The City of London Police referred all calls to the SFO. An RP Martin spokesman said the company doesn’t comment on employee matters.
David Green, the director of the SFO, said in an interview last month the agency was considering conspiracy-to-defraud charges against individuals. Green said the agency is focusing on the most egregious attempts to manipulate Libor and other related rates. Investigations into firms, managers, traders and rate setters involved in minor offenses will come later.
The SFO opened the Libor probe in July at the request of British politicians after the Barclays fine. Regulators in the U.S. and U.K. are looking into how derivatives traders and bankers who submitted interest-rate data colluded to rig benchmarks to benefit their own trades, and whether lenders low- balled submissions in 2008 to hide their true cost of borrowing.
Criminal probes by the SFO and U.S. Department of Justice are running in parallel with civil investigations being conducted by the Justice Department’s fraud division, the U.S. Commodity Futures Trading Commission and the U.K. Financial Services Authority.
Tavistock Communications, which handles media inquiries for RP Martin, previously issued a statement saying the firm had “received requests from certain regulators to provide information on a voluntary basis to assist them with their preliminary inquiries but no formal allegations have been made against RP Martin by any regulator.”
The SFO has “Hoover-ed up all the stuff from the FSA and loaded it onto our computers,” Green said last month. It also received evidence from the U.S. Federal Bureau of Investigation and some banks. Green took over as director in April and now has 40 people working on the probe. The SFO’s previous director, Richard Alderman, declined to get involved in the case.
The agency is unlikely to conduct raids on banks, Green said. Its main focus is on targeting individuals and secondarily considering whether they can bring charges against firms. In order to do so, the SFO would have to prove that a “controlling mind” at a bank knew of the illicit behavior, Green said.
Jane de Lozey and Matthew Wagstaff are overseeing the Libor investigation, with staff from external consultancy, accounting and law firms, and with two people from the Crown Prosecution Service, Green said. The Treasury has earmarked 3.5 million pounds for the SFO’s Libor investigation.
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