Tom Hayes, the former UBS AG (UBSN) derivatives trader charged with trying to manipulate interest rates, sought advice from one of the so-called NatWest 3 bankers extradited to the U.S. in 2006 on Enron Corp.-related fraud charges, according to two people familiar with the matter.
The U.K. national, who is a suspect in both U.S. and British criminal investigations into Libor-rigging, has reached out to David Bermingham, said the people, who declined to be identified because the case is still under investigation. Bermingham was extradited to the U.S. from Britain after a three-year court battle and spent nearly two years in prison.
Bermingham runs a consulting firm advising on extradition, negotiating plea deals with U.S. authorities, and how to survive in prison. He said he hadn’t been hired by Hayes and declined to comment on his interactions with the former trader.
“If I were a trader or someone caught in the investigation and was faced with the choice of making a deal with the U.S. government or the U.K. authorities, I would not do any deal that did not meet with the overt approval of the U.S.,” Bermingham said. “The threat of extradition to the U.S. is real, and once there, it’s game over for any defendant.”
Hayes was arrested in a U.K. criminal investigation on Dec. 11 and charged by the U.S. Department of Justice the following day. The charge was made public on Dec. 19, the same day UBS was fined a record $1.5 billion by U.S., British and Swiss regulators for trying to rig the London-interbank offered rate and similar benchmarks.
In three years at the Swiss bank’s Tokyo office, Hayes produced more than a quarter of a billion dollars in revenue for the lender. He doesn’t want to be extradited and would rather face charges in England, according to two people familiar with the case. The U.K. hasn’t charged Hayes.
U.S. prosecutors have portrayed Hayes as the kingpin of a three-year campaign that succeeded in manipulating global interest rates through collusion with brokers, counterparts at other firms and his colleagues in order to benefit his own trades. He was charged along with Roger Darin, a former short- term interest-rates trader at Zurich-based UBS, whose responsibilities included the firm’s yen-Libor quotes.
The Libor case “bears uncanny similarities with what happened to us all those years ago,” Bermingham said. “The modus operandi of the U.S. authorities is to start with the minnows and use them to work their way up the corporate ladder. The first guy in the door gets the best deal.”
Bermingham wrote a book about his experience and now runs DB Strategic Consulting. Along with the two other men who worked for Royal Bank of Scotland Group Plc’s Greenwich NatWest unit, they had argued that as British citizens accused of defrauding the London-based bank, any prosecution against them should have been in England.
Banks’ manipulation of interest rates has spawned probes by half-a-dozen agencies on three continents in what has become the industry’s biggest and longest-running scandal. More than $300 trillion of loans, financial products and contracts are linked to Libor. Regulators are looking at how derivative traders and bankers who submitted interest-rate data colluded to ensure benchmarks benefited their own trades, and whether lenders low- balled submissions in 2008 to hide their true cost of borrowing.
Hayes hired the law firm Fulcrum Chambers in London to advise him. Fulcrum Chambers confirmed they represent Hayes and declined to comment further. David Williams, a senior trial lawyer at the firm, and another attorney, Ivan Pearce, have both advised on investigations by the Serious Fraud Office. The SFO is the U.K. agency probing Hayes.
David Green, the director of the SFO, said in an interview in November the agency was considering conspiracy-to-defraud charges against individuals, whom he didn’t identify. Green said the agency is focusing on the most egregious attempts to manipulate Libor and other related rates. The agency, while working closely with the DOJ, is also competing to bring charges first in order to handle the prosecution of any British citizens in the U.K., he said.
Bermingham said that any suspect in the Libor investigation in the U.K. “who believes that the U.S. does not have jurisdiction over all of these cases is a fool.”
Hayes, whose alleged wrongdoing was done outside of the U.S., was charged there with wire fraud and antitrust violations.
One of the highest-earning traders at UBS, Hayes generated about $40 million in revenue for the bank in 2007, $80 million in 2008 and $116 million in 2009 before he left to join Citigroup Inc. (C), according to the Commodity Futures Trading Commission, which didn’t identify Hayes by name.
The “volume of unlawful requests submitted by one particular senior yen derivatives trader in Tokyo dwarfed them all,” the agency said. Hayes was “widely considered the dominant trader in the Tokyo yen swaps market because he traded in enormous volumes and accepted large trading risks.”
Between 2006 and 2009, he made at least 800 requests for specific rate submissions to the firm’s yen-Libor rate-setters, about 100 to traders at other banks, and 1,200 to interdealer brokers, according to the CFTC. Yen Libor reflects how much banks charge each other for loans in the Japanese currency.
Hayes joined Citigroup in December 2009 and was dismissed after he was reported for inappropriate conduct by a rate setter in June. He also previously worked for RBS between 2001 and 2003, according to an FSA database.
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