U.S. prosecutors have expanded their probe of currency-market manipulation by some of the world’s largest banks to include the Russian ruble and Brazilian real, according to two people familiar with the matter.
The Justice Department is using cooperation agreements it reached with banks in May to gather information and interview traders about suspected market rigging, said the people, who asked not to be named because the investigation is confidential. Trading of the Argentine peso has also attracted the attention of U.S. prosecutors, one of the people said.
The escalating investigation is scrutinizing trading practices at banks that didn’t previously settle currency-rigging claims. Prosecutors are examining a handful of institutions, including Deutsche Bank AG, the two people said. The bank has already disclosed it’s under a half-dozen criminal and regulatory investigations, including for possible currency manipulation.
Prosecutors are also stepping up efforts to charge individuals at major banks, including those that previously settled. The Justice Department has faced criticism from public-interest advocates and lawmakers for resolving Wall Street misconduct with billion-dollar deals that haven’t led to the arrest of traders. Traders at several banks in Moscow and other locations are being investigated for colluding to influence benchmark rates for emerging market currencies to boost profit for their firms, the people say.
Some of the trading practices under scrutiny previously drew the attention of the Commodity Futures Trading Commission. While it’s unclear what specific time period prosecutors are focusing on, previous settlements in the currency investigation punished banks for conduct that took place between 2007 and
Prosecutors are relying on information provided by banks that resolved the currency probe in May, according to the people. The banks -- Citigroup Inc., Barclays Plc, UBS Group AG, Royal Bank of Scotland Group Plc and JPMorgan Chase & Co. -- all have immunity from additional prosecution from the currency probe as long as they cooperate with investigators by reporting misconduct, turning over data and making employees available for interviews, according to the agreements. The settlements don’t protect current and former employees of most of the banks. UBS won antitrust immunity, which also covers current employees. The banks all declined to comment.
Spokesmen for the Justice Department, the CFTC and Deutsche Bank declined to comment on the expansion of the probe.
Antitrust regulators in other countries have opened investigations, too. In July, Brazil identified 15 banks and 30 traders under scrutiny. Among them are Deutsche Bank, Citigroup and Barclays, along with HSBC Holdings Plc, Standard Chartered Plc and Credit Suisse Group AG. The banks declined to comment. HSBC said it is cooperating with regulators and law enforcement in the U.S. and elsewhere.
South Korea and Australia have also been probing possible currency trading manipulation. Australia’s markets regulator, the Australian Securities & Investments Commission, said in a July 8 statement it was carrying out its own investigation into the foreign exchange market. ASIC said at the time its inquiries “are informed by the types of benchmark-related conduct and oversight issues that have been observed overseas.” A spokesman for the commission declined to comment beyond that statement.
South Korea’s Fair Trade Commission is reviewing whether alleged foreign-exchange market rigging by some global banks may have affected the country’s market, according to an official who declined to be named or elaborate citing internal policies.
The CFTC, the main overseer of the derivatives market, has targeted the Russian currency rate in previous settlements. In resolutions last year of currency-rigging probes with Citigroup, JPMorgan, RBS, HSBC and UBS, the agency scrutinized a specific Russian currency rate based on submissions from traders.
The regulator zeroed in on a benchmark known as the CME/EMTA rate for the exchange of rubles and U.S. dollars. CME Group Inc. and the Emerging Markets Trade Association created the benchmark in the late-1990s, and it has been used ever since as a reference for derivatives contracts. CME Group, operator of the world’s largest futures exchange, conducts a daily telephone survey of banks active in the Russian market for prices to exchange the currencies. CME declined to comment.
In its $400 million settlement this year to resolve currency-rigging allegations with Barclays, the CFTC said the bank attempted to manipulate the CME/EMTA rate. The bank’s wrongdoing was conducted by traders in various locations, including Moscow, according to the commission. Barclays didn’t admit or deny the misconduct detailed in the CFTC settlement.
From August 2009 to August 2011, a Barclays trader lied about prices in an effort to increase or decrease the CME/EMTA rate and benefit trading positions, regulators said. In conversations in an electronic chat room, called “Curling 2010,” traders at Barclays and other banks coordinated to skew prices, according to regulators.
At least seven times over the course of a year, the Curling 2010 traders discussed the Russian rate, according to a companion settlement between Barclays and the New York State Department of Financial Services. The traders discussed business in Russian, which Barclays didn’t have the resources to properly monitor, the department said.
In one chat referenced in the CFTC case, a trader wrote, “we should all lower fix by several kopecks,” referring to a fraction of the ruble. A second trader responded “yes” while a third wrote that “it is a right idea to lower the fix by a few kopecks.” The Barclays trader responded “so what, 5 kopecks and all/everyone is splendid.”
The Barclays trader then submitted an artificially low bid and offer to CME, according to the commission.
The New York regulator, in its settlement with Barclays, also found that one of the bank’s traders worked with other firms to manipulate the Brazilian real by agreeing to boycott local brokers in an effort to drive down competition. When asked by a trader in 2009 about whether they should block a local player, the Barclays trader responded, “yes, the less competition the better,” according to the regulator.