- Five ex-traders accused of conspiring to rig Libor rate
- Jury couldn’t reach verdict on the other two former traders
Jury verdicts finding three former Barclays Plc traders guilty of rigging Libor, one of the key scandals that led to the cultural overhaul of banking during the past decade, closes another chapter in London’s financial history.
Just over four years since Barclays paid out hundreds of millions of dollars in fines for fixing the benchmark rate, Jonathan Mathew, 35, Jay Merchant, 45, and Alex Pabon, 38, were found guilty of conspiring with other Barclays employees to rig the London interbank offered rate.
The 290 million-pound ($385 million) Barclays fine in June 2012 triggered a global scandal that transformed Libor from a niche rate known to brokers and traders into a phrase that became synonymous with banker greed. Days after the British firm became the first to settle, its Chief Executive Officer, Bob Diamond, lost his job and regulators eventually imposed roughly $9 billion in penalties on the financial industry.
"Looking back, the events that occurred in this case almost seem like a different world," said Guy Wilkes from Mayer Brown, who was a senior lawyer at the Financial Conduct Authority until this year. "Banks are no longer places where that sort of behavior is tolerated. People used to say bankers never go to jail -- these verdicts show how far we’ve come."
The jury on Monday couldn’t reach verdicts on Stylianos Contogoulas, 44, and Ryan Reich, 34. The judge placed reporting restrictions on the initial guilty verdicts, which were disclosed last week, until the panel finished its deliberations.
A sixth trader, Peter Johnson, the main Libor submitter, pleaded guilty to manipulating the rate in October 2014. All six men were accused of participating in a conspiracy from 2005 to 2007.
Prosecutors spent the trial using e-mails and testimony to try to link the traders to activities that benefited both the bank and themselves financially. The Serious Fraud Office has to decide whether to seek a new trial for Contogoulas and Reich.
The traders, who will be sentenced later this week, declined to comment after the jury was dismissed Monday. A spokeswoman for Barclays in London also declined to comment.
The men reacted stoically last week to the verdicts while Mathew’s wife broke down in tears after waiting for years since they were first interviewed by the bank and regulators.
The jury deliberations, which lasted 10 days over parts of three weeks, were punctuated by a series of notes that left the defendants with no clues as to which way the panel was leaning.
After only a few days, the jurors sent a note saying they had reached a single verdict, but were deadlocked on the others. The judge gave the panel an instruction that allowed them to reach non-unanimous verdicts, which often sparks a quick decision.
Instead, deliberations meandered into a second week before jurors sent a note indicating they had three verdicts. The judge sent them out again for more discussions, but twenty-four hours later, he asked the panel to give the three findings -- while barring the media from reporting them.
The mood of the five traders sank as the deliberations dragged on, with chatty interludes with lawyers and reporters replaced by deliberate pacing of the drab courthouse floors. Trips home to the U.S. for three of the traders ended after the lawyers finished their closing arguments.
“The trial in this country of American nationals demonstrates the extent to which the response to Libor manipulation has been international,” said SFO Director David Green in a statement. “The key issue in this case was dishonesty.”
The verdicts are an important boost for the SFO, which 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.
But in the Barclays case, prosecutors focused squarely on the five men on trial, saying they were far from young bankers simply taking orders.
"None of these men were out of their depth," prosecutor James Hines said during trial. While some of them may have been young and junior in rank, the hundreds of thousands, and in some cases millions, of dollars they earned demonstrated a serious level of responsibility, prosecutors argued.
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.’"
All the Barclays defendants said the practice of swaps traders talking to the cash desk about their preferred Libor rate existed well before they joined the bank, and that they were only doing what their bosses told them.
Former global head of fixed income Eric Bommensath, the investment bank’s chief operating officer, Mike Bagguley, and another executive, Harry Harrison, were implicated in evidence by Merchant, who said he found it "difficult to believe" his supervisors didn’t know what was happening. All three men testified during the trial that they weren’t aware of any Libor manipulation and haven’t been accused of any wrongdoing.
However, it was someone not in the courtroom who garnered the most criticism during the case. The jury was only told about Johnson, the senior trader on the London cash desk, mid-way through the trial.
The prosecution painted Johnson as the ringleader of the conspiracy, pressuring traders to lie to regulators to keep the fraud alive. The defense portrayed him as a dominant boss who ensured they fixed the rates to maintain a good relationship with the swaps desk, and “bollocking” underlings who didn’t comply.
The U.K. has put 13 individuals before the London courts, and seven more one-time traders from Barclays and Deutsche Bank AG are scheduled to stand trial in September 2017, accused of rigging Euribor, the euro counterpart to Libor.
In the U.S., two former Rabobank Groep traders were convicted at trial in November and given one- and two-year sentences, which they are appealing. Three other Rabobank traders and two former Deutsche Bank traders have pleaded guilty.
"This is a ringing endorsement” of the approach of prosecutors at the SFO, said Lisa Osofsky, a former deputy general counsel of the FBI, who is now European chair of company risk adviser Exiger LLC. "The fact that the jury wrestled with the verdict for so long and produced the outcomes they did shows the SFO presented a complex case in a clear way."