Rabobank Ex-Traders Charged With Yen Libor Rigging

Three former Rabobank traders were charged by the U.S. with engaging in a five-year scheme to manipulate benchmark interest rates as international probes of rate rigging escalate.

Paul Robson of the U.K., Paul Thompson of Australia and Tetsuya Motomura of Japan were charged with conspiracy to commit wire fraud and bank fraud, as well as two counts of wire fraud, according to a complaint filed in Manhattan federal court. None of the men are in U.S. custody, a court official said.

From about May 2006 to January 2011, the three men and unidentified “others” at the bank “agreed to make false and fraudulent yen Libor submissions for the benefit of their trading positions,” according to the government.

Global fines on companies including Deutsche Bank AG and Royal Bank of Scotland Group Plc reached $6 billion in December, and authorities around the world are investigating the alleged abuse of financial benchmarks by companies that play a central role in setting them. Regulators are still examining traders at half a dozen more firms.

Rates under investigation include the London interbank offered rate, or Libor, and ISDAfix, used to determine the value of interest-rate derivatives. The rates are used by banks to determine the cost of borrowing for businesses, home-buyers and students. European regulators also have reviewed allegations of collusion in crude oil and biofuels markets.

Exchange Rates

Lawyers for Thompson and Robson declined to comment on the charges. Motomura’s personal phone number wasn’t listed in Japanese directories and his contact details weren’t available from Rabobank’s Tokyo office.

Roelina Bolding, a spokeswoman for Utrecht, Netherlands-based Rabobank, declined to comment yesterday on the U.S. allegations in the criminal complaint.

Regulators from Switzerland to Washington are examining evidence reported by Bloomberg News in June that currency traders have been manipulating spot foreign-exchange rates for at least a decade, affecting the value of funds and derivatives. Those inquiries look at benchmark WM/Reuters rates, which are determined by trades executed in a minute-long period called “the fix” at 4 p.m. in London each day.

Probes of benchmark rates are prompting financial firms to overhaul internal controls and business practices, such as by reining their employees’ use of electronic chat rooms. In November, foreign-exchange dealers from the world’s biggest banks told the Federal Reserve Bank of New York that inquiries in their market could prompt an overhaul of the way they handle customer orders.

Possible Terms

The U.S. alleged the three former Rabobank employees traded in derivative products that referenced yen Libor. Rabobank on Oct. 29 entered into a deferred prosecution agreement with the U.S. Justice Department as part of its investigation in benchmarks including Libor and agreed to pay a $325 million penalty.

If convicted, each of the three defendants faces as long as 30 years in prison.

Robson worked as a senior trader at Rabobank’s Money Markets and Short Term Forwards desk in London; Thompson was Rabobank’s head of Money Market and Derivatives Trading Northeast Asia and worked in Singapore; while Motomura was a senior trader at Rabobank’s Tokyo desk, according to court papers.

“These three traders -- working from Japan, Singapore and the United Kingdom -- deliberately submitted what they called ‘obscenely high’ or ‘silly low’ Libor rates in order to benefit their own trading positions,” Acting Assistant U.S. Attorney General Mythili Raman said in a statement.

U.S. Probe

The U.S. Libor probe has led to criminal charges against eight individuals and resulted in more than $3.7 billion in penalties paid to law enforcement and regulatory agencies.

In December 2012, Tom Hayes, a former UBS AG and Citigroup Inc. trader was charged with manipulation of benchmark interest rates by the U.S. He was accused of conspiring with employees of JPMorgan Chase & Co., RBS, HSBC Holdings Plc, Rabobank Groep and Deutsche Bank, as well as Tullett Prebon Plc, ICAP Plc and RP Martin Holdings Ltd., over a four-year period to manipulate yen Libor rates.

Robson coordinated his yen Libor submission with the trader responsible for making the Libor position at another bank on behalf of co-defendants, the U.S. alleged. The U.S. also said the unidentified trader who conspired with the three defendants was a “senior trader” for Rabobank’s money market unit in Tokyo.

Libor Manipulation

The U.S. said Robson made a higher or lower yen Libor submission “consistent with the direction requested by a defendant and consistent with the co-defendant’s trading position.” These manipulated Libor submissions were frequently to the detriment of Rabobank’s counterparties to derivative contracts, as alleged by the U.S.

The U.S. complaint includes excerpts of e-mails, instant messages and calls that were recorded by the bank which the three defendants exchanged.

In one May 10, 2006, exchange, Robson said in an e-mail “it must be pretty embarrassing to set such a low libor. I was very embarrassed to set my 6 mth--but wanted to help thomo” in what the U.S. says was a reference to Thompson.

In a May 19, 2006, e-mail, Thompson informed Robson that his net exposure for his three-month fixes was 125 billion yen and stated “sneak your 3 m libor down a cheeky 1 or 2 bp” because “it will make a bit of diff for me.” Robson responded that same day stating, “No prob mate I mark it low.”

‘Chunky Fixing’

In an Aug. 4, 2008, exchange, Motomura asked Robson, “Please set today’s 6mth LIBOR at 0.96 I have a chunky fixing.”

In an Oct. 30, 2007, telephone call that was recorded by the bank, Robson asked Motomura, “do you want me to set anything for you?” to which Motomura replied that same day, “if it is lower, it’s better for me” asking for a “low 6’s please.”

Robson then caused Rabobank to submit a 6-month yen Libor at 0.98 percent, three basis points lower than Rabobank’s submission the day before, moving it from the middle of the panel to the yen Libor panel’s second-lowest, the U.S. said.

The case is U.S. v. Robson, 14-MAG-00069, U.S. District Court, Southern District of New York (Manhattan).

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