Ex-Barclays Trader Told SFO His Bosses Knew About Libor Fix

  • Investment bank, fixed income executives named in London trial
  • Three managers, who deny the allegations, due to testify later

Jay Merchant arrives at Southwark Crown Court in London, on April 5, 2016.

Photographer: Simon Dawson/Bloomberg

One of five former Barclays Plc traders accused of rigging benchmark interest rates told regulators that his bosses, including the investment bank’s chief operating officer Mike Bagguley, must have known about the manipulation, U.K. fraud prosecutors said at a London trial.

QuickTake Broken Benchmarks

Jay Merchant alleged that Bagguley, former global head of fixed income Eric Bommensath and another executive, Harry Harrison, knew about "practices" that amounted to the rigging of London interbank offered rates, in a 2014 interview with the U.K. Serious Fraud Office.

Bommensath allegedly told Merchant over lunch that he was “to introduce the New York swaps desk to these new practices,” said James Hines, a lawyer for Britain’s SFO. “Teach them how to communicate with the cash desk in London and make the New York desk more profitable,” Hines told jurors, relaying the interview in a London court Thursday. 

All three of the executives, who aren’t on trial, deny Merchant’s allegations and will testify for the prosecution later in the 13-week trial, Hines said.  A Barclays spokesman declined to comment and said the executives would not comment.

‘Cheating’

Jonathan Mathew, 35, Stylianos Contogoulas, 44, Merchant, 45, Alex Pabon, 37, and Ryan Reich, 34, all deny conspiracy to defraud charges dating from June 1, 2005 to Aug. 31, 2007. The traders are accused of “cheating” the system by doing something “they must have known was dishonest,” Hines said. It’s the third criminal trial in the U.K. of bankers and brokers accused of rigging benchmark rates underpinning trillions of dollars in securities and loans.

Barclays was the first bank to be fined for attempts to fix Libor, paying a 290 million-pound ($408 million) penalty in June 2012. Since then, global regulators and prosecutors have fined a dozen banks a total of about $9 billion for their role in the scandal.

Harry Harrison, currently co-head of the non-core unit housing assets Barclays no longer wants, used to run dollar fixed income trading and rates business. Bommensath, who also ran Barclays non-core until he left the bank last year, is a former global head of fixed income and was a member of the bank’s executive committee.

Financial crisis

The traders on trial abandoned their conspiracy in 2007 as turmoil on global markets and scrutiny of their activities became more intense, according to prosecutors. 

“The continuation of the conspiracy became increasingly too difficult toward the end of 2007 when the financial crisis hit,” Hines said. “People became very interested in Libor. They became very interested in the setting process, they became very interested in the submissions made by each bank. And so the conspiracy was at an end.”

A wave of rate-rigging scandals further tarnished the image of the banking industry as it sought to recover from the biggest financial crisis since the Great Depression. Benchmarks underpinning markets from oil to currencies have become the subject of lawsuits and tougher regulatory scrutiny.

The prosecution finished its closing speech Thursday and the defense is scheduled to begin setting out its arguments Friday.

‘Selfish’

"It was all about the money," Hines said. "The defendants could never have known if the bank," would’ve benefited from the daily setting of the rate. "It was more selfish than that."

"They wanted Barclays to profit and, in turn, reward them professionally and personally," he said.

The highest paid of the five defendants during the two years was Merchant. He worked in London and the U.S., earning 2.2 million pounds in 2007 in salary and bonus. In contrast, Mathew earned 280,750 pounds in the same year employed as one of the two U.S. dollar Libor rate setters in London.

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