ISDAfixing and Felonies

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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Another manipulation.

I don't know if Barclays gets a bulk discount for settling five foreign-exchange manipulation cases yesterday (CFTCFed, DOJ, NYDFS, FCA), but it does seem to have gotten the benefit of sneaking in an ISDAfix manipulation settlement under cover of the much bigger FX stuff. Bloomberg's Matt Leising has a good explanation of how Barclays manipulated ISDAfix, and how it got caught, but at a basic level ISDAfix manipulation, unlike both FX and Libor manipulation, was just classic market manipulation. Classic manipulation is: You have a contract that makes more money if the price of an underlying thing is higher, so you buy a bunch of the underlying thing at uneconomic prices just before the price fixing, because you'll make more money on the contract than you lose on the thing. FX manipulation was superficially like that, but the market in the underlying thing -- dollars and euros and things -- was so vast that the manipulating banks were mostly reduced to using client orders as "ammo" rather than pushing the price around with their own buying or selling. Libor manipulation was: You have a contract that makes more money if a number is higher, and you get to make up the number. So you make up a high number.

But ISDAfix is good old-fashioned manipulation. Barclays had swaptions, options on interest rate swaps. It would tell its brokers to trade the underlying swaps just before the 11 a.m. determination of the reference price of those swaps, called ISDAfix, which determined the value of the swaptions. You buy a lot of swaps, the swap price goes up, the swaption gets more valuable, and you make more on your swaption than you lose on your swaps. Here's one Barclays trader:

“You did well at the 11 o’clock fix, man,” he said to a broker, according to the CFTC complaint. “Sounded like you were actually holding the spreads up with your hands; like, it felt like you were bench pressing them over your head.”

Good work everyone! Bench press those spreads. Anyway this is illegal too. So far it's only $115 million worth of illegal but give it time; "Barclays said the ISDAfix investigation was 'industrywide.'"

Felonious banks.

I said a year ago that ending the stigma of a criminal conviction for a bank would reduce prosecutors' and regulators' leverage over those banks. I'm not so sure about that any more, but all the recent bank guilty pleas leave some people worried:

The idea that felon banks could be welcomed back to society, after writing a check but spending no time in the penalty box, could end up backfiring on the Justice Department, according to some academics and former prosecutors. Now that it’s clear that a guilty plea’s damage can be mitigated, they reason, it may be harder for prosecutors to hold the threat of prosecution over their heads in future efforts to address wrongdoing.

If you're getting a conviction anyway, why not fight it?

“At the end of the road, you have normalized criminal activity and some day, someone’s going to say, I’m going to take you on,” said Arthur Wilmarth, professor at George Washington University School of Law.

If you're interested, here's UBS's request for an SEC waiver. Meanwhile investors are pretty inured to this stuff by now, and don't seem any more worried by the criminal convictions than they were by previous fines. On the other hand, of course, "Giant $5.6 Billion Bank Fines Pave Way for Clients to Sue."

There is also some evidence of big banks losing business for rampant criminality. Specifically, California's treasurer told HSBC that "it can no longer participate in a state deposit program because his office is concerned about allegations that the parent company has been involved in money laundering, sanctions violations and tax evasion." That program is just, like, California deposits some money at the bank. "Most of the banks that participate are smaller institutions, though a few larger banks take advantage of the program," and HSBC apparently was getting $25 million in deposits at 0.11 percent for six months. Ehhh. So there's that.

Bye Ben Lawsky.

Ben Lawsky has had a nice four-year run as New York's Superintendent of Financial Services, bringing in over $6 billion in fines at a Department of Financial Services that looks to be wildly profitable. Last year's budget includes revenue of $1.4 billion -- most of it not from bank fines -- and only $584 million of expenses, most of which seem not to be actual operating expenses of his department. I bet there are a lot of financial regulators who would pay up for that sort of rainmaking power, but no, Lawsky is leaving the regulation business and "plans to open his own firm and serve as a lecturer at Stanford University." His work is "likely to center on digital security, a growing area of the law that Mr. Lawsky has focused on as a regulator," and it's pretty amazing that he had time to rake in $6 billion of financial-industry fines when that wasn't his focus. Of course Lawsky "is also thought to harbor political aspirations." If you're a New Yorker harboring political aspirations, a New York Times article about your political aspirations with a sentence beginning "The guest list at Mr. Lawsky’s son’s bris included ..." is a pretty good start.

A business.

Here's a story about Goldin Financial Holdings, Goldin Properties Holdings, and their controlling shareholder Pan Sutong, who "made $22 billion this year and then lost most of it" as the Goldin stock prices soared, with little news or revenue, and then lost $21 billion of value in two days. "There is not much correlation between fundamentals and share price, it’s pretty much gambling," says a law professor. But Pan is unworried:

So what is Goldin Financial really worth? In his capacious Hong Kong office, furnished with generous touches of faux Louis XV marble and gold, Pan pauses from a game of solitaire and explains.

I mean, there's an explanation -- an office tower, some wine, a factoring business -- but after that solitaire game do you even want to read it? More executives should ostentatiously play solitaire in front of reporters; it is an excellent way to convey chill. 

Liability management.

Here is the bizarre story of Howard Rubinsky, "who pleaded guilty in 2008 for his role in an illegal bookmaking operation" and who is now suing Ahmed Zayat, the owner of the horse American Pharoah, for $2 million in gambling debts at that operation. Zayat denies everything, but also, I feel like a thing I learned in law school was that debts incurred for illegal gambling can't be enforced? Like I thought that was part of how the government cracked down on illegal gambling. That and sending the bookmakers to prison. Anyway this is obviously not legal advice! In fact as a matter of life advice I would say to you: Probably pay your gambling debts! (Or, even better, don't incur them.) Also here is a debt management strategy: "In a Nov. 19, 2014, deposition, Mr. Rubinsky said at one point that Mr. Zayat had offered to pay him $1 million if he told the sportsbook that he had died in a car accident." What? Why? Like, one, if you owe $2 million in gambling debts, settling it at 50 cents on the dollar doesn't seem like an outrageously good outcome. It's a good outcome, but like a negotiated-good-faith-settlement outcome, not a bribe-the-middleman sort of outcome. But also, if you get out of your debts by pretending to be dead, doesn't that limit your future options for public life? Like for instance it makes it harder to be a racehorse owner competing for the Triple Crown? 

Things happen.

People are worried about bond market liquidity. Anshu Jain is now in charge of strategy at Deutsche Bank, and Deutsche's head of retail banking is leaving. Chicago is rated A-/Ba1. Vultures and Puerto Rico. Fed Looks Past June for First Rate Rise. Correlations are down. CVS is buying Omnicare. "How do you get your hand out of the jar with the banana?" Petrobras probe looks to dig up corpse. Gadhafi's bank accounts. It's a good time to get an MBA. Decide Whether That Board Seat Is Right for You. Can You Sue the Boss for Making You Answer Late-Night Email? Point72 is hiring. "Preet Bharara makes lawyering seem cool." The quantified dadbod. Kosher vibrators.

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Matt Levine at

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Zara Kessler at