By Matthew Goldstein and Jennifer Ablan and Philipp
Halstrick
July 22 (Reuters) – U.S. prosecutors and European regulators
are close to arresting individual traders and charging them with
colluding to manipulate global benchmark interest rates,
according to people familiar with a sweeping investigation into
the rate-rigging scandal.
Federal prosecutors in Washington, D.C., have recently
contacted lawyers representing some of the individuals under
suspicion to notify them that criminal charges and arrests could
be imminent, said two of those sources who asked not to be
identified because the investigation is ongoing.
Defense lawyers, some of whom represent individuals under
suspicion, said prosecutors have indicated they plan to begin
making arrests and filing criminal charges in the next few
weeks. In long-running financial investigations it is not
uncommon for prosecutors to contact defense lawyers for
individuals before filing charges to offer them a chance to
cooperate or take a plea, these lawyer said.
The prospect of charges and arrests of individuals means
that prosecutors are getting a fuller picture of how traders at
major banks allegedly sought to influence the London Interbank
Offered Rate, or Libor, and other global rates that underpin
hundreds of trillions of dollars in assets. The criminal charges
would come alongside efforts by regulators to punish major banks
with fines, and could show that the alleged activity was not
rampant in the banks.
“The individual criminal charges have no impact on the
regulatory moves against the banks,” said a European source
familiar with the matter. “But banks are hoping that at least
regulators will see that the scandal was mainly due to
individual misbehavior of a gang of traders.”
In Europe, financial regulators are focusing on a ring of
traders from several European banks who allegedly sought to rig
benchmark interest rates such as Libor, said the European source
familiar with the investigation in Europe.
The source, who did not want to be identified because the
investigation is ongoing, said regulators are checking through
emails among a group of traders and believe they are now close
to piecing together a picture of how they allegedly conspired to
make money by manipulating the rates. The rates are set daily
based on an average of estimates supplied by a panel of banks.
“More than a handful of traders at different banks are
involved,” said the source familiar with the investigation by
European regulators.
There are also probes in Europe concerning Euribor, the Euro
Interbank Offered Rate.
It is not clear what individuals and banks federal
prosecutors are most focused on. A top U.S. Department of
Justice lawyer overseeing the investigation did not respond to a
request for a comment.
Reuters previously reported that more than a dozen current
and former employees of several large banks are under
investigation, including Barclays Plc, UBS and
Citigroup, and have hired defense lawyers over the past
year as a federal grand jury in Washington, D.C., continues to
gather evidence.
The activity in the Libor investigation, which has been
going on for three years, has quickened since Barclays agreed
last month to pay $453 million in fines and penalties to settle
allegations with regulators and prosecutors that some of its
employees tried to manipulate key interest rates from 2005
through 2009.
Barclays, which signed a non-prosecution agreement with U.S.
prosecutors, is the first major bank to reach a settlement in
the investigation, which also is looking at the activities of
employees at HSBC, Deutsche Bank and other
major banks.
The Barclays settlement sparked outrage and a series of
public hearings in Britain, after which Barclays Chief Executive
Bob Diamond announced his resignation from the big British bank.
The revelations have raised questions about the integrity of
Libor, which is used as benchmark in setting prices for loans,
mortgages and derivative contracts.
Adding to concerns are documents released by the New York
Federal Reserve Bank this month that show bank regulators in the
United States and England had some knowledge that bankers were
submitting misleading Libor bids during the 2008 financial
crisis to make their financial institutions appear stronger than
they really were.
Among other details, the Fed documents included the
transcript of an April 2008 phone call between a Barclays trader
in New York and Fed official Fabiola Ravazzolo, in which the
unidentified trader said: “So, we know that we’re not posting
um, an honest LIBOR.”
The source familiar with the regulatory investigation in
Europe said two traders who have been suspended from Deutsche
Bank were among those being investigated. A Deutsche Bank
spokesman declined to comment.
The Financial Times reported on Wednesday that regulators
were looking at suspected communication among four traders who
had worked at Barclays, Credit Agricole, HSBC and
Deutsche Bank.
Credit Agricole said it had not been accused of any
wrongdoing related to the attempted manipulation of Libor by
Barclays, but had responded to requests for information for
various authorities related to the matter.
Beyond regulatory penalties and criminal charges, banks face
a growing number of civil lawsuits from cities, companies and
financial institutions claiming they were harmed by rate
manipulation. Morgan Stanley recently estimated that the 11
global banks linked to the Libor scandal may face $14 billion in
regulatory and legal settlement costs through 2014.
In the United States, the regulatory investigation is being
led by the Commodity Futures Trading Commission, which has made
the Libor probe one of its top priorities.
(Reporting by Matthew Goldstein and Jennifer Ablan in New York
and Philipp Halstrick in Frankfurt, with additional reporting by
Emily Flitter in New York and Aruna Viswanatha in Washington,
D.C.; Editing by Alwyn Scott and Maureen Bavdek)
