DOJ pushes Court to vacate sentences of ex-Deutsche Bank traders convicted of LIBOR rigging

It has been almost a year since the United States Government filed notices of appeal from the sentences of ex-Deutsche Bank traders Matthew Connolly and Gavin Black convicted of LIBOR rigging.

On September 24, 2020, the Department of Justice filed its brief in the appeal case.

Let’s recall that Matthew Connolly and Gavin Black devised and participated in a scheme to manipulate the London Interbank Offered Rate (LIBOR) for U.S. dollars, a benchmark interest rate calculated by the British Bankers’ Association (BBA) and widely used by participants in financial transactions throughout the world including the United States. According to the DOJ, the defendants exploited Deutsche Bank’s privileged position as one of 16 panel banks that every day sent to the BBA their estimate of their borrowing cost for U.S. dollars, which the BBA used to calculate a trimmed average that was then published to the world.

Defendants’ co-conspirators, rather than submitting an honest estimate of Deutsche Bank’s cash borrowing costs, in response to requests from defendants and others often submitted a rate that was skewed to benefit the trading positions of certain Deutsche Bank derivatives traders who had entered into LIBOR-indexed contracts. Their goal, according to the DOJ, was to benefit Deutsche Bank in individual transactions, and thus themselves through bonuses tied to successful job performance, at the expense of the counterparties to the transaction, including United States banks.

Following a jury trial in the Southern District of New York, Connolly and Black were convicted of conspiracy to commit wire fraud and bank fraud. Connolly was additionally convicted of two counts of wire fraud. Black was additionally convicted of one count of wire fraud. Connolly was sentenced to time served and two years of supervised release with a special condition of six months of home confinement. He was also ordered to pay a $100,000 fine.

Black was sentenced to time served and three years of supervised release with a special condition of nine months of home confinement at his home in the United Kingdom. He was additionally ordered to pay a $300,000 fine.

The district court granted defendants’ request to remain on release pending appeal.

Connolly and Black appealed from judgments of conviction in the criminal case. The government cross-appealed from the judgment of sentence entered against both defendants.

According to the DOJ, ample evidence supported defendants’ wire fraud and conspiracy convictions. Exploiting Deutsche Bank’s privileged position as one of the BBA’s 16 panel banks for calculation of USD LIBOR, then the world’s most important benchmark interest rate, defendants and their coconspirators caused Deutsche Bank to transmit LIBOR submissions that often did not reflect the LIBOR submitters’ honest and good-faith estimate of the bank’s borrowing costs, as required by the BBA’s instructions. Instead, after arriving at an honest estimate of the bank’s borrowing costs, the conspirators skewed the number in a direction that benefitted a Deutsche Bank trader’s derivatives position.

These submissions were false and misleading. They did not reflect the coconspirators’ honestly held views, and they were also half-truths of the most classic sort; while purporting allegiance to the LIBOR honest-estimate instructions, the submissions instead reflected benefits to Deutsche Bank traders, the DOJ argues.

According to the DOJ, the evidence also established that the deceptive LIBOR submissions were material to the BBA and the counterparties. Each business day, the BBA had to decide on the LIBOR fix before transmitting it worldwide, and as a matter of mathematics the skewed LIBOR submissions had the potential to affect the fix. In addition, the evidence established that obtaining an accurate and unbiased estimate was important to the BBA. The skewed LIBOR submissions were material to the counterparties because they potentially affected the payments that counterparties in swap agreements owed to or received from Deutsche Bank and also whether the counterparties would seek to unwind the trade.

In addition, the DOJ says that the district court “committed plain procedural error” in sentencing Black to foreign home confinement without considering the feasibility of administering home confinement in a foreign country, the appropriateness of permitting defendant to use his wealth to pay a private contractor as an alternative, or the foreign policy implications of the United States trying to restrict the physical freedom of a British citizen on United Kingdom soil.

“Because the foreign home confinement sentence was a central component of Black’s sentence, and because the district court tethered Connolly’s sentence to Black’s sentence, both sentences should be vacated and remanded for reconsideration”, the DOJ says.