Former Deutsche Bank traders accused of LIBOR manipulation may have trial postponed

Matthew Connolly and Gavin Campbell Black, former Deutsch Bank traders, are offered extra time to prepare their defense in a LIBOR-rigging case, as the United States Government has switched its approach to the matter and the Court did not like it.

On Tuesday, May 15, 2018, Judge Colleen McMahon of the New York Southern District Court issued a decision and an order offering the defendants to postpone the trial until September this year. The reason – the stark difference in the allegations made by the Department of Justice (DOJ) in the indictment and the latest documents.

According to the indictment, the defendants were part of a scheme, carried out between 2004 and 2011, to cause Deutsche Bank, their employer-one of the sixteen “Submitter” banks whose estimated borrowing costs were used by the British Bankers’ Association (BBA) to set LIBORs in USD – to submit “false and fraudulent USD LIBOR submissions” to BBA. The Indictment charges that the LIBOR submissions were “false and fraudulent” because they were not “unbiased and honest”.

On Tuesday, the Judge noted that the Government now describes the charged conspiracy differently.

In its latest motion, the Government contends that the defendants made, not one, but two different types of false and misleading statements or representations in furtherance of their conspiracy to obtain money and property from their counterparties by manipulating LIBOR. Neither consists of a false and fraudulent submission made to the BBA (via Thomson Reuters).

Rather, the Government now relies on statements allegedly made (or omitted to be made) directly to the victims of the fraudulent scheme – the counterparties to Deutsche Bank’s trades. To be specific, the Government argues that “For both categories of false and misleading representations, the defendants and their co-conspirators intended to mislead the counterparties by the statements transmitted to them”.

Under this (new) theory, the materially false representations are not the submissions but rather the representation that the trades would be settled at LIBOR when it was Deutsche Bank’s intention to settle at something the Government calls the “manipulated LIBOR”. The second part of the allegedly false statements is the retransmission of the LIBORs and the underlying submissions into the marketplace, which marketplace included Deutsche Bank’s counterparties.

Neither of these arguments is apparent from the face of the indictment, the Judge says.

This case was indicted 24 months ago. At no point during all this time did the Government ever apprise the Court that its case was predicated on the types of statements described above. Rather, its theory has consistently been that the false and fraudulent statements made by the defendants and their co-conspirators were the doctored LIBOR submissions that were made to the BBA (via Thomson Reuters) during the LIBOR-setting process, Judge McMahon stressed.

“And now, six weeks before trial, the Government switches horses. The Court feels sandbagged”, says Judge McMahon.

This new theory solves one problem for the Government. It needs to call as witnesses only the alleged recipients of Deutsche Bank’s statements, that is, it does not need to call BBA witnesses.

Let’s recall that the original stance taken by the Government regarding BBA’s participation in the case was not to call any BBA witnesses. In fact, in March, the Judge challenged the DOJ’s allegations concerning the traders. She said back then she found the Government’s assertion that it does not need to prove that defendants tried to deceive the BBA, and that it does not need to call a witness from the BBA in order to prove its case, troubling.

The Judge said she was prepared to adjourn the trial until September 10, 2018. This would give the defendants additional time to prepare to meet the Government’s anticipated case.

The defense gets to decide on the offer by May 17, 2018.

The case is captioned USA v. Connolly (1:16-cr-00370).