Three London traders likely to eat porridge for fixing LIBOR and pocketing millions
Three Barclays traders have been charged with LIBOR manipulation at Southwark Crown Court, having passed rate information between London and New York to intentionally influence US Dollar rates, with a potential jail sentence looming.
London may well be home to the most prestigious and largest interbank FX dealers in the world, with the plate glass institutions of Canary Wharf accounting for 49% of all Tier 1 bank FX order flow for the entire world, however it has not been without controversy during the last few years.
Today, Barclays, the world’s third largest interbank FX dealer with 8.11% of the entire global market share, finds three of its traders in the dock and in front of a magistrate for having made a collective £5 million in salaries and bonuses whilst manipuating the London Interbank Offered Rate (LIBOR) during the period of time at which government authorities were investigating global financial giants for engaging in widespread LIBOR manipulation.
In June 2012, Barclays was the first financial institution to admit that it manipulated benchmark rates which led to a fine of £290 million by the British authorities, however this was a civil monetary penalty, and at that time no criminal investigations had been opened.
Just four years later, the law enforcement agencies are beginning to hold individual traders and senior employees personally responsible for their involvement in what is colloquially known as ‘rate rigging’, with three individuals having been in court this week.
The employees concerned are 35 year old Jonathan Mathew, 45 year old Jay Merchant, and 38 year old Alex Pabon, all of whom collectively earned more than £5million in bonuses and salaries whilst engaging in market manipulation.
Standing in front of a high court judge, James Hines QC, at Southwark Crown Court, the three traders have been convicted of manipulating the LIBOR rates after a two month trial.
The court also heard that senior executives at the bank were fully aware that the rates were being manipulated but allowed the practice to prevail.
According to the court, bankers in London exchanged emails with bankers in North America in order to deliberately influence the US Dollar LIBOR rate between 2005 and 2007, which enabled them to generate very large bonuses.
Justice Hines said in court that their practices resembled cheating at roulette by getting a croupier to place the ball where you bet, or asking a Grand National (horse racing) jockey to slow down in a race. He said the entire practice resembled ‘very large scale executive gambling.’
Of the three individuals, Mssrs Merchant and Pabon were working from Barclays’ offices in New York, and according to the court, emailed rate requests to Mr. Mathew, who joined the bank when he was 19, in London. Part of Mr. Mathew’s daily remit was to submit the LIBOR rate each day, alongside Peter Johnson, Mr. Mathew’s former manager, who previously pleaded guilty in court to conspiracy to defraud.
Stylianos Contogoulas, a 44 year old Greek national and bank IT specialist, is the one who got away.
Mr. Contogoulas holds a Computer Science degree from Imperial College in London and an MBA from Mancehster Business School but has a background in technology rather than markets.
He did, however, become a trader at Barclays however the jury did not agree on a verdict for his involvement, because they figured that he must have known next to nothing.
In essence, Mr. Contogoulas learned the hard way never to let slip that you know something about computers lest you want to be bombarded with everybody’s IT queries for the foreseeable future, as his first experiences at Barclays saw him not trading but helping to move the trading process to a more digital platform. He eventually put his foot down and was handed a trading book.
Rather oddly, Mr. Mathew cites that he was the subject of workplace bullying by his former boss Mr. Johnson, alleging that Mr. Johnson used to resort to hitting him over the head with a baseball bat.
In the UK, conspiracy to defraud and obtaining money by deception, as well as insider dealing and market abuse are serious criminal offenses and carry very long jail sentences, therefore it is likely that following these charges, bread and jam, and a spot of porridge is likely to replace the usual Bollinger champagne and foie gras to which many of London’s interbank elite have become accustomed.