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Libor what does it stand for

Conviction and long sentence represent major victory for British financial authorities

Updated Aug. 3, 2015 7:22 p.m. ET

LONDON—Former bank trader Tom Hayes was sentenced to 14 years in prison on Monday after a London jury convicted him of trying to fraudulently rig the London interbank offered rate, or Libor.

The unanimous jury verdict, followed about an hour later by the judge’s 14-year prison sentence, delivers one of the harshest penalties meted out against a banker since the financial crisis. While several big banks have pleaded guilty to manipulating Libor, it was the first criminal conviction of an individual for rigging the widely used benchmark.

Mr. Hayes, a mildly autistic mathematician whose quirky personality earned him the nickname “Rain Man” among colleagues, was accused by British prosecutors of conspiring with other bank traders and brokers to manipulate Libor to make more money for himself and his employers. Libor is the estimated rate banks charge to borrow money from each other.

The 35-year-old Briton argued that his behavior while at UBS Group AG and Citigroup Inc. C -4.65 % was in line with industry standards, that his bosses knew about and condoned what he was doing and that he never realized his behavior was improper.

But the 12-person jury, after deliberating for just more than a week, dismissed those arguments and convicted him on all eight counts of conspiring to defraud. The trial itself had run for nine weeks. Mr. Hayes faced a maximum sentence of 10 years for each of eight counts of fraud, possibly to be served concurrently.

Mr. Hayes’s camp initially had figured that, if convicted, he would probably be sentenced to four or five years in jail, according to people familiar with the matter.

The judge, Jeremy Cooke, said he was imposing the stiffer-than-expected sentence “to send a signal” to the banking industry. “Probity and honesty are essential, as is trust,” he said to Mr. Hayes in announcing the sentence. “The Libor activities in which you took part put all that in jeopardy.”

Mr. Hayes, sitting in a locked, glass-enclosed dock with a guard, alternately shook his head and held his head in his hands, his face red, as the judge read aloud his sentence. His wife, Sarah Tighe, sat nearby, staring straight ahead and looking stunned. After the judge finished his remarks, the guard took Mr. Hayes, toting a blue-green duffel bag packed with his clothes and other belongings, into custody. He began serving his sentence immediately.

The 14-year sentence eclipses those handed out in some other high-profile financial-crime cases. In 2012, Kweku Adoboli, who was convicted of fraud in causing a $2.3 billion trading loss at UBS, was sentenced by a British court to seven years in jail. Hedge-fund manager Raj Rajaratnam. convicted in the U.S. for insider trading, received an 11-year sentence.

Mr. Hayes’s conviction and long sentence represent a landmark victory for British financial authorities, which have long battled a reputation for being weak on white-collar crime. David Green, director of the U.K.’s Serious Fraud Office, which brought the case, has described the Libor prosecutions as his priority and a key proving ground for the agency.

The outcome also represents a symbolic win for authorities elsewhere in the world that have spent as long as seven years investigating the manipulation of Libor.

U.S. and British authorities portrayed Mr. Hayes as the ringleader of an international scheme to skew the Libor benchmark, which underpins interest rates on everything from mortgages to giant corporate loans, to enhance the profitability of his trading positions. Judge Cooke on Monday agreed with that assessment, calling Mr. Hayes “the hub of the conspiracy.”

In London, several former brokers who allegedly conspired with Mr. Hayes are scheduled to stand trial starting in September. They have pleaded not guilty. The SFO has said it is considering charges against other alleged co-conspirators of Mr. Hayes.

Mr. Hayes, who moved to Tokyo with UBS in 2006, quickly became one of the market’s elite traders. He generated hundreds of millions of dollars in revenue for UBS by trading complex

instruments known as interest-rate swaps. He joined Citigroup in late 2009. In September 2010, less than two weeks before his wedding in England, Citigroup fired him for Libor manipulation. At the time, Mr. Hayes told Citigroup that he denied wrongdoing, partly because his bosses knew about and participated in what he was doing.

His case was closely followed—the riverside Southwark Crown Court, anticipating capacity crowds, issued tickets in advance—as the first instance of a trader being put on trial for manipulating Libor.

But it was also unusual, because Mr. Hayes entered an agreement in 2013 to cooperate with the SFO, to plead guilty and to testify against his alleged co-conspirators.

As part of that process, he gave 82 hours of taped interviews to SFO investigators in which he repeatedly admitted that he had acted dishonestly. His lawyers at the time expected him to serve a couple of years in jail if he pleaded guilty.


British trader Tom Hayes arriving at Southwark Crown Court in London on Monday. Photo: Bloomberg News

But for months, that decision haunted Mr. Hayes. He now says he never actually considered himself to be guilty but instead was desperately trying to avoid extradition to the U.S. where the Justice Department had charged him with similar crimes in December 2012.

Under British extradition law, a person can’t be extradited to face charges if he is already being charged with similar offenses in the U.K. He entered a not-guilty plea to the U.K. charges in late 2013.

The trial featured a lively cast of nicknamed characters: Gollum (a Deutsche Bank AG DB -3.50 % trader), Pooks (a Rabobank NV trader), Darcy (a “posh” HSBC trader), Pete the Greek (a UBS trader) and several others that the media aren’t allowed to identify under contempt-of-court rules.

In addition to Rain Man, Mr. Hayes’s monikers included Kid Asperger and Tommy Chocolate. The latter derived from his fondness for sipping hot chocolate in pubs while brokers downed pints of beer.

The jury was given regular glimpses of Mr. Hayes’s personality. On the stand, he deployed folksy touches to explain complex financial concepts, often using the analogy of “a tin of beans.” He repeatedly blurted out personal details, such as his use of a child’s superhero duvet cover into his mid-20s.

Because of his recent diagnosis with Asperger’s syndrome, Mr. Hayes had the aid of an “intermediary” during his nearly two weeks on the stand, helping to calm him down when he got agitated. He explained to the jury why he never thought what he was doing was wrong.

“I was very, very, very open, very transparent” about his tactics as a trader, Mr. Hayes said on July 10, his voice quavering. “All my managers knew. I had no reason to think that it was wrong.”

Ms. Tighe was softly crying. As Mr. Hayes continued speaking, his eyes also welled with tears.

“Everyone’s talking about honesty and dishonesty and what did you think and what was your state of mind, but you know what? At the time I didn’t think about any of it. I didn’t think about whether this was right or wrong. And people go to work every day on the train or on their bike or however they get there, and they go to work and they do a job. And they don’t sit and think, ‘Is doing my job honest or dishonest?’ They do their job.”

The lead prosecutor, Mukul Chawla, dismissed Mr. Hayes’s explanations as a convenient subterfuge for the real issue: That he was a greedy liar, hellbent on manipulating Libor to make more money for his bank and, as a result, himself.

“What’s so hard about telling the truth?” Mr. Chawla asked at one point.

“You’ll have to give that question some context,” Mr. Hayes replied.

“No one has thrown Mr. Hayes under the bus,” Mr. Chawla said in his closing argument. “No one forced him to rig Libor. In blaming everyone else, what he does not do is take any personal responsibility for his actions.”

Category: Forex

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