ASSISTANT AG CALDWELL'S REMARKS ON DEUTSCHE BANK INTEREST RATE MANIPULATION CASE

FROM:  U.S. JUSTICE DEPARTMENT
Assistant Attorney General Leslie R. Caldwell Delivers Remarks for the Deutsche Bank Manipulation of Libor Conference Call
Washington, DCUnited States ~ Thursday, April 23, 2015

Today we announce the latest law enforcement action in our ongoing criminal investigation of the manipulation of LIBOR, the London Interbank Offered Rate, which is a critical benchmark interest rate used throughout the world.  I am pleased to be joined on this call by my colleague and friend, Assistant Attorney General Bill Baer of the Antitrust Division.

Today’s resolution of the LIBOR investigation with Deutsche Bank is in some respects the most significant one yet.  Deutsche Bank’s London subsidiary has agreed to plead guilty to wire fraud in connection with its role in manipulating LIBOR.  And the parent-level bank is entering into a deferred prosecution agreement that requires a corporate monitor.  This is the first LIBOR resolution that imposes a monitor.  Deutsche Bank is paying to DOJ the largest criminal penalty imposed yet in the LIBOR resolutions, a total of $775 million.

Today’s guilty plea, significant financial penalty, deferred prosecution agreement and corporate monitor reflect the department’s consideration of several factors, including the seriousness of Deutsche Bank’s misconduct and the level of cooperation Deutsche Bank provided in the government’s investigation.  Deutsche Bank’s cooperation at the outset of the government’s investigation was not full and complete, but it improved over time, and today’s resolution takes that fact into account.

Deutsche Bank’s manipulation of LIBOR and EURIBOR, the Euro inter-bank offered rate, was long term and pervasive.  As part of the resolution, Deutsche Bank has agreed to a detailed statement of facts that sets forth its criminal conduct.  From at least 2003 through January 2011, dozens of the bank’s traders requested that the bank’s LIBOR and EURIBOR submitters contribute rates that would benefit the traders’ trading positions.  And in brazen conflicts of interest, certain traders were also LIBOR submitters for the currency they were trading.  So the very traders who had an interest in the LIBOR fix were the ones submitting the rates on behalf of the bank.  Deutsche Bank structured its trading group in another way that benefitted the traders at the expense of submitting fair and accurate rates: certain LIBOR submitters were supervised by traders of that currency who stood to benefit from LIBOR fixes that were favorable to their trading positions.  Deutsche Bank’s manipulation involved every major benchmark currency: U.S. Dollar LIBOR, Yen LIBOR, Swiss Franc LIBOR, Sterling LIBOR and EURIBOR.

As a result, Deutsche Bank’s U.K. subsidiary, DB Group Services (U.K.) Ltd, which employed many of the individuals who engaged in the scheme, has agreed to plead guilty to wire fraud.  And Deutsche Bank AG has entered into a parent-level, three-year deferred prosecution agreement, with a corporate monitor, to resolve wire fraud and antitrust charges in connection with LIBOR manipulation.

Together with penalties that Deutsche Bank is paying to our regulatory partners at the U.K. Financial Conduct Authority, the CFTC and the New York State Department of Financial Services, Deutsche Bank is paying approximately $2.5 billion in total.

The important resolution we are announcing today is just the latest action in our ongoing and active investigation.  We have charged 12 individuals to date, and three of those have already pleaded guilty.  The other charges are pending and the defendants are presumed innocent.  We have also resolved the LIBOR investigation with five other banks – six including Deutsche Bank.  These actions reflect the department’s continued commitment to investigating and prosecuting financial fraud and protecting U.S. markets.  And our LIBOR investigation is far from over.  We have more work to do – and we’re doing it.  Today’s resolution does not provide coverage against any individuals, and Deutsche Bank has agreed to continue cooperating in our investigation.

Together with our law enforcement partners at the FBI and our regulatory partners here and abroad, we will continue to gather evidence of LIBOR manipulation and bring the accountable institutions and individuals to justice.

I would like to thank the team of prosecutors and paralegals from the Criminal Division’s Fraud Section and the Antitrust Division who have worked tirelessly on this matter, as well as the many agents, accountants and financial analysts at the FBI for their excellent work.  I am also grateful to the Criminal Division’s Office of International Affairs for their help, and I would like to thank the CFTC, the U.K. Financial Conduct Authority, the Securities and Exchange Commission and the U.K. Serious Fraud Office for their assistance as well.

FORMER RABOBANK TRADER ARRAIGNED ON CHARGES RELATED TO LIBOR INTEREST RATE MANIPULATION

FROM:  U.S. JUSTICE DEPARTMENT
Friday, March 20, 2015
Former U.K. Rabobank Trader Appears in U.S. Court to Face LIBOR Interest Rate Manipulation Charges

The former global head of liquidity and finance for Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) has waived extradition and appeared in U.S. federal court today for an arraignment on charges related to his alleged role in a scheme to manipulate the U.S. Dollar (USD) and Yen London InterBank Offered Rate (LIBOR), a benchmark interest rate.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division and Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington Field Office made the announcement.

Anthony Allen, 43, of Hertsfordshire, England, appeared in the Southern District of New York and pleaded not guilty to a superseding indictment charging him with conspiracy to commit wire and bank fraud and substantive counts of wire fraud.  The court released Allen on a $500,000 bond and set a trial date for Oct. 5, 2015.

According to the superseding indictment, at the time relevant to the charges, LIBOR was an average interest rate, calculated based on submissions from leading banks around the world, reflecting the rates those banks believed they would be charged if borrowing from other banks.  It serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products.  LIBOR was published by the British Bankers’ Association (BBA), a trade association based in London.  LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year.  The published LIBOR “fix” for U.S. Dollar and Yen currency for a specific maturity was the result of a calculation based upon submissions from a panel of 16 banks, including Rabobank.

According to allegations in the superseding indictment, Allen, who was Rabobank’s Global Head of Liquidity & Finance and the manager of the company’s money market desk in London, put in place a system in which Rabobank employees who traded in derivative products linked to USD and Yen LIBOR regularly communicated their trading positions to Rabobank’s LIBOR submitters, who submitted Rabobank’s LIBOR contributions to the BBA.  Rabobank traders entered into derivative contracts containing USD or Yen LIBOR as a price component and they allegedly asked others at Rabobank to submit LIBOR contributions consistent with the traders’ or the bank’s financial interests, to benefit the traders’ or the banks’ trading positions.  

The charges in the superseding indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

The investigation is being conducted by special agents, forensic accountants and intelligence analysts in the FBI’s Washington Field Office.  The prosecution is being handled by the Criminal Division’s Fraud Section and the Antitrust Division.  The Criminal Division’s Office of International Affairs has provided assistance in this matter.

The Justice Department expresses its appreciation for the assistance provided by various enforcement agencies in the United States and abroad.  The Commodity Futures Trading Commission’s Division of Enforcement referred this matter to the department and, along with the U.K. Financial Conduct Authority, has played a major role in the investigation.  The Securities and Exchange Commission also has played a significant role in the LIBOR series of investigations, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation.  The department has worked closely with the Dutch Public Prosecution Service and the Dutch Central Bank in the investigation of conduct at Rabobank.  Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance.

TAX LIENS INVESTMENT COMPANY EXECUTIVE PLEADS GUILTY TO RIGGING MUNICIPAL TAX LIEN AUCTIONS IN NEW JERSEY

FROM:  U.S. JUSTICE DEPARTMENT 

Monday, May 12, 2014

Former New York Tax Liens Investment Company Executive Pleads Guilty for Role in Bid Rigging Scheme at Municipal Tax Lien Auctions

Investigation Has Yielded 15 Guilty Pleas to Date

A former New York-based tax liens company executive pleaded guilty today for his role in a conspiracy to rig bids at auctions conducted by New Jersey municipalities for the sale of tax liens, the Department of Justice announced.

Vinaya K. Jessani, of New York City, entered a guilty plea in the U.S. District Court for the District of New Jersey in Newark to felony charges filed today.   Under the plea agreement, Jessani has agreed to cooperate with the department’s ongoing investigation.

According to the charge, from at least as early as 1994 until as late as February 2009, Jessani, a former senior vice president who supervised the purchasing of municipal tax liens at auctions in New Jersey for the company he worked for, participated in a conspiracy to rig bids at auctions for the sale of municipal tax liens in New Jersey by agreeing to, and instructing others to, allocate among certain bidders which liens each would bid on.  The department said that Jessani and those under his supervision submitted bids in accordance with the agreements and purchased tax liens at collusive and non-competitive interest rates.
           
“Today’s guilty plea demonstrates the Antitrust Division’s continuing effort to prosecute those who manipulate the competitive process in order to harm home and property owners,” said Brent Snyder, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program.  “The division will continue to be vigilant in rooting out conspiracies that harm already distressed property owners.”

The department said that the primary purpose of the conspiracy was to suppress and restrain competition in order to obtain selected municipal tax liens offered at public auctions at non-competitive interest rates.  When the owner of real property fails to pay taxes on that property, the municipality in which the property is located may attach a lien for the amount of the unpaid taxes.  If the taxes remain unpaid after a waiting period, the lien may be sold at auction.  New Jersey state law requires that investors bid on the interest rate delinquent property owners will pay upon redemption.  By law, the bid opens at 18 percent interest and, through a competitive bidding process, can be driven down to zero percent.  If a lien remains unpaid after a certain period of time, the investor who purchased the lien may begin foreclosure proceedings against the property to which the lien is attached.

According to court documents, the conspiracy permitted the conspirators to purchase tax liens with limited competition and each conspirator was able to obtain liens which earned a higher interest rate.  Property owners were therefore made to pay higher interest on their tax debts than they would have paid had their liens been purchased in open and honest competition, the department said.

A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals.  The maximum fine for a Sherman Act violation may be increased to twice the gain derived from the crime or twice the loss suffered by the victims if either amount is greater than the $1 million statutory maximum.

Today’s plea is the 15th guilty plea resulting from an ongoing investigation into bid rigging or fraud related to municipal tax lien auctions.  Including Jessani, 12 individuals and three companies have pleaded guilty.  Additionally, four individuals and two entities have been indicted for their roles in the conspiracy to rig bids at tax lien auctions.

Today’s case was done in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.  Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants.

SECRETARY OF HHS DUNCAN'S REMARKS ON STUDENT LOAN INTEREST RATE SPIKE

FROM: U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

Statement from Secretary Duncan on Preventing Student Loan Interest Rates from Doubling on July 1

Our priority is to ensure that Congress doesn't allow federal student loan interest rates to double on July 1. President Obama has put forward a comprehensive solution that will help middle-class students and their families afford college by lowering interest rates on July 1, without adding to the deficit, and Senator Harkin and Congressman Miller have also been leaders within Congress to prevent rates from doubling for students and families.

While we welcome action by the House on student loans, we have concerns about its current approach, which does not guarantee low rates for students on July 1, makes students bear the burden of deficit reduction, and fails to lock in interest rates when students take out a loan – so their rates could escalate in the future.

Now is not the time to double interest rates on student loans, and we remain committed to working with Congress on a bipartisan approach to a long-term, fiscally sustainable solution that will help students and families afford higher education now and in the future. Given the impending July 1 deadline, an extension that protects students against higher rates while Congress develops an alternative solution is another reasonable option.

Both the President and I firmly believe college should not be reserved only for the wealthy. All of us share responsibility for making college affordable and keeping the middle-class dream alive. There is no excuse if Congress fails to come to an agreement that prevents rates from rising suddenly in July, and we look forward to working with members of both parties to reach a solution.

CFTC CHAIRMAN GENSLER OP-ED REGARDING INTEREST RATES

Photo:  CFTC Chairman Gary Gensler.  Credit:  CFTC
FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
"Libor, Naked and Exposed – New York Times OP-ED"
Opinion by Chairman Gary Gensler

August 7, 2012AMERICANS who save for the future, use credit cards or borrow money for tuition, cars and homes deserve assurance that the interest rates on their savings and loans are set in a reliable and honest way.

That’s why the revelation that the British bank Barclays attempted to manipulate the London interbank offered rate, or Libor — one of the benchmark rates used to determine the cost of borrowing around the world — is so disturbing. But the Barclays case isn’t only about misconduct by large financial institutions. It also raises questions about the reliability and accuracy of these key interest rates, which are largely determined by the private sector, without significant government oversight.

When you save money in a money market fund or short-term bond fund, or take out a mortgage or a small-business loan, the rate you receive or pay is often based, directly or indirectly, on Libor. It’s the reference rate for nearly half of adjustable-rate mortgages in the United States; for about 70 percent of the American futures market; and for a majority of the American swaps market, where businesses hedge risks from changes in interest rates.

Libor is supposed to be the average rate at which the largest banks honestly believe they can borrow from one another unsecured (that is, without posting collateral). Libor was set up in the 1980s when banks regularly made loans to other banks on that basis.

However, the number of banks willing to lend to one another on such terms has been sharply reduced because of economic turmoil, including the 2008 global financial crisis, the European debt crisis that began in 2010, and the downgrading of large banks’ credit ratings this year.

Banks have shifted toward secured borrowing and, on occasion, borrowing from central banks like the Federal Reserve and the European Central Bank. As Mervyn King, the governor of the Bank of England, said of Libor in 2008: "It is, in many ways, the rate at which banks do not lend to each other."

These changes in the markets raise questions about the integrity of this important benchmark.

First, why is Libor so different from another benchmark interest rate for borrowing in United States dollars — Euribor, or euro interbank offered rate? Both rates are calculated on the basis of banks’ answers to roughly the same question. For Libor, a bank is asked at what rate it thinks it can borrow, while for Euribor, a bank is asked at what rate it thinks other banks are able to borrow. And yet the Euribor for dollar borrowings is about twice as high as the comparable Libor.

Second, why have Libor and other benchmark rates typically not been aligned, since 2008, with the borrowing rates that would be implied by foreign exchange markets? A long-established financial theory known as interest rate parity says that the difference in interest rates between two countries should be roughly in line with the expected change in exchange rates between the countries’ currencies. (If it isn’t, that opens an opportunity for arbitrage, the practice of taking advantage of price differences.)

Until 2007, as the theory predicted, the difference between the borrowing rate in one currency and the lending rate in another could typically be derived from foreign currency exchange rates. In the last few years, that hasn’t been the case, and this divergence between theory and practice has yet to be adequately explained.

Third, why is the volatility of the dollar-denominated Libor so much lower than the volatility of other short-term credit market rates? Just like stocks and bonds, short-term interest rates experience a certain volatility. But Libor has less severe swings than comparable rates.

In addition, the variation in rates that some banks submit to the British Bankers’ Association — the private group that oversees Libor — don’t seem to match the variation in the rates for their credit default swaps (financial instruments that are similar to insurance and are one measure of a bank’s credit risk). There have been times when the swap rates have widened for particular banks (suggesting a growing credit risk) even as their Libor submissions have remained stable (suggesting that the banks’ borrowing costs haven’t changed).

Anyone saving or borrowing for the future has a real stake in the integrity of Libor and in the answers to these questions.

When the Commodity Futures Trading Commission, which oversees derivatives markets, began looking into interest-rate setting in 2008, we were guided not only by questions about the decline of actual unsecured lending among banks, the supposed basis of Libor, but also by our founding statute, the Commodity Exchange Act. The law prohibits attempts to manipulate and falsely report information that tends to affect the price of a commodity — including interest rates like Libor.

Markets work best when benchmark rates are based on observable transactions. The public is shortchanged if Libor, the emperor of rates, is not clothed in such transactions.

One solution might be to use other benchmark rates — like the overnight index swaps rate, which is tied to the rate at which banks lend to one another overnight — that are based on real transactions. There are also benchmark rates based on actual short-term secured financings (loans in which collateral is pledged) between banks and other financial institutions.

For any new or revised benchmark to be broadly accepted by the financial markets, borrowers, lenders and hedgers who rely on Libor would benefit from a process for an orderly transition.

The Barclays case demonstrates that Libor has become more vulnerable to misconduct. It’s time for a new or revised benchmark — an emperor clothed in actual, observable market transactions — to restore the confidence of Americans that the rates at which they borrow and lend money are set honestly and transparently.

Gary Gensler is the chairman of the Commodity Futures Trading Commission.