5 BIG BANKS PLEAD GUILTY TO FELONY CHARGES RELATED TO FOREIGN CURRENCY EXCHANGE

FROM:  U.S. JUSTICE DEPARTMENT

Citicorp, JPMorgan Chase & Co., Barclays PLC, The Royal Bank of Scotland plc Agree to Plead Guilty In Connection With The Foreign Exchange Market and Agree to Pay More Than $2.5 Billion In Criminal Fines

UBS AG Agrees to Plead Guilty to Manipulating LIBOR; Admits its Conduct in Foreign Exchange Market Breached Its Non-Prosecution Agreement Resolving the LIBOR Investigation and Agrees to Pay $203 Million

WASHINGTON — Five major banks – Citicorp, JPMorgan Chase & Co., Barclays PLC, The Royal Bank of Scotland plc and UBS AG – have agreed to plead guilty to felony charges.   Citicorp, JPMorgan Chase & Co., Barclays PLC, The Royal Bank of Scotland plc have agreed to plead guilty to conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market and the banks have agreed to pay criminal fines totaling more than $2.5 billion.  A fifth bank, UBS AG, has agreed to plead guilty to manipulating the London Interbank Offered Rate (LIBOR) and other benchmark interest rates and pay a $203 million criminal penalty, after breaching its December 2012 non-prosecution agreement resolving the LIBOR investigation.

Attorney General Loretta E. Lynch, Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division, Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington Field Office and Director Aitan Goelman of the Commodity Futures Trading Commission’s Division made the announcement.

"Today’s historic resolutions are the latest in our ongoing efforts to investigate and prosecute financial crimes, and they serve as a stark reminder that this Department of Justice intends to vigorously prosecute all those who tilt the economic system in their favor; who subvert our marketplaces; and who enrich themselves at the expense of American consumers," said Attorney General Lynch.  "The penalty these banks will now pay is fitting considering the long-running and egregious nature of their anticompetitive conduct.  It is commensurate with the pervasive harm done.  And it should deter competitors in the future from chasing profits without regard to fairness, to the law, or to the public welfare."

“The charged conspiracy fixed the U.S. dollar – euro exchange rate, affecting currencies that are at the heart of international commerce and undermining the integrity and the competitiveness of foreign currency exchange markets which account for hundreds of billions of dollars worth of transactions every day,” said Assistant Attorney General Baer.  “The seriousness of the crime warrants the parent-level guilty pleas by Citicorp, Barclays, JPMorgan and RBS.”

“The five parent-level guilty pleas that the department is announcing today communicate loud and clear that we will hold financial institutions accountable for criminal misconduct,” said Assistant Attorney General Caldwell.  “And we will enforce the agreements that we enter into with corporations.  If appropriate and proportional to the misconduct and the company’s track record, we will tear up an NPA or a DPA and prosecute the offending company.”

“These resolutions make clear that the U.S. Government will not tolerate criminal behavior in any sector of the financial markets,” said Assistant Director in Charge McCabe.  “This investigation represents another step in the FBI’s ongoing efforts to find and stop those responsible for complex financial schemes for their own personal benefit.  I commend the special agents, forensic accountants, and analysts, as well as the prosecutors for the significant time and resources they committed to investigating this case.”

According to plea agreements to be filed in the District of Connecticut, between December 2007 and January 2013, euro-dollar traders at Citicorp, JPMorgan, Barclays and RBS – self-described members of “The Cartel” – used an exclusive electronic chat room and coded language to manipulate benchmark exchange rates.  Those rates are set through, among other ways, two major daily “fixes,” the 1:15 p.m. European Central Bank fix and the 4:00 p.m. World Markets/Reuters fix.  Third parties collect trading data at these times to calculate and publish a daily “fix rate,” which in turn is used to price orders for many large customers.  “The Cartel” traders coordinated their trading of U.S. dollars and euros to manipulate the benchmark rates set at the 1:15 p.m. and 4:00 p.m. fixes in an effort to increase their profits.

As detailed in the plea agreements, these traders also used their exclusive electronic chats to manipulate the euro-dollar exchange rate in other ways.  Members of “The Cartel” manipulated the euro-dollar exchange rate by agreeing to withhold bids or offers for euros or dollars to avoid moving the exchange rate in a direction adverse to open positions held by co-conspirators.  By agreeing not to buy or sell at certain times, the traders protected each other’s trading positions by withholding supply of or demand for currency and suppressing competition in the FX market.

Citicorp, Barclays, JPMorgan and RBS each have agreed to plead guilty to a one-count felony charge of conspiring to fix prices and rig bids for U.S. dollars and euros exchanged in the FX spot market in the United States and elsewhere.  Each bank has agreed to pay a criminal fine proportional to its involvement in the conspiracy:

Citicorp, which was involved from as early as December 2007 until at least January 2013,  has agreed to pay a fine of $925 million;
Barclays, which was involved from as early as December 2007 until July 2011, and then from December 2011 until August 2012, has agreed to pay a fine of $650 million;
JPMorgan, which was involved from at least as early as July 2010 until January 2013, has agreed to pay a fine of $550 million; and
RBS, which was involved from at least as early as December 2007 until at least April 2010, has agreed to pay a fine of $395 million.
Barclays has further agreed that its FX trading and sales practices and its FX collusive conduct constitute federal crimes that violated a principal term of its June 2012 non-prosecution agreement resolving the department’s investigation of the manipulation of LIBOR and other benchmark interests rates.  Barclays has agreed to pay an additional $60 million criminal penalty based on its violation of the non-prosecution agreement.

In addition, according to court documents to be filed, the Justice Department has determined that UBS’s deceptive currency trading and sales practices in conducting certain FX market transactions, as well as its collusive conduct in certain FX markets, violated its December 2012 non-prosecution agreement resolving the LIBOR investigation.  The department has declared UBS in breach of the agreement, and UBS has agreed to plead guilty to a one-count felony charge of wire fraud in connection with a scheme to manipulate LIBOR and other benchmark interest rates.  UBS has also agreed to pay a criminal penalty of $203 million.

According to the factual statement of breach attached to UBS’s plea agreement, UBS engaged in deceptive FX trading and sales practices after it signed the LIBOR non-prosecution agreement, including undisclosed markups added to certain FX transactions of customers.  UBS traders and sales staff misrepresented to customers on certain transactions that markups were not being added, when in fact they were.  On other occasions, UBS traders and sales staff used hand signals to conceal those markups from customers.  On still other occasions, certain UBS traders also tracked and executed limit orders at a level different from the customer’s specified level in order to add undisclosed markups.  In addition, according to court documents, a UBS FX trader conspired with other banks acting as dealers in the FX spot market by agreeing to restrain competition in the purchase and sale of dollars and euros.  UBS participated in this collusive conduct from October 2011 to at least January 2013.

In declaring UBS in breach of its non-prosecution agreement, the Justice Department considered UBS’s conduct described above in light of UBS’s obligation under the non-prosecution agreement to commit no further crimes.  The department also considered UBS’s three recent prior criminal resolutions and multiple civil and regulatory resolutions.  Further, the department also considered that UBS’s post-LIBOR compliance and remediation efforts failed to detect the illegal conduct until an article was published pointing to potential misconduct in the FX markets.

Citicorp, Barclays, JPMorgan, RBS and UBS have each agreed to a three-year period of corporate probation, which, if approved by the court, will be overseen by the court and require regular reporting to authorities as well as cessation of all criminal activity.  All five banks will continue cooperating with the government’s ongoing criminal investigations, and no plea agreement prevents the department from prosecuting culpable individuals for related misconduct.  Citicorp, Barclays, JPMorgan and RBS have agreed to send disclosure notices to all of their customers and counter-parties that may have been affected by the sales and trading practices described in the plea agreements.

Today, in connection with its FX investigation, the Federal Reserve also announced that it was imposing on the five banks fines of over $1.6 billion; and Barclays settled related claims with the New York State Department of Financial Services (DFS), the Commodity Futures Trading Commission (CFTC) and the United Kingdom’s Financial Conduct Authority (FCA) for an additional combined penalty of approximately $1.3 billion.  In conjunction with previously announced settlements with regulatory agencies in the United States and abroad, including the Office of the Comptroller of the Currency (OCC) and the Swiss Financial Market Supervisory Authority (FINMA), today’s resolutions bring the total fines and penalties paid by these five banks for their conduct in the FX spot market to nearly $9 billion.

This investigation is being conducted by the FBI’s Washington Field Office.  This prosecution is being handled by the Antitrust Division’s New York Office and other criminal enforcement sections and the Criminal Division’s Fraud Section.  The Justice Department appreciates the substantial assistance provided by the CFTC, OCC, FINMA, FCA, Securities and Exchange Commission, Federal Reserve Bank, the U.K. Serious Fraud Office and the New York State Department of Financial Services.  The Criminal Division’s Office of International Affairs and the U.S. Attorney’s Office in the District of Connecticut have also provided assistance in this matter.

RABOBANK AGREES TO PAY $325 MILLION CRIMINAL PENALTY IN LIBOR/EURIBOR INTEREST RATE MANIPULATION SCHEME

FROM:  U.S. JUSTICE DEPARTMENT 
Tuesday, October 29, 2013
Rabobank Admits Wrongdoing in Libor Investigation, Agrees to Pay $325 Million Criminal Penalty

Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank)   has entered into an agreement with the Department of Justice to pay a $325 million penalty to resolve violations arising from Rabobank’s submissions for the London InterBank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (Euribor), which are leading benchmark interest rates around the world, the Justice Department announced today.

A criminal information will be filed today in U.S. District Court for the District of Connecticut that charges Rabobank as part of a deferred prosecution agreement (DPA).  The information charges Rabobank with wire fraud for its role in manipulating the benchmark interest rates LIBOR and Euribor.  In addition to the $325 million penalty, the DPA requires the bank to admit and accept responsibility for its misconduct as described in an extensive statement of facts.  Rabobank has agreed to continue cooperating with the Justice Department in its ongoing investigation of the manipulation of benchmark interest rates by other financial institutions and individuals.

“For years, employees at Rabobank, often working with traders at other banks around the globe, illegally manipulated four different interest rates – Euribor and LIBOR for the U.S. dollar, the yen, and the pound sterling – in the hopes of fraudulently moving the market to generate profits for their traders at the expense of the bank’s counterparties,” said Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division.  “Today’s criminal resolution – which represents the second-largest penalty in the Criminal Division’s active, ongoing investigation of the manipulation of global benchmark interest rates by some of the largest banks in the world – comes fast on the heels of charges brought against three former ICAP brokers just last month.  Rabobank is the fourth major financial institution that has admitted its misconduct in this wide-ranging criminal investigation, and other banks should pay attention: our investigation is far from over.”

“Rabobank rigged multiple benchmark rates, allowing its traders to reap higher profits at the expense of their unsuspecting counterparties,” said Deputy Assistant Attorney General Leslie C. Overton of the Justice Department’s Antitrust Division.  “Not only was this conduct fraudulent, it compromised the integrity of globally-used interest rate benchmarks – undermining financial markets worldwide.”

“Rabobank admitted to manipulating LIBOR and Euribor submissions which directly affected the rates referenced by financial products held by and on behalf of companies and investors around the world,” said Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office.  “Rabobank’s actions resulted in the deliberate harm to counterparties holding products referencing the manipulated rates.  Today’s announcement is yet another example of the tireless efforts of the FBI special agents and forensic accountants who are dedicated to investigating complex fraud schemes and, together with prosecutors, bringing to justice those who participate in such schemes.”

Together with approximately $740 million in criminal and regulatory penalties imposed by other agencies in actions arising out of the same conduct – $475 million by the Commodity Futures Trading Commission (CFTC) action, $170 million by the U.K. Financial Conduct Authority (FCA) action and approximately $96 million by the Openbaar Ministerie (the Dutch Public Prosecution Service) – the Justice Department’s $325 million criminal penalty brings the total amount to be paid by Rabobank to more than $1 billion.

According to signed documents, LIBOR is an average interest rate, calculated based upon submissions from leading banks around the world and reflecting the rates those banks believe they would be charged if borrowing from other banks.  LIBOR 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.  The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion.

LIBOR is published by the British Bankers’ Association (BBA), a trade association based in London.  At the time relevant to the conduct in the criminal information, LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year.  The LIBOR for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks for that currency (the Contributor Panel) selected by the BBA.  From at least 2005 through 2011, Rabobank was a member of the Contributor Panel for a number of currencies, including United States dollar (dollar) LIBOR, pound sterling LIBOR, and yen LIBOR.

The Euro Interbank Offered Rate (Euribor) is published by the European Banking Federation (EBF), which is based in Brussels, Belgium, and is calculated at 15 maturities, ranging from overnight to one year.  Euribor is the rate at which Euro interbank term deposits within the Euro zone are expected to be offered by one prime bank to another at 11:00 a.m. Brussels time.  The Euribor at a given maturity is the result of a calculation based upon submissions from Euribor Contributor Panel banks.  From at least 2005 through 2011, Rabobank was also a member of the Contributor Panel for Euribor.

According to the statement of facts accompanying the agreement, from as early as 2005 through at least November 2010, certain Rabobank derivatives traders requested that certain Rabobank dollar LIBOR, yen LIBOR, pound sterling LIBOR, and Euribor submitters submit LIBOR and Euribor contributions that would benefit the traders’ trading positions, rather than rates that complied with the definitions of LIBOR and Euribor.

In addition, according to the statement of facts accompanying the agreement, from as early as January 2006 through October 2008, a Rabobank yen LIBOR submitter and a Rabobank Euribor submitter had two separate agreements with traders at other banks to make yen LIBOR and Euribor submissions that benefitted trading positions, rather than submissions that complied with the definitions of LIBOR and Euribor.

The Rabobank LIBOR and Euribor submitters accommodated traders’ requests on numerous occasions, and on various occasions, Rabobank’s submissions affected the fixed rates.

According to the statement of facts, Rabobank employees engaged in this conduct through electronic communications, which included both emails and electronic chats.  For example, on Sept. 21, 2007, a Rabobank Yen derivatives trader emailed the Rabobank Yen LIBOR submitter at the time with the subject line “libors,” writing: “Wehre do you think today’s libors are?  If you can, I would like 1mth libors higher today.”  The submitter replied: “Bookies reckon 1m sets at .85.”  The trader wrote back: “I have some fixings in 1 mth so would appreciate if you can put it higher mate.”  The submitter replied: “No prob mate let me know your level.”  The trader responded: “Wud be nice if you could put 0.90% for 1mth cheers.”  The submitter wrote back: “Sure no prob. I’ll probably get a few phone calls but no worries mate!”  The trader replied: “If you may get a few phone calls then put 0.88% then.”  The submitter responded: “Don’t worry mate – there’s bigger crooks in the market than us guys!”  That day, as requested, Rabobank’s 1-month Yen LIBOR submission was 0.90, an increase of seven basis points from its previous submission, whereas the other panel banks’ submissions decreased by approximately a half of a basis point on average.  Rabobank’s submission went from being tied as the tenth highest submission on the Contributor Panel on the previous day to being the highest submission on the Contributor Panel.

On Nov. 29, 2006, a Rabobank dollar derivatives trader wrote to Rabobank’s Global Head of Liquidity and Finance and the head of Rabobank’s money markets desk in London, who supervised rate submitters: “Hi mate, low 1s high 3s LIBOR pls !!! Dont tell [another Rabobank U.S. Dollar derivatives trader] haa haaaaaaa.  Sold the market today doooooohhhh!”  The money markets desk head replied: “ok mate , will do my best …speak later.”  After the LIBOR submissions that day, Rabobank’s ranking compared to other panel banks dropped as to 1-month dollar LIBOR and rose as to 3-month dollar LIBOR. Two days later, on Dec. 1, 2006, the trader again wrote to the money markets desk head: “Appreciate 3s go down, but a high 3s today would be nice… cheers chief.”  The money markets desk head wrote back: “I am fast turning into your LIBOR bitch!!!!”  The trader replied: “Just friendly encouragement that’s all , appreciate the help.”  The money markets desk head wrote back: “No worries mate , glad to help ….We just stuffed ourselves with good ol pie , mash n licker !!”

In an example of an agreement with traders at other banks, on July 28, 2006, a Rabobank rate submitter and Rabobank trader discussed their mutual desires for a high fixing.  The submitter stated to the trader: “setting a high 1m again today - I need it!” to which the trader responded: “yes pls mate…I need a higher 1m libor too.”  Within approximately 20 minutes, the submitter contacted a trader at another Contributor Panel bank and wrote: “morning skipper.....will be setting an obscenely high 1m again today...poss 38 just fyi.”  The other bank’s trader responded, “(K)...oh dear..my poor customers....hehehe!! manual input libors again today then!!!!”  Both banks’ submissions on July 28 moved up one basis point, from 0.37 to 0.38, a move which placed their submissions as the second highest submissions on the Contributor Panel that day.

As another example, on July 7, 2009, a Rabobank trader wrote to a former Rabobank yen LIBOR submitter: “looks like some ppl are talking with each other when they put libors down. . . quite surprised that 3m libors came down a lot.”  The former submitter replied: “yes deffinite manipulation – always is tho to be honest mate. . . i always used to ask if anyone needed a favour and vise versa. . . . a little unethical but always helps to have friends in mrkt.”

By entering into a DPA with Rabobank, the Justice Department took several factors into consideration, including that Rabobank has no history of similar misconduct and has not been the subject of any criminal enforcement actions or any significant regulatory enforcement actions by any authority in the United States, the Netherlands, or elsewhere.  In addition, Rabobank has significantly expanded and enhanced its legal and regulatory compliance program and has taken extensive steps to remediate the misconduct.  Significant remedies and sanctions are also being imposed on Rabobank by several regulators and an additional criminal law enforcement agency (the Dutch Public Prosecution Service).

This ongoing investigation is being conducted by special agents, forensic accountants, and intelligence analysts of the FBI’s Washington Field Office.  The prosecution of Rabobank is being handled by Assistant Chief Glenn S. Leon and Trial Attorney Alexander H. Berlin of the Criminal Division’s Fraud Section and Trial Attorneys Ludovic C. Ghesquiere, Michael T. Koenig and Eric L. Schleef of the Antitrust Division.  Deputy Chiefs Daniel Braun and William Stellmach of the Criminal Division’s Fraud Section, Criminal Division Senior Counsel Rebecca Rohr, Assistant Chief Elizabeth B. Prewitt and Trial Attorney Richard A. Powers of the Antitrust Division’s New York Office, and Assistant U.S. Attorneys Eric Glover and Liam Brennan of the U.S. Attorney’s Office for the District of Connecticut, along with Criminal Division’s Office of International Affairs, have provided valuable assistance in this matter.

The investigation leading to these cases has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad.  The Justice Department acknowledges and expresses its deep appreciation for this assistance.  In particular, the CFTC’s Division of Enforcement referred this matter to the department and, along with the FCA, has played a major role in the investigation.  The department has also worked closely with the Dutch Public Prosecution Service and De Nederlandsche Bank (the Dutch Central Bank) in the investigation of 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.  In particular, the Securities and Exchange Commission has played a significant role in the LIBOR investigation, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation.

ICAP BROKERS FACE FELONY CHARGES FOR ALLEGED LONG-RUNNING MANIPULATION OF LIBOR INTEREST RATES

FROM:  U.S. JUSTICE DEPARTMENT 

WASHINGTON — Two former derivatives brokers and a former cash broker employed by London-based brokerage firm ICAP were charged as part of the ongoing criminal investigation into the manipulation of the London Interbank Offered Rate (LIBOR), the Justice Department announced today.

Darrell Read, who resides in New Zealand, and Daniel Wilkinson and Colin Goodman, both of England, were charged with conspiracy to commit wire fraud and two counts of wire fraud in a criminal complaint unsealed in Manhattan federal court earlier today. They each face a maximum penalty of 30 years in prison for each count upon conviction.

“By allegedly participating in a scheme to manipulate benchmark interest rates for financial gain, these defendants undermined the integrity of the global markets,” said Attorney General Eric Holder. “They were supposed to be honest brokers, but instead, they put their own financial interests ahead of that larger responsibility.  And as a result, transactions and financial products around the world were compromised, because they were tied to a rate that was distorted due to the brokers’ dishonesty.  These charges underscore the Justice Department’s determination to hold accountable all those whose conduct threatens the integrity of our financial markets.”

“These three men are accused of repeatedly and deliberately spreading false information to banks and investors around the world in order to fraudulently move the market and help their client fleece his counterparties,” said Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division.  “Our criminal investigation of the manipulation of LIBOR by some of the largest banks in the world has led us from New York to London, to Tokyo, and other financial hubs around the globe.  These important charges are just the latest law-enforcement action in the Criminal Division and Antitrust Division’s global LIBOR investigation, and reflect the Department’s continued dedication to detecting, and prosecuting, financial fraudsters who affect U.S. markets, whether they work at a bank, or a brokerage, and whether they carry out their fraud from a desk in the United States, or abroad.”
“The complaint unsealed today charges Colin Goodman, Daniel Wilkinson and Darrell Read for conspiring to manipulate benchmark interest rates that determined the profitability of their client’s trades,” said Scott D. Hammond, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program.  “In exchange for bigger bonus checks, the three defendants undermined financial markets around the world by compromising the integrity of globally used interest rate benchmarks.  The Department continues to demonstrate its commitment to protecting the interest of American citizens in free and fair financial markets.”

“Corporate and securities fraud involving the manipulation of these rates causes a worldwide impact on trading positions and erodes the integrity of the market and confidence in Wall Street,” said Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office.  “Unraveling such complex financial schemes is difficult and time consuming.  Today’s charges are the result of the hard work of the FBI special agents and forensic accountants who dedicated significant time and resources to investigating this case.”

According to the criminal complaint, LIBOR is an average interest rate, calculated based on submissions from leading banks around the world, reflecting the rates those banks believe they would be charged if borrowing from other banks.  LIBOR is published by the British Bankers’ Association (BBA), a trade association based in London.  At the time relevant to the criminal complaint, LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year.  The published LIBOR “fix” for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks for that currency (the contributor panel) selected by the BBA.

LIBOR 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.  The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were estimated at approximately $450 trillion.

According to allegations in the criminal complaint filed in this case, between July 2006 and September 2010, Wilkinson was a desk director employed in the London office of ICAP, where he supervised a group of derivatives brokers – including Read – specializing in Yen-based financial products.  Generally, the desk’s clients were derivatives traders at large financial institutions, and the transactions brokered by Wilkinson, Read and others on the desk essentially consisted of bets between traders on the direction in which Yen LIBOR would move.  Between July 2006 and September 2009, the desk’s largest client was a senior trader at UBS (UBS Trader) in Tokyo, to whom Read spoke almost daily.  Because of the large size of the client’s trading positions, even slight moves of a fraction of a percent in Yen LIBOR could generate large profits.  For example, UBS Trader once told Read that a 0.01 percent – or one basis point – movement in the final Yen LIBOR fixing on a specific date could result in $3 million profit for his trading positions.  A significant part of both Read’s and Wilkinson’s compensation was tied to the brokerage fees generated by UBS Trader and paid to ICAP.

Goodman was a cash broker at ICAP’s London office during the relevant time period.  In addition to brokering cash transactions, Goodman distributed a daily email to individuals outside of ICAP, including derivatives traders at several large banks as well as those responsible for providing the BBA with LIBOR submissions at certain banks.  Goodman’s email contained what was termed his “SUGGESTED LIBORS,” purported predictions of where Yen LIBOR ultimately would fix each day across eight specified borrowing periods.  Read and Wilkinson, along with Goodman himself, often referred to Goodman as “lord libor.”

The complaint alleges that Read, Wilkinson and Goodman, together with UBS Trader, executed a sustained and systematic scheme to move Yen LIBOR in a direction favorable to UBS Trader’s trading positions.

According to the criminal complaint, the primary strategy employed by Read, Wilkinson and Goodman to execute the scheme was to use Goodman’s “SUGGESTED LIBORS” email to disseminate misinformation to Yen LIBOR panel banks in hopes that the banks would rely on the misinformation when making their own respective Yen LIBOR submissions to the BBA for inclusion in the published fix.  Rather than providing good faith predictions as to where Yen LIBOR would fix, Goodman instead often used his daily email to set forth predictions which benefitted UBS Trader’s trading positions.

Beginning in or about June 2007, Goodman was paid a bonus through the desk Wilkinson supervised, allegedly intended, at least in part, to reward Goodman for his role in their effort to influence and manipulate the published Yen LIBOR fix.

As a second strategy, Read and Wilkinson allegedly further agreed to contact interest rate derivatives traders and submitters employed at Yen LIBOR panel banks in an effort to cause them to make false and misleading submissions to the BBA at UBS Trader’s behest.

As alleged in the charging document, Read, Wilkinson, Goodman, UBS Trader, and other co-conspirators often executed their scheme through electronic chats and email exchanges.  For example, on June 28, 2007, in an email message, Read told Wilkinson: “DAN THIS IS GETTING SERIOUS [UBS TRADER] IS NOT HAPPY WITH THE WAY THINGS ARE PROGRESSING . . . CAN YOU PLEASE GET HOLD OF COLIN AND GET HIM TO SEND OUT 6 MOS LIBOR AT 0.865 AND TO GET HIS BANKS SETTING IT HIGH. THIS IS VERY IMPORTANT BECAUSE [UBS TRADER] IS QUESTIONING MY (AND OUR) WORTH.”

The complaint alleges that the defendants were aware of the effects that Goodman’s false and fraudulent “SUGGESTED LIBORS” had on submissions by Yen LIBOR panel banks.  For example, on Nov. 20, 2008, Read asked UBS Trader, “you have a really big fix tonight I believe? if Colin sends out 6m at a more realistic level than 1.10 [%] i reckon [the two panel banks] will parrot him, it might mean 6m coming down a bit.” On the following day, Nov. 21, 2008, Goodman moved his suggestion for 6-month Yen LIBOR down by nine basis points.  The two other banks mirrored Goodman’s suggestion, moving their 6-month Yen LIBOR submissions down by nine basis points.

According to allegations in the complaint, Read counseled UBS Trader how to most effectively manipulate Yen LIBOR.  For example, UBS Trader told Read in a July 22, 2009, electronic chat that “11th aug is the big date...i still have lots of 6m fixings till the 10th.”   Read responded to UBS Trader, “if you drop [UBS’s] 6m dramatically on the 11th mate, it will look v fishy... .  I’d be v careful how you play it, there might be cause for a drop as you cross into a new month but a couple of weeks in might get people questioning you.”  UBS Trader replied, “don’t worry will stagger the drops...ie 5bp then 5bp,” and Read told UBS Trader, “ok mate, don’t want you getting into [expletive].”  UBS Trader again assured Read that UBS and two additional panel banks would stagger their drops in coordination, and Read concluded, “great the plan is hatched and sounds sensible.”

A criminal complaint is a formal accusation of criminal conduct, not evidence.  A defendant is presumed innocent unless and until convicted.

The investigation is being conducted by special agents, forensic accountants, and intelligence analysts of the FBI’s Washington Field Office.  The prosecution is being handled by Deputy Chief William Stellmach and Trial Attorney Sandra L. Moser of the Criminal Division’s Fraud Section and Trial Attorneys Eric Schleef and Kristina Srica of the Antitrust Division.  Trial Attorneys Alexander Berlin and Thomas B.W. Hall, Law Clerk Andrew Tyler, and Paralegal Specialist Kevin Sitarski of the Criminal Division’s Fraud Section, along with Assistant Chief Elizabeth Prewitt and Trial Attorney Richard Powers of the Antitrust Division, and former Trial Attorney Luke Marsh have also provided valuable assistance.  The Criminal Division’s Office of International Affairs has provided assistance in this matter as well.

The broader investigation relating to LIBOR and other benchmark rates has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad.  The Justice Department acknowledges and expresses its deep appreciation for this assistance.  In particular, 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 has also provided valuable assistance for which the Department is grateful.  The Department also expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation.  Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation, and the Department is grateful for their cooperation and assistance as well.

Finally, the Department acknowledges ICAP’s continuing cooperation in the Department’s ongoing investigation.

This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force.  President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes.

RBS SUBSIDIARY AGREES TO GUILTY PLEA IN LIBOR INTERST MANIPULATION CASE

FROM: U.S. JUSTICE DEPARTMENT

Wednesday, February 6, 2013
RBS Securities Japan Limited Agrees to Plead Guilty in Connection with Long-Running Manipulation of Libor Benchmark Interest Rates
Second Financial Institution to Plead Guilty to Libor Fraud and Pay Substantial Criminal Penalties; RBS Parent Company Also Admits Fault in Deferred Prosecution Agreement

RBS Securities Japan Limited, a wholly owned subsidiary of The Royal Bank of Scotland plc (RBS), has agreed to plead guilty to felony wire fraud and admit its role in manipulating the Japanese Yen London Interbank Offered Rate (LIBOR), a leading benchmark used in financial products and transactions around the world, Assistant Attorney General Lanny Breuer of the Justice Department’s Criminal Division, Deputy Assistant Attorney General Scott D. Hammond of the Justice Department’s Antitrust Division and Special Agent in Charge Timothy A. Gallagher of the FBI’s Washington Field Office Criminal Division announced today.

A criminal information, being filed in U.S. District Court for the District of Connecticut, charges RBS Securities Japan with one count of wire fraud for engaging in a scheme to defraud counterparties to interest rate derivatives trades by secretly manipulating Yen LIBOR benchmark interest rates. RBS Securities Japan has signed a plea agreement with the government admitting its criminal conduct, and has agreed to pay a $50 million fine.

In addition, the government is filing a criminal information in the District of Connecticut which charges parent company RBS as part of a deferred prosecution agreement (DPA). The information charges RBS with wire fraud for its role in manipulating LIBOR benchmark interest rates, and with participation in a price-fixing conspiracy in violation of the Sherman Act by rigging the Yen LIBOR benchmark interest rate with other banks. The DPA requires the bank to admit and accept responsibility for its misconduct as described in an extensive statement of facts, to continue cooperating with the Justice Department in its ongoing investigation and to pay a $100 million penalty beyond the fine imposed upon RBS Securities Japan.

Together with approximately $462 million in regulatory penalties and disgorgement – $325 million as a result of a Commodity Futures Trading Commission (CFTC) action and approximately $137 million as a result of a U.K. Financial Services Authority (FSA) action – the Justice Department’s criminal penalties bring the total amount of the resolution with RBS and RBS Securities Japan to approximately $612 million.

"As we have done with Barclays and UBS, we are today holding RBS accountable for a stunning abuse of trust," said Assistant Attorney General Breuer. "The bank has admitted to manipulating one of the cornerstone benchmark interest rates in our global financial system, and its Japanese subsidiary has agreed to plead guilty to felony wire fraud. The department’s ongoing investigation has now yielded two guilty pleas by significant financial institutions. These are extraordinary results, and our investigation is far from finished. Our message is clear: no financial institution is above the law."

"RBS secretly rigged the benchmark interest rates upon which many transactions and consumer financial products are based," said Deputy Assistant Attorney General Hammond. "RBS’ conduct not only harmed its unsuspecting counterparties, it undermined the integrity and the competitiveness of financial markets everywhere."

"The manipulation of LIBOR by RBS and its subsidiary directly affected the rates referenced by financial products held by and on behalf of American companies and investors. The FBI works to uncover wrongdoing such as this in order to protect American consumers and the integrity of financial markets," said Special Agent in Charge Gallagher. "Today’s announcement is the result of the hard work of the FBI special agents, financial analysts, and forensic accountants as well as the prosecutors who dedicated significant time and resources to investigating this case."

According to court documents, LIBOR is an average interest rate, calculated based upon submissions from leading banks around the world, reflecting the rates those banks believe they would be charged if borrowing from other banks. LIBOR 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. The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion.

LIBOR, published by the British Bankers’ Association (BBA), a trade association based in London, is calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The LIBOR for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks for that currency (the Contributor Panel) selected by the BBA. From at least 2006 through 2010, RBS has been a member of the Contributor Panel for a number of currencies, including Yen LIBOR and Swiss Franc LIBOR, which are the focus of the plea agreement and DPA.

According to the filed charging documents, at various times from at least 2006 through 2010, certain RBS Yen and Swiss Franc derivatives traders – whose compensation was directly connected to their success in trading financial products tied to LIBOR – engaged in efforts to move LIBOR in a direction favorable to their trading positions. Through these schemes, RBS allegedly defrauded counterparties who were unaware of the manipulation affecting financial products referencing Yen and Swiss Franc LIBOR. The alleged schemes included hundreds of instances in which RBS employees sought to influence LIBOR submissions in a manner favorable to their trading positions in two principal ways: internally at RBS through requests by derivatives traders for Yen and Swiss Franc LIBOR submissions, and externally through an agreement with a separately charged derivatives trader to request Yen LIBOR submissions. The trader, Tom Alexander William Hayes, was formerly employed by a Japanese subsidiary of another Contributor Panel bank, UBS AG (UBS).

According to court documents, RBS employees engaged in this conduct through electronic communications, which included both emails and electronic chats.