Tom Hayes, the former UBS AG derivatives trader at the center of a global investigation into manipulation of benchmark interest rates, may face criminal charges in the U.K. as soon as this week, two people familiar with the investigation said.
Hayes may be charged by the U.K. Serious Fraud Office with conspiring to rig the London interbank offered rate, said the people, who requested anonymity because the probe isn’t public. Hayes has already been charged in the U.S., which is running a parallel criminal probe.
Hayes was arrested in a U.K. criminal investigation on Dec. 11 and charged by the U.S. Justice Department the following day. The U.S. charge was made public on Dec. 19, the same day UBS was fined a record $1.5 billion by U.S., British and Swiss regulators for trying to rig Libor and similar benchmarks.
David Green, the director of the SFO, said June 5 that “significant developments” in the case are coming by the end of the quarter.
Richard Morton, a UBS spokesman, and SFO spokesman David Jones declined to comment on the probe. Lydia Jonson, Hayes’s London lawyer, didn’t immediately respond yesterday to phone and e-mail messages seeking comment on it.
$2.5 Billion Fines
Global regulators have fined UBS, Barclays Plc and Royal Bank of Scotland Group Plc about $2.5 billion in the past year for distorting Libor and similar benchmarks. At least a dozen firms remain under investigation around the world. Last week, Singapore’s monetary authority censured 20 banks for attempting to fix interest rate levels and ordered them to set aside as much as $9.6 billion.
Terry Farr and Jim Gilmour, who worked at the brokerage firm RP Martin Holdings Ltd., were arrested by London police in the same probe. Hayes, who was 33 at the time of his arrest in December, has been charged in the U.S. with wire fraud and antitrust violations.
The SFO’s Green, in the comments to fraud lawyers this month, said the probe is focusing on British nationals at British banks, noting “Libor begins with London.”
“We are moving hard and fast” and the agency has doubled the number of people working on the case to 60, he said.
The prospect of criminal charges being filed against Hayes in the U.K. wouldn’t necessarily affect charges already filed against him in the U.S., said John Coffee, a professor at Columbia University School of Law in New York.
“There’s no double jeopardy here,” Coffee said yesterday in a phone interview. “The British government would be well within its rights if it wanted to prosecute promptly. He’s in the U.K. and extradition is a slow process. I’m not sure the U.S. would look askance if the U.K. moved first.”
According to the U.S. Justice Department, Hayes colluded with brokers, counterparts at other firms and his colleagues to manipulate the rate.
Hayes “globally impacted transactions and financial products tied to yen Libor,” defrauding counterparties including New York-based financial institutions, the Justice Department said last year. The trader led a “massive effort” to manipulate yen Libor, at times daily to profit from his bets on derivatives, according to the U.S. Commodity Futures Trading Commission, which was one of the regulators that has levied Libor fines.
In an electronic message in March 2008, Hayes asked a UBS rate-setter for a high three-month yen fixing. The lender’s trading records show that Hayes had a trading position on March 17 that would profit by $2.1 million if the rate increased by a single basis point, the Justice Department said.
Hayes was “widely considered the dominant trader in the Tokyo yen swaps market because he traded in enormous volumes and accepted large trading risks,” the CFTC said. “Brokers were eager to develop relationships with the senior yen trader in an effort to obtain a piece of his business.”
He also allegedly worked with interdealer brokers to help persuade other rate-setting banks to make favorable submissions. Interdealer brokers line up buyers and sellers of securities and take a percentage from every trade. As interbank lending declined with the start of the financial crisis in late 2007, submitters increasingly relied on information from the brokers in determining what rates to submit, the Justice Department said.
Next page: Citigroup Dismissal
Hayes joined UBS in 2006 and worked at the Swiss lender until 2009, when he joined Citigroup Inc. He was dismissed by Citigroup less than a year later for involvement in suspected rate-rigging, a person with knowledge of the matter said in October. He worked at Edinburgh-based RBS from 2001 to 2003.
One of the highest-earning traders at UBS, Hayes generated about $40 million in revenue for the bank in 2007, $80 million in 2008 and $116 million in 2009 before he left to join Citigroup, according to the CFTC, which didn’t identify Hayes by name.
The “volume of unlawful requests submitted by one particular senior yen derivatives trader in Tokyo dwarfed them all,” the agency said.
From 2006 to 2009, he made at least 800 requests for specific rate submissions to the firm’s yen-Libor rate-setters, about 100 to traders at other banks, and 1,200 to interdealer brokers, according to the CFTC. Yen Libor reflects how much banks charge each other for loans in the Japanese currency.