Yen LIBOR Manipulation Exposed as Senior Trader Admits Conspiracy to Commit Bank Fraud

The US Department of Justice has announced that a former Rabobank Japanese Yen London InterBank Offered Rate (Libor Libor Libor stands for London Inter-bank offered rate. It is an industry-specific term which most of us would never have heard of until the "Libor scandal" became popularized in 2012. Libor is considered to be one of the most important interest rates in finance, upon which trillions of financial contracts rest. The Libor rate effects over $800,000,000,000,000 in financial deals. Banks simply cannot lend money to one another whenever they like as there is a system in place. Every day a group of leading Libor stands for London Inter-bank offered rate. It is an industry-specific term which most of us would never have heard of until the "Libor scandal" became popularized in 2012. Libor is considered to be one of the most important interest rates in finance, upon which trillions of financial contracts rest. The Libor rate effects over $800,000,000,000,000 in financial deals. Banks simply cannot lend money to one another whenever they like as there is a system in place. Every day a group of leading Read this Term) trader pleaded guilty today for his role in a conspiracy to commit wire and bank fraud by manipulating Rabobank’s Yen LIBOR submissions to benefit his trading positions. Paul Robson, a citizen of the UK, appeared before U.S Southern District of New York Court and pleaded guilty to one count out of a fifteen-count indictment returned by a federal grand jury.

Financial regulators and criminal authorities around the world have been conducting probes into the alleged LIBOR manipulation conspiracy for years now, with many global banks and institutional traders having been dragged in. Rabobank has already entered into a deferred prosecution agreement with the Department of Justice on October 29, 2013, and agreed to pay a $325 million penalty to resolve violations arising from Rabobank’s LIBOR submissions. This prosecution is said to be by virtue of the efforts underway by the US Financial Fraud Enforcement Task Force, established by President Obama, the interagency waging an aggressive and proactive effort to investigate and prosecute financial crimes.

“Paul Robson is the second employee at Rabobank, one of the world’s largest banks, to plead guilty to participating in a global fraud scheme,” said US Assistant Attorney General Caldwell. “The scope of the fraud was massive, but the scheme was simple. By illegally influencing the LIBOR rates, Robson and his co conspirators rigged the markets to ensure that their trades made money Robson’s conviction demonstrates the Department of Justice’s continued resolve to hold individuals and institutions accountable for their involvement in fraud in the financial markets.”

Robson, along with former Rabobank Yen LIBOR derivatives traders, Paul Thompson of Australia, and Tetsuya Motomura of Japan, was charged with conspiracy to commit wire and bank fraud as well as substantive counts of wire fraud. The indictment also alleges that the conspiracy involved numerous additional, unnamed individuals and entities. Among those individuals and entities are: Takayuki Yagami, a Japanese former Rabobank trader who pleaded guilty on June 10, 2014, for his involvement in the conspiracy and Lloyds Banking Group plc, the UK-based bank that admitted wrongdoing in connection with the alleged conspiracy and agreed to pay an $86 million penalty.

According to court documents, Robson worked as a senior trader at Rabobank’s Money Markets and Short Term Forwards desk in London and also served as Rabobank’s primary submitter of Yen LIBOR to the British Bankers’ Association. Thompson was Rabobank’s Head of Money Market and Derivatives Trading Northeast Asia and worked in Singapore. Motomura was a senior trader at Rabobank’s Tokyo desk who supervised money market and derivative traders, and Yagami worked as a senior trader at Rabobank’s Money Market/FX Forwards FX Forwards FX forwards are contracts occurring within the foreign exchange market where market participants lock in exchange rates for the buying or selling of a currency on a predetermined date. Sometimes known as currency forwards, FX forwards can be thought of as a customizable hedging approach.In this sense, upfront margin payments are not required and all contracts are over-the-counter (OTC) due to the decentralized nature of the foreign exchange market. Popularity of FX ForwardsFX forwards are popula FX forwards are contracts occurring within the foreign exchange market where market participants lock in exchange rates for the buying or selling of a currency on a predetermined date. Sometimes known as currency forwards, FX forwards can be thought of as a customizable hedging approach.In this sense, upfront margin payments are not required and all contracts are over-the-counter (OTC) due to the decentralized nature of the foreign exchange market. Popularity of FX ForwardsFX forwards are popula Read this Term desks in Tokyo and elsewhere in Asia.

Robson’s main role in the conspiracy was to submit Yen LIBOR rates at the requests of traders, including Thompson, Motomura and Yagami, who entered into derivatives contracts containing Yen LIBOR as a price component. The profit and loss that flowed from those contracts was directly affected by the relevant Yen LIBOR on certain dates. If the relevant Yen LIBOR moved in the direction favorable to the defendants’ positions, Rabobank and the defendants benefitted at the expense of the counterparties.

As alleged in court filings, from about May 2006 to at least January 2011, the four defendants, a Yen LIBOR submitter at Lloyds, and others, agreed to make false and fraudulent Yen LIBOR submissions for the benefit of selected trading positions. According to the allegations, sometimes Robson submitted rates at a specific level requested by a co-defendant or other traders, and at other times Robson made a higher or lower Yen LIBOR submission consistent with the direction requested by a co-defendant or other traders.

For example, according to court filings, on Sept. 21, 2007, Yagami asked Robson by email, “Where do you think today’s LIBORs are? If you can I would like 1mth higher today.” Robson responded, “Bookies reckon .85,” to which Yagami replied, “I have some fixings in 1mth so would appreciate if you can put it higher mate.” Robson answered, “No prob mate let me know your level.” After Yagami asked for “0.90% for 1mth,” Robson confirmed, “Sure no prob I’ll probably get a few phone calls but no worries mate… there are bigger crooks in the market than us guys!”

Robson admitted that he accommodated the requests of his co-defendants and other traders. For example, on Sept. 21, 2007, after Robson allegedly received a request from Yagami for a high one-month Yen LIBOR, Rabobank submitted a one-month Yen LIBOR rate of 0.90, which was seven basis points higher than the previous day and five basis points above, when Robson said, “Bookies” predicted it, moving Rabobank’s submission from the middle to the highest of the panel.

According to court documents, the defendants were also aware that they were making false or fraudulent Yen LIBOR submissions. For example, on May 10, 2006, Robson admitted in an email to Yagami, “It must be pretty embarrassing to set such a low libor. I was very embarrassed to set my 6 mth – but wanted to help thomo [Thompson]. Tomorrow it will be more like 33 from me.” At times, Robson referred to the submissions that he submitted on behalf of his co-defendants as “ridiculously high” and “obscenely high,” and acknowledged that his submissions would be so out of line with the other Yen LIBOR panel banks that he might receive a phone call about them from the British Bankers’ Association or Thomson Reuters.

On numerous occasions, Robson also passed along such requests to the Lloyds submitter, who altered Lloyds’ Yen LIBOR submission accordingly, in doing so did not adversely affect selected trading positions at Lloyds. Likewise, the Lloyds setter sent requests to Robson and he generally altered Rabobank’s Yen LIBOR to satisfy the requests. For example, on July 28, 2006, Robson wrote to the Lloyds submitter: “Morning skipper.....will be setting an obscenely high 1m again today...poss 38 just fyi.” The Lloyds submitter 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. As the Lloyds submitter explained, according to court documents filed in connection with Rabobank’s deferred prosecution agreement, to other Lloyds submitters, “We usually try and help each other out…but only if it suits.”

“Fraudulently manipulating the LIBOR has far reaching effects on international financial markets and such criminal activity will not be tolerated,” said the FBI’s Acting Assistant Director in Charge Gallagher. “The Washington Field Office has committed significant time and resources including the expertise of Special Agents, forensic accountants and analysts to investigate this case along with our Department of Justice colleagues. While the crimes committed are complex, their expertise demonstrates our ability to bring justice to those that choose to commit these crimes.”

“Today’s guilty plea demonstrates our continuing resolve to prosecute those who fraudulently manipulated the LIBOR rate for their own personal benefit and, in doing so, undermined free and fair markets,” said Deputy Assistant Attorney General Snyder.

Robson, also known as “Pookie” to his trading buddies, will be permitted to return to live in the UK and travel abroad after paying a $500,000 bond, including $90,000 in cash, according to the court docket in the case. He is be required to check in weekly with the US authorities over the Internet. Sentencing for his crime is scheduled for June 9, 2017.