LIBOR Acquittal Raises Questions Over Future Trials

Verdicts in interest rate manipulation cases viewed as a setback for UK’s Serious Fraud Office as European benchmark regulations try

Six former brokers accused of conspiring to rig LIBOR were acquitted this week by a jury following a four-month trial.

The Serious Fraud Office (SFO) alleged that all six defendants – who between them worked for ICAP, RP Martin Holdings, and Tullett Prebon – conspired with former trader Tom Hayes to defraud by agreeing, upon instruction by Hayes, to influence the submissions of panel banks in the Yen LIBOR setting process.

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Hayes was convicted last year and ultimately sentenced to 11 years’ imprisonment.

A legal expert speaking to Finance Magnates said that the defense turned what the SFO believed was strong evidence against the prosecution. At least some of the messages between the accused brokers indicated that there was only the pretence of fixing LIBOR, but the real motive was to fool Tom Hayes into directing investment flow in a faked quid pro quo.

It came down to: who does the jury believe?

On top of that, said the source, it’s not uncommon for groups of defendants being prosecuted for the same crime to turn witness in exchange for more lenient treatment. In this case, the LIBOR six banded together.

The impact on future cases is hard to predict since the factors that weakened the SFO’s case may not be the same, the legal expert added. “It came down to: who does the jury believe? Does the jury believe (the defendants) were lying when they said they couldn’t fix LIBOR even if they wanted to? Or that the evidence that they did so was real?”

One thing’s for sure, however, both the defense and the prosecution are going to be taking lessons.

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Commenting on the acquittals, Director of the SFO David Green said in a statement: “The key issue in this trial was whether these defendants were party to a dishonest agreement with Tom Hayes. By their verdicts the jury have said that they could not be sure that this was the case.  Nobody could sensibly suggest that these charges should not have been brought and considered by a jury.”

A further trial of individuals charged with the manipulation of US Dollar LIBOR is scheduled to begin on 15 February 2016, while a trial of individuals charged with the manipulation of the Euro Interbank Offered Rate (EURIBOR) is scheduled to begin on 4 September 2017.

European regulations are catching up to the scandals. In terms of current regulatory efforts, the next big one is MAR (Market Abuse Regulation), said regulatory think tank JWG Group, speaking to Finance Magnates.

Nobody could sensibly suggest that these charges should not have been brought and considered by a jury.

MAR is due to be implemented by July and reinforces the fact that any manipulation of benchmarks is illegal and subject to administrative or criminal sanctions in the EU.

Meanwhile, the EU Benchmark Regulation, which is still stuck in proposal, is designed to go beyond this and focuses on the governance of benchmarks to ensure their accuracy, JWG added. It is unclear when the proposed regulation will become law as it still needs to be voted on by the European Parliament. The regulation will implement the principles agreed at an international level by the International Organization of Securities Commissions (IOSCO) in 2012/13.

JWG estimates that global investigations into the fixing of interest rate benchmarks have so far culminated in banks and brokerages paying about $9 billion in regulatory settlements, and more than 30 individuals have been charged. Since 2009, global financial services fines are approaching a total of $200 billion.

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