Blog 18th Feb 2014

Further arrests by SFO in LIBOR manipulation investigation

Yesterday, 17th February, the Serious Fraud Office confirmed it had charged a further three City traders with conspiracy to defraud as part of its ongoing investigation into the fixing of LIBOR rates. Unlike Tom Hayes, Terry Farr and James Gilmour, who were all charged last year with colluding to manipulate the Yen LIBOR rate, those charged yesterday (Peter Johnson, Jonathan Mathew and Stylianos Contogoulas) have been charged with colluding to manipulate the US$ LIBOR rate. Their alleged conspiracy supposedly ran between June 1st 2005 to 31st August 2007.

This new development is particularly interesting because the period said to be relevant is, of course, some time before the full onset of the financial crisis which began in earnest after the collapse of Lehman Brothers in September 2008.

Readers may recall that when the news of the alleged rigging of LIBOR first broke in 2012, it was suggested that the manipulation was conducted because of the very difficult credit conditions which prevailed at the time, and the vast liquidity and reputational risk which the banks faced if they had to admit that raising money had become very difficult (and consequently very expensive) for them. It is perhaps difficult to see how this may have been the case during the period covered by the allegations made in the proceedings announced yesterday by the SFO. After all, in 2005 the boom times were still in full swing.

It is also noteworthy that this latest announcement alleges a completely different conspiracy to that which is alleged against Terry Farr and James Gilmour, whose trial has been scheduled to commence in September 2015 to allow for others to be added to the proceedings. It seems, then, that Mr. Johnson, Mr Mathew and Mr Contogoulas may not be those envisaged as to be added to that strand of the investigation, and so it may well be that further charges will follow.

In another twist to the benchmark rigging saga, when giving evidence at the Treasury Select Committee on the 4th February 2014, Martin Wheatley took some time to set out clearly the Financial Conduct Authority’s relationship with other regulators investigating the foreign exchange markets. He was, however, at pains to say that there was no agreement (nor could there be any such agreement) between regulators in different jurisdictions as to who would lead investigations into alleged criminal behaviour.

It seems that this stance may be the same as that which has also been adopted by the Serious Fraud Office. It is reported that as early as 2012, Mr. Mathew signed a non-prosecution agreement with the US Department of Justice. Obviously this does not bind the UK authorities, and he is now facing charges in this jurisdiction. The sentencing regime here is of course much less rigorous than that of the United States.

It seems those who face allegations in one jurisdiction may yet have to respond to allegations in another jurisdiction. What is certain, though, is that we haven’t yet heard the last of benchmark rigging of one kind or another.

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