A US court has overturned the convictions of two former Deutsche Bank traders – a British banker and his American counterpart – who were prosecuted in New York for rigging the Libor rate.
Gavin Black, the director of Deutsche Bank’s money markets and derivatives desk in London, and his New York-based colleague Matthew Connolly, were convicted of wire fraud and conspiracy in 2018.
But in a landmark ruling in Manhattan last night, a three-judge panel from the Second US Circuit Court of Appeals ruled the US government ‘failed to show that any of the trader-influenced submissions were false, fraudulent or misleading’.
The decision means that prosecutions for interest rate rigging in the UK will now not be regarded as a crime in the US. It also raises questions about more than 20 other transatlantic investigations that led to Libor trials, most of which are now subject to appeals.
Around nine bankers have been prosecuted in the UK since the financial crash, including former UBS trader Tom ‘Rain Man’ Hayes, with the majority claiming they were just following orders from their banks, who have collectively been fined $9billion.
Mr Black and Mr Connolly were prosecuted on the basis of just a handful of emails from around 15 years ago, asking for high or low interest rate estimates to be submitted on behalf of the bank. They were put in the dock after Deutsche Bank agreed to pay $775million for its role fixing the London Inter-bank Offered Rate.
But they were spared jailed with Connolly sentenced to six months of home confinement and was ordered to pay a $100,000 fine, while Black received nine months of home confinement and a $300,000.
Tellingly Judge Colleen McMahon said at the time: ‘I’m always uncomfortable when I’m asked in any context – it usually happens in the drug context – to sentence the low man on the totem pole while the big guy goes free.’
British trader Gavin Black, former director at Deutsche Bank, at court when he was convicted of fixing Libor in 2018. Last night he was cleared by a US appeal court
Matt Connolly said he was wrongly convicted on the basis of four emails that showed he had done nothing wrong
Matt Connolly said last night he was ‘speechless’ to have won in court for the first time, having angrily said he was convicted and had his reputation ruined because of four emails
What are Libor interest rates and how were they fixed?
The London Interbank Offered Rate (Libor) is used as the basis for hundreds of trillions of dollars of loans and transactions around the world, from complex derivatives to household mortgages.
It is a benchmark that indicates the interest rate that banks charge when lending to each other and is seen as fundamental to the operation of UK and world markets.
Interbank rates were first thrust into the spotlight during the 2007 and 2008 credit crunch when rates shot up as nervous lenders stopped lending to each other.
The rigging is said to have involved the submission of false figures in order either to make more money for traders or to paint a false picture of a bank’s health.
The scandal, which allegedly meant consumers faced higher interest charges, saw eight banks and brokerages fined billions by regulators in the US and the UK.
‘My family and I are very thankful this ordeal is finally ending, and that the courts have finally recognised once and for all my innocence,’ he told the BBC.
‘I am hoping the rest of the story emerges so others that have been denied justice get their peace as well.’
‘The nine trials on both sides of the Atlantic have been a whole series of miscarriages of justice where innocent people were jailed who had done nothing wrong.
‘The only Libor ‘rigging’ that was really bad was the lowballing. That was ordered from the top – from central banks and governments. And neither the Department of Justice nor the Serious Fraud Office has ever brought that to trial.’
A three-judge panel from the Second US Circuit Court of Appeals in Manhattan ruled the US government ‘failed to show that any of the trader-influenced submissions were false, fraudulent or misleading’.
The pair were found guilty two years later of wire fraud and conspiracy to commit wire and bank fraud.
They appealed on the basis the prosecution had not demonstrated they had violated the law.
The appeals court agreed in its opinion published on Thursday, stating the ‘evidence was insufficient to prove that defendants caused (Deutsche Bank) to make Libor submissions that were false or deceptive’.
The Libor benchmark has largely now been phased out but was a system to figure out how much banks should pay to borrow money from other banks. It was a vital measure that for years partly underpinned the interest rates that mortgage lenders would pay.
The figure was released daily on an average of what 18 large banks anonymously said they were willing to pay to borrow.
Former-UBS and Citigroup derivatives trader Tom Hayes, 36, (pictured greeting his son following his release from prison) was jailed for five-and-a-half years for manipulating interest rates
However, in the early 2010s some banks had submitted false numbers that the average was calculated from, manipulating the price of Libor in order to benefit their trading arms.
The figures meant that Libor was set incorrectly by tiny amounts, but as the system underpinned around 300 trillion dollars of contracts around the world (£217 trillion), it resulted in huge gains for some.
Tom Hayes, 36, who was known by colleagues as ‘Rain Man’ because of his obsessive personality, was the first Briton for to be jailed for fixing Libor.
He spearheaded a global conspiracy to manipulate London interbank offered rates (Libor) in order to make more money on his trades. He was sentenced to 11 years in prison in Arundel, Sussex – but only served half his time prior to his release in January 2021.
Libor acts as a reference for rates on around $450trillion-worth of loans worldwide.
Former-UBS and Citigroup derivatives trader Hayes – a gifted mathematician with Asperger’s syndrome – was charged by both US and British prosecutors.
He was based in Tokyo but later moved to Fleet, Hampshire.
He said he was jailed for doing his job the way he had been asked to – and believed he will yet be exonerated.
Pictures captured the moment Hayes reunited with his wife Sarah and nine-year-old son Joshua – with the youngster seen running into his father’s arms.
In a statement on his release from HMP Ford, Hayes said: ‘After a traumatic five-and-a-half years in custody and two-and-a-half years of bail, my eight-year ordeal in the UK is almost over.
‘And I’m going to enjoy my first doner kebab in a long time.’
Hayes is trying to clear his name with a drawn-out appeal through the Criminal Cases Review Commission (CCRC), an independent body that reviews potential miscarriages of justice and can send cases back to the Court of Appeal.
His lawyer Karen Todner, said he had served a ‘monstrous’ sentence after being made a ‘scapegoat with a disability’ for those more senior.
She called for more funding for the CCRC and urged the body to respond to applications more quickly to ensure the wrongfully imprisoned receive justice.
She said: ‘Amongst many grounds of appeal, Tom’s autism was only diagnosed shortly before his trial, the jury were not made aware of it and no medical evidence was allowed to be called in his defense.’
Hayes is the last of three, high-profile traders convicted in Britain of benchmark rigging to be released.
Hayes (pictured) is trying to clear his name with a drawn-out appeal through the Criminal Cases Review Commission (CCRC), an independent body that reviews potential miscarriages of justice and can send cases back to the Court of Appeal
Hayes earned millions of pounds as a much-coveted trader – but his paycheck was eclipsed by that of French trader Christian Bittar, who once worked for Deutsche Bank and earned more than £60million ($82 million) between 2005 and 2009.
Both earned hundreds of millions of pounds for their employers.
Bittar – once considered one of the world’s most-skilled traders – was prosecuted for conspiring to manipulate Euribor, the euro equivalent of Libor.
He pleaded guilty and was jailed for five years and four months in July 2018.
Hayes’ departure from jail coincides with the demise of Libor.
After a global investigation into benchmark rigging, that led to leading banks and brokerages paying about $9billion in regulatory settlements, it will be scrapped soon.