As the Justice Department announced its case against UBS, prosecutors also took aim at two former UBS trader at the center of the rate-rigging scheme, the first criminal action against individuals tied to the broad investigation.
On Wednesday, the Justice Department charged Tom Hayes and Roger Darin with conspiracy to commit wire fraud. Mr. Hayes also faces an additional count of wire fraud and another related to price fixing.
“By causing UBS and other financial institutions to spread false and misleading information,†Attorney General Eric Holder said in a statement, “these alleged conspirators â€" and others at UBS â€" manipulated the benchmark interest rate upon which many consumer financial products â€" including credit cards, student loans, and mortgages â€" are frequently based.
The criminal charges against the former traders underscore the new aggressive phase of the multiyear investigation into rate manipulation. Global authorities are look ing into the actions of more than a dozen big banks involved in the rate-setting process. The inquiry centers on key benchmarks like the London interbank offered rate, or Libor, which underpins trillions of dollars of financial products.
The Justice Department's case portrays brazen acts of wrongdoing by the two employees. According to prosecutors, the two men worked with UBS colleagues and traders at other banks to influence interests and increase their own profits for several consecutive years. At one point in early 2007, Mr. Darin told a junior employee that a main consideration for rates submissions was the needs of Mr. Hayes and his fellow yen swaps traders.
The gains could be substantial, according to prosecutors. Trading records at UBS show that Mr. Hayes held a position on a single day that would have profited by $2.1 million given the movement in a yen-dominated Libor rate. He looked to make $459,000 on another one, according to prosecutors.
The Ju stice case lays out a series of instant messages on Bloomberg terminals in which Mr. Hayes and Mr. Darin execute their plans to influence Libor.
In one instance, Mr. Darin was hesitant to adjust the rate submissions too aggressively for fear of raising red flags. “i dun mind helping on your fixings,†Mr. Darin wrote to Mr. Hayes via Bloomberg. “but i'm not setting libor 7bp away from the truth,†adding “i'll get ubs banned if i do that.â€
Mr. Hayes was also willing to reward others to further his efforts, according to the complaint. At one point, Mr. Hayes trumpeted the work of an outside broker who helped him, saying “i reckon i owe him a lot more.†Another broker responded via Bloomberg that the person was “ok with an annual champagne shipment,†and “a small bonus every now and then.â€
As the Justice Department ramped up its investigation, Mr. Hayes took efforts to dissuade former colleagues to talk to the government. According to th e complaint, Mr. Hayes advised a junior trader to “remove any belonging from Japan†and return home.
“The U.S. Department of Justice, mate, you know, they're like…the dudes who…put people in jail.†Mr Hayes warned. “Why the hell would you want to talk to them.â€
