LIBOR Investigation Leads to Three Arrests

Anti-fraud and police in Britain have made three arrests related to the global interest rate rigging scandal involving the London Interbank Offered Rate (LIBOR). The three men are Thomas Hayes, an ex-Citigroup Inc. (C) and UBS AG (UBSN.VX) trader, and James Gilmour and Terry Farr, who both worked at RP Martin, an interdealer broker. All of them are British nationals.

The Canadian Competition Bureau regulator claims that Hayes and others tried to manipulate yen Libor, which is the average interbank interest rates that banks are willing to lend in unsecured funds that are in Japanese yen denominations to each other. The regulator is also accusing Hayes of reaching out to traders at other banks in London and trying to persuade them to manipulate yen rates.

Regulators and prosecutors in Europe, Canada, the US, and Japan have been probing how traders have been able to rig interbank lending rates, including LIBOR, and whether banks may have changed submissions that are supposed to set benchmarks so they could make money off interest-rate derivatives-related bets or make lenders appear more financially healthy.

Dozens of people are under investigation related to the scandal, which broke out this summer after Barclays (BARC.LN) admitted that some of its traders had attempted to manipulate both LIBOR and Euribor, which is its Euro counterpart, between 2005 and 2009 and how during the economic problems of 2007 and 2008 the bank had low-balled rates. (Barclays settled with regulators both here and in the UK for $450 million.)

Now, over a dozen other banks are being examined for possible involvement in rate rigging. This has raised a number of questions, such as whether banks have been honest about the actual costs tied to borrowing and if regulators either allowed the manipulation or failed to stop it.

Settlements are also expected to be reached with Royal Bank of Scotland Group (RBS.LN) and UBS. Royal Bank of Scotland Group, which the UK government has 81% ownership stake in, has had to contend with claims that it had manipulated not just LIBOR rates but also other rates. While the bank is willing to settle, the terms of any such agreements are taking awhile because the US CFTC, UK’s FSA, the US Department of Justice, and authorities in Asia and Europe are all involved.

As for UBS, Bloomberg is reporting that according to a source that knows about the settlement talks, the bank is close to reaching deals with regulators here and in the UK and it will likely pay $466 million in fines over allegations that it attempted to manipulate global interest rates. Regulators have been looking into whether UBS traders were in collusion with other banks to manipulate rates for profits. The bank has obtained conditional community from certain antitrust authorities, such as the Swiss Competition Commission, and the Canadian Competition Bureau, and well as the US Justice Department, for being among the first to self-report wrongdoing.

Three British men arrested in UK Libor probe, Yahoo, December 11, 2012

RBS Seeks Pact on Libor, The Wall Street Journal, November 2, 2012

UBS nears deal with United States, UK over Libor, Reuters, December 3, 2012

More Blog Posts:

LIBOR Oversight-Related Changes Announced by FSA Chief, Institutional Investor Securities Blog, October 2, 2012

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

$1.2 Billion of MF Global Inc.’s Clients Money Still Missing, Stockbroker Fraud Blog, December 10, 2011