Market Manipulation: The tale of 2015
The tale of 2015 to date has seen record fines levied by US and UK regulators and Tom Hayes, former trader at UBS and Citigroup, sentenced to 14 years in prison for conspiracy to fix the interest rate benchmark LIBOR. With the dust still settling on Mr Hayes' sentence, attention is turning to the other prosecutions, extraditions and compensation claims which are scheduled to start this autumn.
The Serious Fraud Office has secured special funding from the Treasury to pursue at least 12 others in relation to LIBOR fixing. Noel Cryan, a former broker at Tullett Prebon who has pleaded not guilty of conspiracy to defraud in respect of LIBOR manipulation, will appear at Southwark Crown Court this September. Part of Mr Hayes' evidence was that his managers knew what he was doing, his manager's manager knew and in some cases the CEO was also aware. He claimed to have been made a scapegoat for what was commonplace within the industry. However, Mr Hayes had already admitted manipulating LIBOR during SFO interviews through fear of being extradited and imprisoned in the US. The evidence relied upon by Mr Cryan to defend himself will be closely followed by regulators, the media and lawyers acting for potential claimants in civil claims.
The case of Navinder Sarao, a 36 year-old British futures trader, has also come to the fore. He faces a full extradition hearing to the US in September having been accused of manipulating markets using an automated trading program which contributed to the "flash crash" of the Dow Jones index in May 2010. The index lost 700 points and $800bn of share value before recovering again in a number of minutes. The US Department of Justice (DoJ) have raised 22 criminal charges with 380 years of potential jail time. Mr Sarao has been remanded in custody in the UK between April and August pending trial - he was unable to post bail following £30m of funds being subject to a worldwide freezing order obtained in the US. Having been able to deflect regulatory enquiries from both sides of the Atlantic for over five years, Mr Sarao's case will test how the existing extradition treaties work and influence the Defence strategy of UK traders facing prosecution in the US.
Finally, US lawyers claim to have settled civil claims brought by hedge and pension funds in New York against nine global banks relating to FOREX manipulation. The Banks are said to have agreed to pay $9bn in compensation in total. In a global FOREX market worth £5.5 trillion a day, investors from around the world will consider taking similar action in London and Asian financial centres. Banks have already paid out over $6bn to UK and US regulators in fines during 2015 relating to FOREX rigging. However, these fines flow back to tax payers after investigation costs. For example, the Chancellor has confirmed that recent fines will be used to raise money for a second Air Ambulance in London, fund 50,000 extra apprenticeships for young people and be put towards the cost of running the NHS. The purpose of civil claims is to reimburse investors who have suffered financial loss as a result of trades not being executed in accordance with the customer's best interests or best market practice.
The tail-end of 2015 indicates that the line is far from drawn under the market manipulation saga. Bank executives will be making financial provision and legal teams gearing up to protect profits, share prices and reputations.