Lord Libor the Rigger

September 25, 2013

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Today, the Justice Department brought charges against three former employees of the inter-dealer broker firm ICAP for their roles in the Libor manipulation that went on between the mid-2000s and 2010. In this case, Tom Hayes, a trader at UBS, is alleged to have colluded with the inter-dealer brokers charged today to coax other banks into lying about Libor. The interest rate manipulation had effects that cascaded across the financial system.

ICAP’s Darrell Read, Daniel Wilkinson and Colin Goodman, Reuters writes, were charged. “Goodman, a cash broker in ICAP’s London office nicknamed ‘Lord Libor’, was… in contact with derivatives traders at other banks and sent out a daily email with ‘SUGGESTED LIBORS’”.

ICAP has already agreed to a $65 million settlement with the CFTC and a £14 million ($22 million) settlement with the Financial Conduct Authority in London. Today’s criminal charges come a few months after British authorities brought similar charges against Hayes.

According to ICAP CEO Michael Spencer — who is the former treasurer of the UK Conservative Party — the brokers “have tainted the reputation of ICAP and the financial markets as a whole”. But Felix sees it slightly differently.The bigger issue, he writes, is the broader inter-dealer broker business. “ICAP’s (alleged) criminality is basically just an extension of its core business — which is dealing in information asymmetry. ICAP’s brokers know who wants to trade what, in which direction — and they use that information to make risk-free profits.”

Joseph Cotterill excerpts the best/worst excerpts of the complaints, and comes to a similar conclusion as Felix:  “It was a cunning plan, except for the small flaw that it was rubbish… And you simply get a sense of the power enjoyed by the brokers by virtue of their ability to provide market colour and information. Plus their interdependence with traders’ financial incentives”.

The best thing about the Libor-related legal documents, of course, are the gossipy details that come out. The CTFC has even created an aggregated list of things you shouldn’t write down or put in an email if you are, say, colluding to manipulate a global benchmark interest rate. — Shane Ferro

On to today’s links:

Classic Bess
Steve Cohen’s still got it, free hot dogs edition – Bess Levin
New York trophy wives take back the night – Ibid

“The toilet turnaround is a microcosm of U.S. manufacturing trends” – WSJ

Steve Cohen’s SAC could settle criminal insider trading charges for $2 billion – Peter Lattman

Twitter insider on their IPO: “We had been everyone’s doormat for far too long” – Kara Swisher

Long Reads
“We’d like to leave, but the company won’t let us”: investigating forced labor and Qatar’s World Cup bid – The Guardian

Is Herbalife a pyramid scheme? An analysis – Dan McCrum

Internal Conflicts
Goldman’s credit analysts make things awkward for Goldman’s debt capital markets team – Tom Gara

Data Points
Fascinatingly, Mississippi leads the nation in vaccinated children – Bloomberg

Why sustainable economic growth needs cheap energy – James Stafford

Really useful tips for not letting your inbox kill you – Tim Harford

Your Retirement Plans
California pension plans go long Napa Valley wine storage – Climateer Investing

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