Libor trial: Hayes cajoled brokers to help him – prosecution

Jury given an overview to the detailed, complex case

Tom Hayes
Tom Hayes leaves court after giving evidence on the first day of his trial

Former UBS and Citigroup trader Tom Hayes used "a number of different ways" to target and reward brokers and bankers for helping him rig the daily London interbank offered rate (Libor) for four years, London's Southwark Crown Court heard on May 25.

Opening for the prosecution on the first day of what's expected to be a 10–12 week trial, Mukal Chawla QC told the jury that the case "is about the dishonest rigging of bank rates for profit". He said Hayes's motive "was a simple one: greed. The more he earned for his employer the more they paid him."

The prosecution is arguing that between 2006 and 2010 Hayes conspired with a number of individuals at banks and brokers to manipulate the Japanese yen Libor rate, which ultimately benefited Hayes's trading book at the expense of counterparties. He faces eight counts of conspiracy to defraud and has pleaded not guilty.

Chawla called him the "ringmaster at the very centre, telling others around him what to do and in a number of cases rewarding them for their dishonest assistance".

He said the way in which Hayes worked with others to manipulate Libor is "all in the documents" and the jury will see the detailed "evolution" of how the events came to pass as the prosecution continues to make its case.

Chawla told the court that while there had "undoubtedly been some manipulation of Libor at UBS before Mr Hayes's own dishonest activity, it's clear that he took it to new heights". That is because the "dishonest rigging" was not confined to the bank at which Hayes worked. "He tried to rig, and in many cases succeeded in rigging, the rates at other banks," Chawla said, adding that Hayes did this by approaching his counterparts at other banks either directly or through middlemen such as brokers.

Jurors heard that "Mr Hayes used a number of different strategies" to get the middlemen to do his bidding. "He asked them, he cajoled them, and even begged them" to influence submitters from other banks, Chawla explained. In return for their assistance, Hayes would put additional trades through so they could earn the broker fees.

The prosecution also claims that 'wash trades' were often used as bribes. These are hedged transactions that carry no risks for financial institutions and the sole purpose of which is the generation of money. An example demonstrated in court showed brokers earning £35,000.

Hayes, a 35-year-old British national, worked at the Tokyo office of UBS from 2006 to September 2009, trading derivative products tied to the Japanese yen. He was then poached by Citibank, and began trading in the US bank's Tokyo office in February 2010. Chawla said there he "continued his dishonest rigging of Libor" but it was "short-lived", as by June 2010 his methods were formally reported to senior management and he was dismissed in December 2010.

Libor is an interest rate widely used as a reference by banks around the world for the value of financial contracts such as loans, mortgages and other financial instruments. It is calculated as an average of panel bank submissions made at 11am London time daily, and is supposed to be a reflection of bank borrowing rates.

Following his arrest in December 2012, Hayes spent five months being interviewed voluntarily by the UK's Serious Fraud Office (SFO) – the sessions of which amounted to 82 hours.

During these interviews Hayes said that influencing Libor "was commonplace", and he was in many ways a "serial offender". The court heard in an audio clip Hayes say: "The point is, you are greedy, you want every little bit of money you can possibly get... that's how you are judged, that's your performance metric." He will argue in his defence that his actions were not dishonest, says Chawla.

Hayes confirmed to the SFO that he made "about $150 million" for UBS throughout a three-year period. And for that, he was richly paid, said the prosecution. Hayes's 2009 salary at UBS (for a nine-month period) was £1.3 million, while Citi offered him £3.5 million in remuneration the following year.

Chawla likened Libor manipulation to illegal betting: "If you can manipulate Libor you can put the odds in your favour... but every time you're making money dishonestly, you're cheating the person you're betting against."

"Dishonesty has the same meaning inside the courtroom as it does outside the courtroom," Chawla reminded jurors, explaining that the term "conspiracy to defraud" refers to "a deliberate, dishonest scheme that will harm the financial position of others".

The court also listened to excerpts from both electronic and telephone conversations between Hayes and his middlemen as they organised their strategies for the next day. One discussion dissected the movements of that day's Libor as they tried to figure out who of the submitters hadn't set their rate to what Hayes had asked.

Other conversations will show how the information in Libor assessments from brokers was corrupted. Such assessments, given to submitter banks, are supposed to be based on knowledge gleaned from market participation. "The hope and the expectation is that those banks would rely on information supplied to them in good faith, when in reality that information was being supplied by instigation by Mr Hayes," said Chawla.

The trial continues.

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