Libor trial: Prosecution says language in emails ‘speaks for itself’

Ex-UBS and Citi trader boasted he had set Libor “artificially high”


Former UBS and Citigroup trader Tom Hayes was "strategic and focused" in sourcing his contacts to help him influence the Japanese yen London interbank offered rate (Libor), Southwark Crown Court heard today (May 26), as the prosecution read out a series of his email exchanges and phone conversations.

In the correspondence Hayes often discusses how the Libor fixes would affect his trading book, and his reach and influence went beyond his own firm to traders at other banks as well as brokers whom he regularly rewarded for helping him, said Mukal Chawla, a lawyer acting for the prosecution.

Chawla drew attention to a "you scratch my back and I'll scratch yours" mentality that led to interest rates that had "nothing to do with borrowing rates and all to do with Mr Hayes's trading position".

Hayes has been charged with four counts of conspiracy to commit fraud and has pleaded not guilty.

The prosecution showed the court how the Libor movements on particular days could be traced back to Hayes's requests. The requests would sometimes prove successful while other times the nudges would simply put certain bank rates in to the "outlier" territory – meaning their submission would be in the top four or the bottom four of the 16 panel bank submissions, which at the time would be ruled out before the average was calculated.

The prosecution reminded the jury that a conspiracy involves people working together to commit a dishonest act, even when that act – such as collectively bumping the Libor submission up or down a couple of basis points – does not have the desired effect.

The jury was shown a chat conversation between Hayes and fellow trader Will Hall at the Royal Bank of Scotland in 2007. "Three-month Libor is too high because I've capped it artificially high," wrote Hayes, to which Hall responded: "How?"

"Being mates with the cash desk, Chase and I always help each other out," Hayes said, referring to JP Morgan Chase. According to the records shown in court, Hayes then told Hall that he would keep Libor high, but in May would set it a few basis points too low.

"Now Libor is a daily rate," Chawla said to the jury. "You cannot predict or know that it will be two basis points lower unless you're orchestrating it. The phrase: 'artificially high' speaks for itself."

The court heard that when Libor's credibility was called in to question following a 2008 Bloomberg news article that raised concerns over the accuracy of submissions, the British Bankers' Association – in charge of calculating the rate at the time – made attempts to address the problems. Chawla told the jury they might hear throughout the trial that Libor manipulation was allowed to take place because of a weakness in the system, but "no fraud can ever be successful if there aren't weaknesses in the system", he said.

"If the burglar complains that he was not responsible for the burglary because the home owner has left his window open, we would say that that is a smokescreen... that detracts from the real issue, which is dishonesty," he said.

Another email exchange read out to the court was one between Hayes and his half-brother Peter O'Leary in 2007. At the time O'Leary held a relatively junior position at HSBC, and Hayes asked if he knew the yen Libor submitter at the bank. O'Leary explained that he knew who the rate setter was but didn't know him well. Hayes responded: "Mate, can you do me a huge favour and ask him if he'll set his three-month yen Libor on the low side the next few days?" He added that he had $1 million in fixes and that "it would be a massive help".

This exchange was then followed up with a phone call 10 minutes prior to the 11am deadline for Libor submissions, during which Hayes effectively explained to his brother "what he was doing, how he was doing it and why it was important to him", said Chawla.

When it came to O'Leary asking the HSBC submitter to keep the yen Libor low, Hayes urged O'Leary to "keep it super-casual". But when the request did not reap full results, Hayes went back to his brother and said: "I thought about it and shouldn't have asked you to do that anyway mate... If he's a bit more senior than you... I wouldn't bother mentioning it to him again."

Chawla said a quick glance over much of the conversations included in the evidence shows "it's not just Hayes who is manipulating – there are lots of people doing it", but that that didn't make it "any less wrong".

The trial continues.

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