Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, December 19, 2012

UBS Pays $1.5 Billion to Settle LIBOR Charges

The U.S. Dept of Justice announced criminal charges against UBS Securities Japan for scheming to manipulate the LIBOR rate.  The company has agreed to plead guilty, admit to criminal conduct and pay a $100 million fine.  The parent company, UBS AG, agreed to pay a $400 million penalty, admit and accept responsibility for its misconduct, and continue cooperating with the DOJ.  In all, UBS will pay about $1.5 billion in criminal and regulatory penalties and disgorgement.  In addition, the government announced that two former UBS traders have been charged with conspiracy.  As described by Assistant AG Lanny Breuer:

The bank’s conduct was simply astonishing.   Hundreds of trillions of dollars in mortgages, student loans, credit card debt, financial derivatives, and other financial products worldwide are tied to LIBOR, which serves as the premier benchmark for short-term interest rates.   In short, the global marketplace depends upon an accurate LIBOR.  Yet UBS, like Barclays before it, sought repeatedly to fix LIBOR for its own ends – in this case, so UBS traders could maximize profit on their trading positions, and so the bank wouldn’t appear vulnerable to the public during the financial crisis.

 In addition to UBS Japan’s agreement to plead guilty, two former UBS traders – Tom Alexander William Hayes and Roger Darin – have been charged, in a criminal complaint unsealed today, with conspiracy to manipulate LIBOR.   Hayes has also been charged with wire fraud and an antitrust violation.   There was nothing subtle about these traders’ alleged conduct.   In one instance, according to the complaint, Hayes explained to a junior rate submitter that he and Darin “generally coordinate” and “skew the libors a bit.”   In another instance, according to the complaint, Hayes told a trader at another bank that, “3m libor is too high cause i have kept it artificially high.”

The scope of the misconduct admitted to by UBS AG and UBS Japan is far-reaching.   For years, traders at UBS sought to manipulate the bank’s LIBOR submissions for their own profit.   The traders had positions in interest rate swaps that depended on UBS’s LIBOR submissions.   And, on numerous occasions, they caused UBS to make LIBOR submissions that directly benefited their own trading books.   UBS’s manipulation was extensive, and covered several currencies and interest rates.  

Make no mistake:   for UBS traders, the manipulation of LIBOR was about getting rich.   As one broker told a UBS derivatives trader, according to the statement of facts appended to our agreement with the bank, “mate yur getting bloody good at this libor game . . . think of me when yur on yur yacht in monaco wont yu.”

The CFTC also issued a press release.


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