LONDON/WASHINGTON U.S. and British authorities on Wednesday fined ICAP, the world's biggest interdealer broker, $87 million and filed criminal charges against three former employees over the Libor interest rate rigging scandal.
The scandal, which has laid bare failings by regulators and bank bosses over several years, has triggered a sprawling global investigation that has already seen three banks fined a total of $2.6 billion, four other people charged, scores of institutions and traders interrogated and a spate of lawsuits launched.
The U.S. Department of Justice charged former ICAP derivatives broker Darrell Read, his supervisor Daniel Wilkinson, and cash broker Colin Goodman with conspiracy to commit wire fraud and two counts of wire fraud - offences carrying sentences of up to 30 years.
Simultaneously, the U.S. Commodity Futures Trading Commission and Britain's Financial Conduct Authority ordered ICAP's ICAP Europe Ltd unit to pay $65 million and 14 million pounds ($22 million), respectively.
"These three men are accused of repeatedly and deliberately spreading false information to banks and investors around the world in order to fraudulently move the market and help their client fleece his counterparties," said Acting Assistant Attorney General Mythili Raman of the Justice Department's criminal division.
ICAP called its former staff "rotten apples" and said it would improve systems to ensure compliance with regulations.
A central cog in the global financial system, the London interbank offered rate (Libor) is used as a benchmark against which hundreds of trillions of dollars worth of products, from complex derivatives to personal mortgages, are priced worldwide.
Based on a survey of what banks would charge each other for loans, traders colluded on answers that could nudge the reported rates by amounts that were tiny but translated into big profits.
Even as ICAP settled the civil probes, the firm could still face criminal charges from the Justice Department, which is continuing its investigation.
Multiple other banks and individuals also face potential prosecution for Libor manipulation. "We have a lot more to look at here," Raman said in an interview with Reuters.
ICAP, run by London businessman and former Conservative Party treasurer Michael Spencer, is the first interdealer broker sanctioned in the affair. Firms such as ICAP match buyers and sellers of bonds, currencies and derivative financial instruments, including swaps.
"ICAP and other interdealer brokers are expected to be honest middlemen," David Meister, the CFTC's enforcement director, said in a statement. "Here, certain ICAP brokers were anything but honest."
Regulators and prosecutors painted a picture of brokers acting as conduits at the center of the scheme, passing information - and misinformation - between banks that contribute to the Libor calculation.
Prosecutors highlighted the activities of Colin Goodman, a cash broker in ICAP's London office nicknamed "Lord Libor" for his efforts. Goodman was in contact with derivatives traders at other institutions and sent out a daily email to them with "SUGGESTED LIBORS", prosecutors said.
Those suggestions reflected biased rates, the government said, and were often based on requests by Tom Hayes, a former UBS and Citigroup trader who worked in Tokyo and is also facing criminal charges.
Hayes was the biggest client for ICAP's yen-based derivatives brokers, which included Darrell Read and Daniel Wilkinson.
Read talked to Hayes almost daily, prosecutors said, and passed on his requests for Libor suggestions to Goodman, since a sizeable chunk of what the ICAP brokers earned was tied to the business from him.
Once in 2006, for example, Read asked Goodman to suggest a high 6-month rate, and promised a curry in exchange. If Goodman could get it above a certain number, Read told him, referring to Hayes: "the trader from ubs Tokyo will come over and buy you a curry himself!"
Even if "lord Libor" was out of the office, prosecutors said, brokers still tried to get Hayes's requests met. "oh christ...try and bully (Goodman's) colleague if you can dan...Tom hurting today and needs all the help he can," Read said in an electronic chat in 2007.
Another time, when Goodman returned to the office, Read told him, "Welcome back M'Lord' Tom has been like a little lost sheep without you!!"
The conduct stretched into 2010, according to court documents, well after allegations of Libor manipulation had surfaced in public.
Wilkinson - who now writes fiction for young adults, according to a LinkedIn profile in his name - and Goodman did not respond to requests for comment sent via the social media site. Read could not immediately be reached. Hayes's lawyer, Lydia Jonson, did not respond to a request for comment.
"ROTTEN APPLE SITUATION"
Michael Spencer, who in 1986 founded one of the firms that make up today's ICAP and has become one of the richest men in Britain, said all individuals linked to the wrongdoing had either left the company or were being disciplined.
"We deeply regret and strongly condemn the inexcusable actions of the brokers who sought to assist certain bank traders in their efforts to manipulate yen Libor," he said.
But he denied the problems were cultural. "It is very sadly a rotten apple situation here," he said.
Three banks - Britain's Barclays and RBS and Switzerland's UBS - have already paid about $2.6 billion to secure civil settlements for rate-rigging with British and U.S. regulators.
Britain's Serious Fraud Office (SFO) has brought criminal charges against three people, and U.S. prosecutors have now charged five. Prosecutors on both sides of the Atlantic have charged Hayes, who once complained in a text message to The Wall Street Journal: "This goes much higher than me."
The SFO has said it hopes to charge more people over Libor in the coming months and that it will not hesitate to also pursue senior industry figures or institutions.
($1 = 0.6256 British pounds)