UPDATE 1-Three U.S.-based former Barclays traders appear in UK court

Tue May 27, 2014 10:45am EDT

* First U.S.-based Libor traders charged by SFO

* Prosecutor says the 3 conspired with colleagues in London

* Next court appearance scheduled for Thursday (Adds details of charges, possible sentence)

By Kirstin Ridley

LONDON, May 27 (Reuters) - Three ex-traders from banking group Barclays appeared in a London court on Tuesday as Britain began criminal proceedings against U.S.-based Libor traders, part of a global investigation into alleged rigging of benchmark interest rates.

The Serious Fraud Office (SFO) alleges that Jay Merchant, 43, a director of dollar fixed-income swaps, and interest-rate derivative traders Alex Pabon and Ryan Reich, aged 35 and 32 respectively, conspired together and with others to defraud between June 2005 and September 2007.

The men, who spoke only to confirm their names and dates of birth, allegedly conspired with three London-based former Barclays employees, who have already been charged by the SFO, as well as other Barclays employees to manipulate rates to improve their own or their colleagues' trading positions.

British and U.S. prosecutors have charged 16 individuals to date in connection with the investigation into alleged rigging of benchmarks such as Libor (or London interbank offered rate), against which around $450 trillion of financial contracts from derivatives to credit card loans are priced worldwide.

U.S. and European regulators have meanwhile fined 10 banks and brokerages - including JPMorgan, UBS, Deutsche Bank, Royal Bank of Scotland and ICAP - more than $6 billion to settle allegations.

Merchant, Pabon and Reich each face one count of conspiracy to defraud, an offence which usually carries a maximum jail sentence of 10 years in Britain. They were ordered to appear before a higher Crown Court on Thursday.

Lawyers for Reich and Merchant have said their clients deny allegations of wrongdoing. Pabon's lawyer declined comment.

Merchant, Pabon and Reich voluntarily attended London's Westminster Magistrates' Court without the need for the SFO to start extradition proceedings and have been allowed to remain resident in the United States under their bail conditions.

But they each have to pay a 50,000 pound ($84,200) security to the court, which they will forfeit if they fail to appear for hearings. The next hearing has been scheduled at London's Southwark Crown Court.

CO-CONSPIRATORS

The SFO in February charged three former London-based Barclays Libor submitters - Peter Johnson, Jonathan Mathew and Stylianos Contogoulas - who were named as co-conspirators in Tuesday's charges against Pabon, Merchant and Reich.

The submitters were supposed to accurately tell an industry trade body the rates banks would charge each other for loans. But traders are alleged to have colluded on answers that could nudge the reported rates by amounts that were tiny but could translate into big profits.

The investigation into benchmark interest rates has been partly overshadowed by a parallel global inquiry into allegations of foreign-exchange market rigging, which has led to about 35 people being suspended, placed on leave or fired.

But the inquiry into Libor and related Euribor rates has been gathering steam. British and U.S. watchdogs fined brokerage RP Martin $2.3 million two weeks ago to settle claims its staff helped manipulate Libor, and in March the SFO charged three former ICAP brokers.

Barclays was the first bank to settle U.S. and UK regulatory allegations of rate manipulation, paying around $450 million in fines in 2012. Regulators admitted privately they were taken aback by an ensuing public and political backlash, which forced out four top Barclays directors including Chief Executive Bob Diamond, sparked a fraud squad probe and parliamentary reviews.

The British bank was fined another 26 million pounds last week for failing to prevent a trader from allegedly manipulating gold prices.

Thomson Reuters calculates and distributes Libor on behalf of a subsidiary of U.S.-based ICE (Intercontinental Exchange). ICE became the administrator for Libor on Feb. 1 after the British Bankers' Association was stripped of the role. ($1 = 0.5936 British Pounds) (Editing by David Holmes)

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