* ICAP is first broker to be sanctioned in global scandal
* U.S. files criminal charges against three former ICAP
* ICAP calls former staff "rotten apples"
By Kirstin Ridley, Clare Hutchison and Aruna Viswanatha
LONDON/WASHINGTON, Sept 25 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
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
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
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
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
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.