Conviction of first trader for LIBOR offences a 'milestone' for SFO, says expert

Tom Hayes, a former derivatives trader at UBS and Citigroup, was found guilty of eight counts of conspiracy to defraud by a jury at Southwark Crown Court, according to the announcement. Hayes "conspired with numerous other individuals" to procure or submit false or misleading rates into the Yen LIBOR-setting process, the SFO said.

To date the SFO, which investigates and prosecutes the most serious economic crimes, has charged 13 individuals as part of its LIBOR-related investigations. One senior banker from a leading UK bank pleaded guilty to conspiracy to defraud in connection with US dollar LIBOR in October 2014 while a further 11 individuals await trial.

The SFO is now expected to pursue confiscation proceedings against Hayes, although these have been adjourned until a later date, according to its announcement.

"The conviction of Tom Hayes represents a significant milestone for the SFO and sends a message to the financial services industry as a whole," said financial regulation expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com. "It's the clearest signal to the City yet that regulatory breaches can and will be pursued through to criminal conviction in future - a drum UK and overseas enforcement authorities have been beating for some time."

LIBOR is a daily reference rate based on the interest rates at which banks can borrow unsecured funds from other banks. It is widely used internationally as the pricing basis for some $550 trillion worth of financial instruments including interest rates and currency hedging instruments, and to set the interest rate for floating rate loans. Hayes' offences related to Yen LIBOR, which is the average interest rate at which a large number of banks on the London money market are prepared to lend one another unsecured funds in Japanese yen.

Although Hayes is the first individual to be convicted of offences relating to LIBOR, a number of international banks and institutions have been ordered to pay large penalties to regulators worldwide for "misconduct" in relation to LIBOR submissions. In the UK, both the administration of LIBOR and submitting to it are now regulated activities under the oversight of Financial Conduct Authority (FCA), while making misleading statements in relation to benchmarks is now an explicit criminal offence in the UK.

According to a press statement from the SFO, Hayes' offences took place between August 2006 and December 2009, when he was an employee of UBS; and between December 2009 and September 2010, when he was an employee of Citigroup. The jury was told that he repeatedly asked rival traders and brokers, as well as submitters in his own banks, to move Yen LIBOR submissions up or down to suit his needs, and often offered to reward them for doing so.

Mr Justice Cooke, who oversaw the trial, said that the "seriousness" of Hayes' conduct was "hard to overstate".

"The jury were sure that in his admitted manipulation of LIBOR, Hayes was indeed dishonest," said SFO director David Green. "The verdicts underline the point that bankers are subject to the same standards of honesty as the rest of us."