First defendant in Libor scandal faces jury trial in London

[May 26, 2015]  By Kirstin Ridley

LONDON (Reuters) - Tom Hayes, a former star trader at UBS and Citigroup, becomes on Tuesday the first person to face trial by jury over allegations he conspired to rig global Libor interest rates.

The trial in London marks a new phase in a seven-year, global inquiry that has culminated in banks and brokerages paying around $9 billion to settle regulatory allegations of rate rigging -- shredding public faith in the integrity of financial markets.

To compound concerns about the culture on trading floors, seven banks, many also penalized over Libor, have been fined another $10 billion over currency rigging allegations since last November.

But cases against individuals facing the threat of jail can drag on for years. British and U.S. prosecutors have yet to charge people for alleged currency manipulation. However, 21 face charges over alleged benchmark interest rate rigging.

Hayes is the first to go before a judge and jury.
 

The former yen derivatives trader is charged by Britain's Serious Fraud Office (SFO) with eight counts of conspiracy to defraud between 2006 and 2010, a criminal offence that carries a maximum jail sentence of 10 years. He has pleaded not guilty.

The high-profile trial at London's Southwark Crown Court is expected to last 10-12 weeks.

It may cast a spotlight on senior staff and the culture at some of the world's most influential financial institutions and could fuel debate about whether regulators and central banks at best turned a blind eye to alleged misconduct and whether institutions are letting relatively low-level staff take the rap.

The SFO alleges Hayes was a central figure in a conspiracy with staff from at least 10 banks and brokers to rig Libor, the London interbank offered rate -- an average interest rate used to price an estimated $450 trillion of financial contracts from derivatives to loans for households and individuals worldwide.

Hayes's London legal team is led by Neil Hawes, a senior lawyer experienced in defending SFO prosecutions. Hawes will be pitched against a veteran lawyer of 31 years, Mukul Chawla, the SFO's leading external counsel in the case.

Based in Tokyo, Hayes traded in yen-denominated interest rate derivatives tied to Libor, essentially betting against other traders on the direction of rates.

Libor is an average interest rate calculated through an "honor system", when a panel of major banks report their estimated costs of borrowing from each other in different currencies over differing borrowing periods.

But oversight of the system was lax. Libor was administered at the time by the British Bankers' Association, a lobby group that kept secret the names of members on a committee responsible for setting rates and did not publish minutes of meetings.

(Reporting by Kirstin Ridley Editing by Jeremy Gaunt)

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