Serious Fraud Office (‘SFO’) v Mathew, Merchant, Pabon and others

Posted on 21/07/2016 · Posted in Criminal Cases, Expert Witness, Financial Litigation, Investment

Recently, after a 3 month trial, a jury at Southwark crown court found three former Barclays Plc employees guilty of manipulating LIBOR (London Interbank Offered Rate); 2 others, Stylianos Contogoulas and Ryan Reich, who were acquitted, have been told that the Serious Fraud Office (‘SFO‘) will seek a retrial. These convictions are a major success for the SFO which has been pursuing investigations into the LIBOR scandal for 5 years. The accused gave various reasons for their behaviour including the fact that their bosses had condoned it, that they had not believed their behaviour to be dishonest and, in some cases, that they had been subject to intimidation. However after some lengthy deliberation, the jury found that three of the defendants had knowingly tried to fix interest rates in order to help the bank’s profitability on its own trades and book position.

Prior to this, the SFO’s only successful prosecution was that of the former UBS and Citigroup trader Tom Hayes last year. However his 14 year sentence was reduced to 11 years on appeal and all 6 of his alleged co-conspirators were acquitted in January. These verdicts are therefore an important boost to the SFO. The verdicts will be closely watched by other former Barclays bankers as 2 more alleged LIBOR-fixing conspiracies are being investigated.

Whoever is detected in a shameful fraud is ever after not believed even if they speak the truth.”

David Green, the SFO director said “The trial in this country of American nationals demonstrates the extent to which the response to LIBOR manipulation has been international and the subject of extensive cooperation between US and UK authorities. The key issue in this case was dishonesty.”

LIBOR is a benchmark rate which some of the world’s leading banks can borrow money from other banks for short term loans negotiated on the interbank market – and therefore acts as the first step to calculating interest rates on various loans throughout the world. It is also used as the benchmark rate used as the input for derivative pricing and valuation in all the main currencies. At the time of the offences in this case the LIBOR rate was administered by the British Bankers Association (‘BBA’). Rigging LIBOR is one of the major scandals which brought about the cultural overhaul of banking during the past decade. It is around 4 years since Barclays was fined £284.4 million for fixing the benchmark rate and led to the resignation of the then chief executive Bob Diamond.

With many other cases being brought by the prosecution in the UK and US, this subject is likely to be called in to much greater scrutiny. The cases so far have been based on a number of principles which have been presented by the prosecution, namely the simplicity of LIBOR rate as a single figure that describes the borrowing rate that existed at 11:00 a.m. on the relevant day. However it is known that in the lead up to the Credit Crunch of 2008 banks were in many cases not prepared to lend to each other so no representative trade may have been available for the setter to base their submission on. This would imply that there were a range of rates that could be possible for any specific day. Further examination of the ability of a financial institution to benefit from the rate set is likely to be examined in further detail. Most market indices are a function of the book positions of the banking participants or market makers as this is what the bid and offer quotes are based on.

For now the prosecution authorities in the UK and the US have been able to identify a number of potential traders who were involved in this market and likely to bring cases against them in the future.

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