For nearly five years, brokers at Britain’s ICAP PLC were so brazen about rigging benchmark interest rates that they demanded bribes to keep the scheme going in e-mails and Internet chat rooms.
At one point, a broker at ICAP asked a senior yen trader, “How about some form of performance bonus per quarter from your bonus pool to me for the Libor service?”
Exchanges such as these between employees at the world’s largest broker of bank trades were detailed in the Commodity Futures Trading Commission’s enforcement order Wednesday that names ICAP as a culprit in manipulating the global interest rate known as Libor.
Global authorities have uncovered a sweeping conspiracy to rig the London interbank offered rate, which serves as a benchmark for trillions of dollars in lending to businesses and consumers. Venerable banks such as UBS and Barclays have been fingered in the scheme, which regulators suspect involves even more sterling institutions.
ICAP has agreed to pay U.S. and British authorities a total of $87 million. The company admits that several brokers on its yen trading desks schemed to manipulate rates, either keeping them artificially high or low, to increase profits for valued clients, including Swiss banking giant UBS.
In one instance, a senior UBS trader called on ICAP yen brokers more than 400 times for help rigging the benchmark rate, according to the commission’s complaint. Regulators found evidence of misconduct dating to October 2006 through January 2011.
“ICAP and other interdealer brokers are expected to be honest middlemen,” said David Meister, the commission’s director of enforcement. “Here, certain ICAP brokers were anything but honest. They repeatedly abused their trusted role when they infected the financial markets with false information to aid their top client’s manipulation of Libor.”
In connection with the case, the Justice Department also filed criminal charges against three former ICAP brokers at the heart of the rate-rigging scandal. Darrell Read of New Zealand and Daniel Wilkinson and Colin Goodman, both of Britain, were charged with two counts of wire fraud and conspiracy to commit wire fraud. If convicted, they could face a maximum of 30 years in prison for each count.
“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,” Acting Assistant Attorney General Mythili Raman of the Justice Department’s criminal division said.
Prosecutors say they are working to extradite the men. The Justice Department did not bring criminal charges against ICAP as it has in other Libor-related cases, but the agency said a criminal probe is ongoing. The commission fined ICAP $65 million, while Britain’s Financial Conduct Authority levied a $22.4 million penalty against the company.
“I deeply regret and strongly condemn the actions of the three brokers,” ICAP chief executive Michael Spencer said. “This has been a difficult episode for this company but one we can begin to move on from. We have learned from this and will harden our resolve.”
Spencer said the company has spent more than $27 million to improve its compliance controls and train its brokers. He stressed that no senior managers were involved in the scheme and that regulators didn’t find any evidence of the company deliberately engaging in misconduct.
Authorities have accused Goodman, who called himself “Lord Libor,” of spreading false rate assessments to traders. The kickbacks the brokers received grew from dinners and champagne to $72,000 in bribes, according to the commission’s complaint.
“Some sought increased kickbacks or free meals — a curry meal for currying favors. One even mentioned (perhaps in jest) a Ferrari as payment for the favors,” CFTC Commissioner Bart Chilton said in a statement. “These benchmarks are just too important to become a playground for some big-talking bad guys.”
About a dozen financial institutions, including HSBC and JPMorgan, submit data to set the daily Libor rate. Until recently, that information was collected on behalf of the British Bankers’ Association by Thompson Reuters, which calculates the averages and devises the Libor rate.
In July, the association transferred the administration of the benchmark to NYSE Euronext to restore integrity to the system. Critics of the system, however, are skeptical about the transparency in how banks set their daily rates, questioning whether it leaves the process wide open to fraud.
ICAP is the first interdealer broker to settle in the global probe into Libor manipulation. Barclays admitted its role in rigging the rates in June 2012, when it agreed to pay $450 million to settle allegations. UBS followed in December by reaching a $1.5 billion settlement with global authorities, which included the indictment of two of its traders and a guilty plea by its Japanese subsidiary. And in February, the Royal Bank of Scotland paid$612 million in a deal that called for the bank’s Japanese subsidiary to plead guilty to criminal charges of wire fraud.