A multimillionaire former star trader at Barclays bank is expected to receive a jail sentence, along with three former colleagues, after being convicted for his role as ringleader in a trans-Atlantic plot to manipulate Libor interest rates a decade ago.
During a three-month trial at Southwark crown court, the former bankers gave various explanations for their behaviour – they did not believe it dishonest, their bosses condoned it, some had been subjected to intimidation – but in the end the jury found Jay Merchant and his co-conspirators had knowingly tried to fix rates in an effort to help the bank make money on its own trades.
The convictions mark a major victory for the Serious Fraud Office, which has been pursuing investigations into the Libor scandal for four years. Before the latest trial, the agency’s only successful prosecution was that of former UBS and Citigroup trader Tom Hayes. He was sentenced to 14 years in prison, reduced on appeal to 11 years, but all six of his alleged co-conspirators were acquitted in January.
The verdicts will also be closely watched by other former Barclays bankers as the SFO is still pursuing investigations into two more alleged Libor-fixing conspiracies at the bank.
Merchant and nine other highly paid investment bankers, working at Barclays offices in the City of London and New York, were accused in court of conspiring to fix the rate, though criminal charges were only brought against six men.
Merchant, Alex Pabon and Jonathan Mathew, were found guilty of conspiracy to defraud at Southwark crown court last week. The judge did not permit reporting of their verdicts until Monday.
The jury failed to reach verdicts on two other defendants. A sixth banker, Peter Johnson, had already pleaded guilty.
Merchant, a graduate of Stern business school in New York who holds both Indian and British nationality, worked for Barclays first in London and later in New York, earning £2.2m in pay and bonuses for 2007. Before his career in banking, the 45-year-old had been one of India’s top tennis players.
From the witness box, Merchant had insisted that he “found it difficult to believe” his bosses had not know that all banks making submissions as part of the daily process of setting Libor behaved in a self-interested manner.
“Everybody knew the banks set Libor to their own commercial interests,” he said. “It was completely open from the day I joined [the trading desk].” However, he claimed, there was no plot at Barclays to fix the rate: “We were just doing our job.”
But James Hines QC, for the Serious Fraud Office, showed the jury a catalogue of emails that made clear Merchant and his fellow conspirators knew they were acting dishonestly. He explained that the conspiracy ran from 2005 to 2007 and concerned dollar Libor, an important financial industry benchmark used to price a wide range of loans and derivatives.
The London interbank offered rate (Libor) is supposed to reflect an average interest rate at which banks, including Barclays, lend to one another. It was set each day based on submissions from a group of major banks.
By 2012, however, published Libor rates stretching back many years were discredited after regulators found that Barclays and other banks had sought to manipulate the figure.
Since then, this deception has led to a string of fines against some of the world’s largest banks running into billions of dollars. There have also been criminal prosecutions of individual bankers around the world – several of them British – with more expected.
Two of those involved in the conspiracy at Barclays – New York-based Pabon and Mathew in London – had been in their mid 20s when the plotting began.
Johnson, another former colleague from the London office, was more experienced, having worked at the bank for more than 25 years. He admitted his role in the plot in 2014 and is expected to be sentenced alongside his fellow plotters in the coming days.
At trial, Mathew, who had worked under Johnson, accused his former boss, now 62, of intimidation. His lawyers painted a picture of a young banker who was dyslexic, partially deaf and who had left school with a D and two E grades at A-level. He had only got a job at Barclays because of a family connection, they said.
Mathew told the jury it had never crossed his mind that he was doing anything wrong in the way he made Libor rate submissions, insisting that he was acting as Johnson had taught him.
He described how his boss had called him a “deaf git” and, in one email, a “bick drain” – a spoonerism designed to get around the bank’s offensive language email filter.
One one occasion, he had been “whacked across the back of the head” with a small baseball bat by Johnson because he had not known that Manila was the capital of the Philippines.
Mathew recalled: “He [Johnson] had a 12-inch baseball bat on his desk and he whacked me across the back of the head and knuckles ... It wasn’t particularly hard. It was designed to humiliate me.” He had been made to stand on his chair, in the middle of the bank’s trading floor, and quizzed on country capitals.
But prosecutors rejected claims any of the plotters were naive or unaware their actions were deceitful. “The defendants in this case are all very successful, intelligent, well educated and experienced professionals,” said Hines. “These men were trusted by Barclays bank to trade in deals worth billions of dollars.”
Even Mathew, with few academic qualifications, had proved himself a highly adept banker, rising to be Barclays’ lead manager of dollar cash dealings by 2010, earning more than £250,000.
Email evidence made plain that Merchant and his fellow plotters had known they were acting dishonestly, conspiring to create Libor rate submissions that were intentionally skewed to favour the traders’ own derivative positions.
One message read: “We just need to f****** smash it. Have him set it low”. On another occasion, Merchant stated which rate he wanted: “4.48 fixing [...or] I will get slaughtered.”
This article was written by Simon Bowers, for theguardian.com on Monday 4th July 2016 14.52 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010