Jamie Gray

Jamie Gray is a business reporter for the New Zealand Herald and APNZ wire agency

Libor fraud case widens

Michael Spencer, CEO of British finance house ICAP which employed Darrell Read, condemned his manipulation of the Libor rate.
Michael Spencer, CEO of British finance house ICAP which employed Darrell Read, condemned his manipulation of the Libor rate.

A New Zealand employee of major British finance house ICAP is at the centre of the latest episode of the long-running Libor rate rigging scandal that has rocked London and New York financial centres in the last year.

He has been named as New Zealand resident Darrell Read, a yen derivatives broker.

ICAP has agreed to pay about US$87 million ($105 million) to settle US and British charges of manipulating Libor - a key global interest rate.

The US Commodity Futures Trading Commission said ICAP engaged in rigging of Libor (which stands for London interbank offered rate) from October 2006 to January 2011.

Separately, US prosecutors in Manhattan filed criminal charges against three former ICAP brokers, saying they hurt the integrity of the financial markets by taking part in the scheme.

Brokers Darrell Read of New Zealand and Daniel Wilkinson and Colin Goodman of Britain were each charged with conspiracy to commit wire fraud and two counts of wire fraud.

They face a maximum 30 years in prison for each of three counts.

New Zealand financial market contacts said Read was not known on the local scene but according to the FBI, he does reside here.

ICAP is not the first major financial organisation to be caught up in the Libor scandal.

Three banks - Britain's Barclays and RBS, and Switzerland's UBS - have already paid about US$2.6 billion to secure civil settlements for Libor rate-rigging with British and US regulators.

Several other major institutions have been investigated by high-powered market authorities on both sides of the Atlantic.

As an "interdealer", ICAP acts as an intermediary between the major dealers to facilitate trades.

Interdealers typically operate on very small margins but more than make up for that by handling extremely large transactions in the bond, currency and derivatives markets.

"We deeply regret and strongly condemn the inexcusable actions of the brokers who sought to assist certain bank traders in their efforts to manipulate yen Libor," Michael Spencer, ICAP's group chief executive, said in a statement.

"None of the three individuals at the centre of the activity remains with the firm. Others are either no longer with the company or are being disciplined."

Libor is firmly woven into the fabric of the world's capital markets. From major international financing deals through to everyday home mortgages, Libor has been a key plank in the relationship between borrowers and lenders globally.

The rate sets the scene for banks, international financiers, mortgage lenders, credit card companies or anyone wanting to raise funds through the interest rate markets.

Financial instruments worth hundreds of trillions of dollars are tied to Libor the world over.

In June last year, multiple criminal settlements by Barclays Bank revealed significant fraud and collusion by member banks connected to the rate submissions, leading to the Libor scandal.

US and British regulators fined Barclays US$453 million for submitting false information from 2005 to 2009 to keep Libor artificially low. Barclays admitted it submitted figures that were lower than accurate for its interbank borrowing, making the bank appear healthier than it was.

While regulators go about the business of extracting fines from several players, the market's reaction to the Libor scandal has died down, and the world's major financiers have gone back to using Libor as a base on which to price their deals.

"I think it's safe to say we've moved on from the scandal, and that it's business as usual," Bank of New Zealand treasurer Tim Main said.

The British Bankers Association, which collates and publishes Libor, has changed the way the rate is set to prevent a repeat of the scandal.

- APNZ

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