Kiwi charged in LIBOR rate rigging scandal

A British banking group sets the LIBOR every morning - and NZer Darrell Read has been charged in a US court with fraud, relating to rigging of the benchmark interest rate. Photo / Wikimedia Commons
A British banking group sets the LIBOR every morning - and NZer Darrell Read has been charged in a US court with fraud, relating to rigging of the benchmark interest rate. Photo / Wikimedia Commons

A New Zealander working for a major world banking company has been charged by US prosecutors in New York for allegedly taking part in the massive LIBOR rates rigging scandal.

He has been named as New Zealand resident Darrell Read, a yen derivatives broker who worked for British broking company ICAP.

ICAP has just agreed to pay about $US87 million to settle US and UK charges of manipulating a key global interest rate, the fourth financial firm sanctioned in the international rate-rigging scandal.

The US Commodity Futures Trading Commission said overnight that ICAP, the world's largest broker of trades between banks, engaged in rigging of the London interbank offered rate, or LIBOR, 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.

Checks with NZ Herald financial market contacts showed Read was a relative unknown on the local market scene.

He currently resides in New Zealand, according to the Federal Bureau of Investigation (FBI).

FBI reports said Read allegedly counseled a UBS Trader how to most effectively manipulate Yen LIBOR.

The UBS Trader told Read in a July 22, 2009 electronic chat that: "11th aug is the big date...i still have lots of 6m fixings till the 10th."

Read responded: "if you drop [UBS's] 6m dramatically on the 11th mate, it will look v fishy....I'd be v careful how you play it, there might be cause for a drop as you cross into a new month but a couple of weeks in might get people questioning you" [sic all].

UBS Trader replied: "don't worry will stagger the drops...ie 5bp then 5bp." Read then told UBS Trader: "ok mate, don't want you getting into [expletive]."

The Belfast Telegraph reported that the traders were prepared to engage in the alleged conspiracy for surprisingly small bribes, such as champagne, meals out and a few thousand pounds every few months.

Read wrote in a message to a senior trader at a major bank: "Think Colin is your best broker in terms of value added... ok with an annual champagne shipment, a few piss ups with Danny and a small bonus every now and then", the Telegraph reported.

A British banking trade group sets the LIBOR every morning after international banks submit estimates of what it costs them to borrow. The rate affects trillions of dollars in contracts around the world, including mortgages, bonds and consumer loans.

Read about how LIBOR works and how the New Zealand system operates here.

Britain's Barclays Bank and Royal Bank of Scotland, and UBS, Switzerland's biggest bank, have paid a total $2.5 billion to settle charges of rigging the LIBOR.

Other banks, including Citigroup and JPMorgan Chase & Co, are being investigated.

Britain's Financial Conduct Authority fined ICAP $22.4 million, while the CFTC levied a $65 million penalty against the firm. ICAP also agreed to take steps to ensure the accuracy of the interest rate information it submits.

London-based ICAP said in a statement it has been cooperating with a criminal investigation by the US Justice Department.

"We deeply regret and strongly condemn the inexcusable actions of the brokers who sought to assist certain bank traders in their efforts to manipulate" LIBOR, said ICAP chief executive officer Michael Spencer.

The misconduct at ICAP involved a large number of brokers, including two managers, the regulators said.

One broker, known as "Lord LIBOR" or "Mr. LIBOR," engaged in manipulation to aid a favored client of ICAP who was a trader at UBS in Japan, according to the CFTC.

UBS made at least 330 written requests to ICAP brokers for inaccurate interest-rate information, the regulators said.

Weak supervision by ICAP allowed the misconduct to continue for more than four years, they said.

"Any market participant who seeks to undermine the integrity of a global benchmark interest rate must be held accountable," CFTC Enforcement Director David Meister said in a statement.

The process of setting the LIBOR has come under scrutiny since Barclays bank admitted in June 2012 that it had submitted false information to keep the rate low. Barclays agreed to pay a $453 million fine, and its chief executive and chairman both resigned soon afterward.

A number of US cities and municipal agencies have filed lawsuits against some of the banks that set the LIBOR rate. They are seeking damages for losses suffered as a result of an artificially low rate. Local governments hold bonds and other investments whose value is pegged to LIBOR.

Under a change announced in July, the London-based company that owns the New York Stock Exchange, NYSE Euronext, will take over supervising the setting of LIBOR from the British Bankers' Association. The changeover is scheduled to be completed by early next year.

-AP/NZ Herald staff

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