A New Zealand man is accused of being part of an international scam where brokers promised colleagues kickbacks of champagne, curries and a Ferrari in exchange for trying to influence bank rates.
Darrell Read and two English colleagues from London brokering firm ICAP have been charged with fraud in the United States and are accused of conspiring to manipulate benchmark interest rates to benefit a client.
"In exchange for bigger bonus cheques, the three defendants undermined financial markets around the world," Scott Hammond of the US Department of Justice said yesterday.
"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," said the US Justice Department's Mythili Raman.
After an FBI investigation, Read, Daniel Wilkinson and Colin Goodman face two charges of wire fraud and another of attempting to commit wire fraud. Each charge carries a maximum penalty of 30 years' jail.
While Read is a New Zealand resident, local authorities were not involved in the probe.
From July 2006 Read worked as part of a team, under Wilkinson, at ICAP specialising in yen-based financial products. The pair and their colleagues arranged transactions for clients which were bets on whether the yen Libor would go up or down, the FBI said.
The Libor (London interbank offered rate) set the scene for banks, mortgage lenders and credit card companies and financial instruments, worth hundreds of trillions of US dollars, are tied to it the world over.
A British banking trade group sets the Libor every morning after international banks submit estimates of what it costs them to borrow.
Wilkinson and Read's largest client was a Tokyo-based trader who could make big profits on tiny moves in the rate. A big portion of both Read's and Wilkinson's pay was linked to fees generated from this trader. The pair allegedly conspired with Goodman - who they called "Lord Libor" - to move the rate in ways that favoured the Tokyo trader.
Every day Goodman sent out an email with his apparent predictions on where the rate would fix. This was also sent to some of those responsible for banks' submissions on Libor.
According to the FBI, the trio used this email to "disseminate misinformation" in the hopes the Libor panel banks would rely on it when making their own submission on the rates.
From about 2007, Goodman got a bonus from Wilkinson's department which was allegedly a reward for his attempt to manipulate the yen Libor.
Another US department involved in the ICAP and Libor investigation has also released messages allegedly from the firm's brokers which discussed curries, bonuses, Ferraris, and boozy nights out.
The department, which released the messages and fined ICAP US$65 million ($78.4 million), did not identify the individual brokers by name.
One message between two ICAP employees said a UBS trader would buy the broker "a Ferrari next year" if the rates behaved in a certain way.
In another message a broker asked his colleague to drive the rate higher, saying, "p.s Bubbly on its way".
Read is believed to now be living in Wellington home with a CV of $1.2 million but could not be reached for comment yesterday.
How it worked
• Two of the three accused worked in a team for a London brokering firm that specialised in working with the yen.
• Part of their job involved arranging bets for clients on whether the bank rate linked to the yen would go up or down.
• With another colleague, the pair are accused of being involved in a scheme that tried to influence that rate - so it would favour their biggest client.
• A big part of their pay came from a fee generated by that client, so it was in their interest to ensure the bet was right.