By Pam Martens and Russ Martens: April 24, 2015
Americans have been reading about Citigroup’s and JPMorgan’s roles in rigging the Libor interest rate benchmark for so many years that it’s a sure bet most folks think the U.S. Department of Justice has already fined and settled charges against these two banks. The truth of the matter is that despite seven years of probing these two banks’ involvement, the U.S. Justice Department has yet to lay one hand on either Citigroup or JPMorgan for their role in the Libor cartel.
Libor is an interest rate benchmark used to set rates for trillions of dollars in consumer loans, swaps and interest rate contracts around the world. Banks having inside information on where Libor rates will set can make massive profits.
The appearance of a home court advantage for these two U.S. banks comes in the wake of a guilty plea extracted yesterday by the U.S. Justice Department against a subsidiary of the German bank, Deutsche Bank. The bank itself also agreed to a 3-year deferred prosecution agreement with the Justice Department for its role in manipulating Libor and participating in a price-fixing conspiracy by rigging Yen Libor with other banks. Deutsche Bank and its subsidiary will pay $775 million in criminal penalties to the Justice Department. Total penalties levied on Deutsche Bank yesterday by U.S. and U.K. regulators was $2.5 billion.
Back in 2012, Stephen Gandel reported for Fortune Magazine on academic studies suggesting that Citigroup was the biggest Libor cheater of all. According to documents released in 2012, a trader named Tom Hayes, who worked at Citigroup from December 2009 through September 2010 after leaving UBS, was deeply involved in the Libor rigging. In a Bloomberg terminal electronic chat on May 12, 2010, while employed at Citigroup, Hayes stated to a trader at his former firm, UBS: “libors are going down tonight.” The UBS trader asked: “why you think so?” Hayes responded: “because i am going to put some pressure on people.”
The Canadian Competition Bureau produced an affidavit as far back as 2011 implicating JPMorgan and Citigroup. According to the prosecutors’ affidavit, a trader “had communications with two IRD [interest rate derivatives] traders at JPMorgan regarding its Yen Libor submissions. Trader A communicated his trading positions, his desire for a certain movement in Yen Libor and gave instructions for them to get JPMorgan to make Yen Libor submissions consistent with his wishes. Trader A also asked if the IRD traders at JPMorgan required certain Yen Libor submissions to aid their trading positions. The JPMorgan IRD traders acknowledged these requests and said they would act on them. On another occasion one of the JPMorgan IRD traders asked Trader A for a certain Yen Libor submission, which Trader A agreed to help with. Trader A admitted to an IRD Trader at RBS that he colluded with IRD traders at JPMorgan.”
The affidavit provides two names of traders at JPMorgan that prosecutors believe were involved in the rigging. Similar allegations are listed in the affidavit for Citigroup/Citibank.
According to Congressional testimony by Gary Gensler, former Chair of the Commodity Futures Trading Commission (CFTC), his agency opened its Libor investigation in April 2008 and the Justice Department commenced their own investigation in 2010. That’s five years of looking at Citigroup and JPMorgan without the Justice Department bringing charges.
In December 2013, JPMorgan and Citigroup admitted participating in the Yen Libor cartel to the European Commission and accepted fines of €79.8m ($108.3 million) and €70m ($95 million), respectively. Citigroup avoided paying an additional €55m ($74.6 million) by being granted full immunity for one of its three charged infringements, ostensibly for its cooperation in the matter. It only took two years for the European Commission to conduct its investigation and bring its charges. Other banks settled at that time as well.
Adding to the public’s growing contempt for Wall Street and its ineffective regulators, while the largest global banks were under scrutiny for rigging Libor, their traders continued to engage in a cartel to rig the foreign currency markets which trades more than $5.3 trillion a day.
The Wall Street Journal reported in September 2014 that “Criminal Charges Are Expected as Early as Next Month” in the foreign currency investigations. In November of last year, Bloomberg News reported the following:
“The U.S. Justice Department has given banks about a month to come clean about wrongdoing as it moves closer to wrapping up an investigation into the rigging of currency benchmarks, a person familiar with the probe said…Prosecutors have demanded a full accounting of any misconduct by mid-December, the person said.”
This sounds much less like a serious criminal investigation with wire taps and subpoenas and more like a request for self confessions to one’s Priest. But don’t be alarmed; as recently as this February, the New York Times has reassured us that “for the first time in decades, American institutions” will be forced by the Justice Department “to plead guilty to criminal charges that they manipulated the prices of foreign currencies.” The Times adds that the Justice Department has informed JPMorgan and Citigroup that “they must enter guilty pleas to settle the cases.” Foreign banks are also mentioned in the article.
The new U.S. Attorney General, Loretta Lynch, is expected to be sworn in one business day from now – next Monday, April 27. Unless U.S. Attorney General Eric Holder surprises everyone with guilty pleas today, any criminal charges against JPMorgan and Citigroup for either Libor or currency rigging will fall to Lynch.
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