Sat. May 28th, 2022

Some big news overnight from the US, where Matthew Connolly and Gavin Black, two former traders for the German lender Deutsche Bank, nullified their convictions for Libor fraud. Here are the FTs take:

A U.S. federal appeals court has overturned the convictions of two former Deutsche Bank dealers accused of plotting to manipulate the Libor benchmark, a blow to prosecutors who have struggled to prosecute individuals for actions that yielded billions of dollars in fines from banks.

In an opinion Thursday from the Second U.S. Circuit Court of Appeals in Manhattan, the three-judge panel ruled that “the government failed to show that any of the merchant-influenced submissions were false, fraudulent or misleading.” It ordered the district court to grant acquittal orders for both men.

Readers may remember that the Libor scandal became something of a lightning bolt for public objections after the great financial crisis in 2008. However, those who were closer to the action saw the case as an accident waiting to happen, given the rather flawed way in which the measure (and its supervision) was designed.

In the 14 years since, it’s not as if the world of finance has completely done away with its dependence on close networks of individuals who have the power to influence financing costs when they function in harmony thanks to mutual involvement in Discord chats. Which led to Izzy asking the following question on Twitter this morning:

We wanted to share this answer, by Tom Hayes, who was jailed for 11 years in the UK (of which he served five and a half years) for manipulating Libor:

There are close parallels with the case against Hayes – who found out in December that he would not be allowed to appeal against his conviction – and the bankers tried in the US. All of them were distraught traders who were accused of conspiring with their associates to manipulate their banks’ Libor solutions (excuse the pun).

The verdict raises interesting questions about whether Hayes would have imposed quite such a sentence if he had been tried outside the UK.

For example, the U.S. Court of Appeals found that there was “no merit” in the government’s line that the defendants’ influence on their bank’s submissions should be regarded as a “half truth”.

From page 52 and page 53 of the verdict: (their emphasis)

The BBA LIBOR instruction as it existed during the earlier period in question in this prosecution, although expressly prohibited co-operation between panel banks, did not say anything that prevented a panel bank’s LIBOR submitters from inputing that bank’s employees. which derivatives were traders, to receive or to consider. There is no guidance from the BBA on intoutbank inputs – especially given an explicit ban on intisbank inputs – a bank’s submission of a LIBOR rate did not implicitly represent that there was no consideration of the panel bank’s existing transactions.

In 2013, the BBA adopted a “LIBOR Code of Conduct” for “contributing banks” which restricts the permissible exchange of LIBOR-relevant information between submitters and traders (“BBA 2013 Code”). (“[r]requires individuals who are not involved in the LIBOR essay process. . .[n]ot to contact submitters and judges to try to influence, or inappropriately inform, the contributing bank’s submissions for any reason, including for the benefit of any derivative trading positions ”). However, during the earlier period in question in the present case, there were no such guidelines or prohibitions, and the BBA LIBOR instruction did not prohibit LIBOR applicants ‘consideration of traders’ positions. The government admits that this ban was not issued by BBA until “after the charged conspiracy [had] ended. ”

The charges against Hayes were related to his behavior while working for UBS as a derivatives dealer in Tokyo, a bank he left in 2009.

What cryptocurrencies operating in the gray area of ​​quasi-regulated markets need to note in this story is that just because something is not technically illegal today, does not mean it will not be considered scandalous or criminal in the future. not. When norms change, so do expectations about how people should have acted before they changed.

Ignorance of the law or best practice is not necessarily a defense.

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