A City trader was the “ringmaster” at the centre of a conspiracy to fix lending rates between banks, a jury has heard during the first criminal trial in the Libor-rigging scandal.
Tom Hayes was accused of using his position as a trader for UBS bank and later Citigroup in Tokyo, to “cajole”, “beg” and “bribe” rate setters into submitting false data on an almost daily basis. During just nine months at Citi, “dishonest” trades helped Hayes earn £3.5m, the prosecution claimed.
The 35-year-old from Hampshire, who went on trial at Southwark crown court in London on Tuesday, was one of dozens of City traders fired for allegedly rigging the London Interbank Lending Rate, a financial scandal which has seen eight banks and brokerages fined billions by regulators in the US and the UK.
“Mr Hayes’s desire was to earn and make as much money as he could,” said Mukul Chawla QC, for the prosecution. “He was the ringmaster at the very centre, telling others around him what to do and in a number of cases rewarding them for their dishonest assistance..”
Hayes joined Citi in 2009 after he “felt that UBS were not paying him enough”, and continued working in Tokyo. But he was sacked after his methods were formally reported to senior management. He returned to the UK where he was arrested in December 2012 and questioned by the Serious Fraud Office.
In evidence to the SFO, he gave details of a larger ring of about 25 traders at 16 banks, some of whom face separate trials. Hayes denies eight counts of conspiracy to defraud covering a period from 2006 to 2010.
He sold SFO investigators that his trades had earned £150m for Swiss bank UBS in a three year period.
“The more that he earned for his employers, the more they would value his services and, inevitably, the more they would pay him,” said Chawla.
The defendant, who has been diagnosed with mild Aspergers syndrome, shook his head vigorously as the accusations were made. He was seated in the well of the court rather than taking the usual place in the dock.
Described as an “extremely intelligent man” by the prosecution, he joined Royal Bank of Scotland’s graduate scheme after leaving university with a degree in maths with engineering. He went on to Royal Bank of Canada before joining UBS in September 2006.
In his evidence to the SFO, Hayes had “admitted his guilt, setting out precisely what he had done with whom”, said Chawla. The jury heard a clip in which Hayes said he was part of a system at UBS, where influencing Libor was “commonplace”, although he admitted he was a “serial offender”.
Describing the culture at his bank, he told SFO investigators: “The point is, you are greedy, you want every little bit of money you can possibly get ... that’s how you are judged, that’s your performance metric.”
Hayes is said to have developed a network of brokers who used their contacts at other banks to help fix their reported lending rates in his favour. The trader would then place large bets on movements in Libor.
His co-conspirators, Chawla claimed, would be rewarded with a range of incentives from raised brokerage fees to lunches at top London restaurants.
The most lucrative “bribes”, according to the prosecution, were “wash trades”. These were hedged transactions which had no financial impact for the banks involved and whose only purpose was to earn fees of up to £35,000 a time for the broker, the prosecution claimed.
His conversations over instant messaging services run by the Bloomberg and Reuters information systems, and occasional phone calls, were reproduced for the jury. In one exchange, Hayes wrote to a broker:
“Morning mate. Have some very big 6m [six month] fixes coming up tomorrow ... I’d be very grateful if you could concentrate on keeping 6m Libor up. Please try, please.”
The broker replied: “I’ll do my best mate. A couple of guys I speak to are off this week. Now you can do something for me ... I could do with a couple of orders if you could. Cheers, see you online.”
With bets as high as Y400bn (£2.1bn) a trade, fractional movements in Libor could win – or lose – one million pounds each trade for Hayes, the prosecution claimed.
“It is the prosecution’s case Mr Hayes entered in many arrangements, dishonest arrangements, with many other people to do just that - to harm the financial interest of others,” Chawla told the court.
The trial, which is expected to last 10 to 12 weeks, was adjourned until Wednesday.