Curry dinners and annual shipments of champagne allegedly did not cut it for Colin Goodman, then a cash broker in ICAP’s London office.
One year into a scheme to help a key client manipulate yen Libor rates, Mr Goodman, who dubbed himself “Lord Libor”, wanted more, US and UK authorities alleged in court papers.
“I get the dribs and drabs. Life is tough enough over here without having to double guess the libors every morning and get zipper-de-do-da. How about some form of performance bonus per quarter from your b bonus pool to me for the libor service?” Mr Goodman complained in an email to his supervisor, Dan Wilkinson, director of ICAP’s yen desk in London, that was quoted in a US criminal complaint filed against Mr Goodman, Mr Wilkinson and another former ICAP broker.
In parallel regulatory actions, US and UK authorities alleged that Mr Goodman was the hub of a “brazen” scheme to manipulate the yen Libor benchmark interest rate to enrich himself and his colleagues and their most important client, a yen trader at UBS.
As part of his job Mr Goodman sent out daily “run-thrus” emails to customers at banks that helped set Libor rates. Each day he included “suggested libor rates” that purported to show the expected borrowing costs on which the rate is based, according to the complaint that was unsealed on Wednesday.
Prosecutors allege Mr Goodman actually was sending false rates skewed to benefit the UBS yen trader’s positions. Moving the rate could be lucrative. On one day, the UBS trader told an ICAP broker that a 0.01 per cent move in the final yen rate could result in a $3m profit for him, authorities allege. Mr Goodman’s emails were followed so loyally by some banks that the traders referred to them in messages as “sheep” following Lord Libor’s lead.
Mr Goodman threatened to stop his service, the complaint said. He emailed his boss, “Mlord no more mr libor”. Later he began receiving quarterly payments of more than £5,000, US officials allege.
Mr Goodman, Mr Wilkinson and Darrell Reed, a derivatives broker on ICAP’s yen desk in London and later New Zealand, have been criminally charged by the US Department of Justice with conspiracy to commit wire fraud and two counts of wire fraud for allegedly scheming to manipulate the yen Libor interest rate over four years from 2006 through 2010. They face as much as 30 years in prison if convicted.
They are the first brokers to be charged in the US in the Libor bid-rigging scheme. Two former UBS traders were charged by US authorities in December with manipulating rates. The UK Serious Fraud Office has charged a former UBS trader and two brokers from another company. None of them has indicated a plea to the charges.
Eric Holder, the US attorney-general, said the investigation which has spanned the globe from New York to London and Tokyo is of the “highest priority in the department and it has my personal attention”.
ICAP paid a total of £55m to settle civil allegations with the US Commodity Futures Trading Commission and the UK Financial Conduct Authority over the alleged misconduct. The US settlement said the firm was not admitting or denying wrongdoing.
Michael Spencer, founder and chief executive of ICAP, said: “I deeply regret and strongly condemn the actions of the three brokers. It’s not a cultural problem. It’s a rotten apple situation here.”
David Meister, director of enforcement at the Commodity Futures Trading Commission, said: “ICAP’s controls were insufficient. The ICAP compliance functions were delegated to people complicit in the scheme. The fox guarded the hen house.”
None of the three men has been arrested. Lawyers for Mr Goodman and Mr Reed declined to comment.
“I see no justice or common sense in the decision to prosecute this man in the States,” said Matthew Frankland, a solicitor for Mr Wilkinson. “Not only he, but all but one of his alleged co-conspirators are also in the UK, the other in New Zealand. It would be surprising and disappointing if the SFO simply caved in again to pressure from the DoJ and allowed a separate prosecution to take place in the US.” Defendants face the risk of longer jail sentences in the US compared with the UK.
The DoJ said its criminal investigation into ICAP and other banks and brokers was continuing. A junior UBS trader is co-operating under a non-prosecution agreement.
The DoJ’s targeting of three Britons could create another turf war between it and the SFO. They have already fallen out over the fate of one defendant common to both agencies’ Libor probes.
ICAP’s controls were insufficient. The ICAP compliance functions were delegated to people complicit in the scheme. The fox guarded the hen house
The DoJ did not officially inform the UK authorities about whom it was charging until Wednesday, according to people familiar with the situation. US authorities were seeking to avoid repetition of what happened nine months ago when the SFO arrested a former UBS trader after the DoJ communicated to the SFO that it would charge him.
The SFO is investigating at least three current and former ICAP employees, according to people familiar with the situation. While it has not arrested or charged any of them it said in a statement on Wednesday that it “welcome[d] the significant developments announced” and looked “forward to continuing the co-operation” with the DoJ.
The charging papers describe a brazen scheme in which the UBS yen trader allegedly made 400 manipulation requests to ICAP over four years.
On at least two occasions, according to court filings, banks adjusted their submissions to reflect Mr Goodman’s “run-thrus” emails. One bank’s submissions were identical to the “run-thrus” 90 per cent of the time in 2007 and 80 per cent of the time in 2008, the CFTC alleged.
On one occasion, Mr Reed messaged Mr Goodman: “Realising it might be getter harder but need 6m kept as high as possible … tomorrow I have a massive fix.”
“How high … above 552?” asked Mr Goodman.
“If you can get them up there and keep them there tomorrow reckon the trader from ubs Tokyo will come over and buy you a curry himself,” Mr Reed replied.
In 2009 a trader at another bank balked at moving the rate, saying he had “no intention of doing” it. Mr Wilkinson replied: “Oh mate that’s so illegal, it’s ridiculous.”