Wednesday, 5 August 2015

How Libor whiz Rain Man became 'the guy everyone was going to blame'

London: He was so obsessed with the numbers that he did not see his downfall coming.

The first trader convicted by a jury in the global Libor rate-rigging scandal was a maths whiz nicknamed "Rain Man", who slept as an adult under a superhero duvet cover he had owned since he was eight.

Tom Hayes, found guilty of eight counts of conspiracy to defraud, told the court he never thought he had been dishonest. He was sentenced by the jury to 14 years in jail.

During a nine-week trial at London's Southwark Crown Court, the 35-year-old former yen derivatives trader for the Tokyo offices of UBS and Citigroup said he had always been driven to do a good job. He wanted to gain "an extra edge", he said, and his bosses had condoned methods that were common practise at the time. 

That included influencing other traders and brokers to nudge Libor, the London Interbank Offered Rate, used as a benchmark for $450 trillion (£288.2 trillion) in financial contracts worldwide.

Mukul Chawla, the gravelly-voiced veteran counsel for the prosecution, called Hayes the ringleader in a conspiracy of around 25 people to rig Libor.

Hayes said he had been singled out to take the fall.

"UBS had thrown me under the bus. I was up against two $50 billion organisations (UBS and Citi), the DOJ, the FSA (Britain's then financial regulator), you name the acronym.

"I was the guy everyone was going to blame."

Some of those named in Hayes's case have been charged and others remain under investigation, Chawla said.

But so far, no senior executives have been prosecuted in a scandal that helped shred public faith in an industry and has cost some of the world's biggest banks and brokerages $9 billion in fines and seen 21 people charged. Four people have pleaded guilty in separate Libor cases in Britain and the United States, although they have yet to be sentenced.

UBS, where Hayes worked in Tokyo from 2006-2009, was fined around $1.5 billion by US, British and Swiss authorities in December 2012. Its Japanese subsidiary pleaded guilty to one US criminal count of fraud relating to benchmark manipulation, including yen Libor.

It said in a statement that it was not a party to the criminal case against Hayes. "The bank has resolved this legacy matter with most authorities and is committed to reducing operational risks and upholding a culture of doing the right thing."

Citigroup, which fired Hayes after just 10 months in the job in 2010 after an internal investigation into his methods, was fined by European antitrust authorities 70 million euros ($77 million) in 2013 for participating in yen interest rate cartels.

It declined to comment after the verdict.

'Qantas never crashed'

A mathematics graduate with a penchant for probability puzzles, Hayes was diagnosed before the start of his trial with mild Asperger's Syndrome, a form of autism characterised by social awkwardness and obsessive, repetitive behaviours.

Even before his diagnosis, he didn't take offence when colleagues called him "Rain Man", after a Hollywood film about an autistic savant with a gift for numbers who wins big at blackjack. One trader would chant whenever he saw Hayes: "Qantas never crashed, Qantas never crashed", a line from the movie in which the main character obsesses about an Australian airline.

For someone thrilled by numbers, trading interest rate futures in Tokyo was both exhilarating and intense. Sometimes he was so stressed he wanted to jump off a bridge, Hayes said. He estimated he executed 45,000 trades in his three years at UBS, offering counterparties ten times as many different prices to buy or sell financial contracts.

He lived, breathed and dreamt Libor, and even sometimes updated his Facebook page with where he wanted rates set.

"Your whole trading book is like this living organism with all these interconnecting parts and all these moving pieces," he told the court.

Libor rates are submitted by major banks each day to reflect their estimated cost of borrowing in different currencies over various time frames. That made it possible to tamper with the rates by influencing the "submitters" who sent the estimates.

Pushing the rates up or down, even slightly, could boost profits or reduce losses on a trading book that determined the bank's earnings - and Hayes's bonus.

"No one suggests...that Mr Hayes should bear the full weight of Libor manipulation on his shoulders," prosecutor Chawla told the jury. But Chawla said Hayes was more than just a bit player, leaving a trail of 2,000 emails and computer messages that placed him at the centre of a rate rigging plot.

"In relation to these events, his actions stood apart from and above all of the others."

Hayes said he sought only tiny changes, and did not see this as dishonest because the rates would still approximate the broader market cost of cash.

Scores of computer chats, emails and phone recordings were presented to the court, in which Hayes requests, cajoles and offers rewards - such as phoney trades designed only to generate broker commissions - to people who can influence the rates.

"If you keep 6s (6-month Libor) unchanged today I will fucking do one humongous deal with you, all right?" he told a broker in one phone call on Sept. 18, 2008. "... If you do that then I will ... pay you $50,000, $100,000, whatever you want."

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