News analysis

Libor dreams end in nightmare of prison for former trader

Tom Hayes arriving at Southwark Crown Court with his wife, Sarah. The 35-year-old former trader was sentenced to 14 years in jail after being found guilty of conspiring to rig Libor benchmark rates.
Tom Hayes arriving at Southwark Crown Court with his wife, Sarah. The 35-year-old former trader was sentenced to 14 years in jail after being found guilty of conspiring to rig Libor benchmark rates.PHOTO: REUTERS

LONDON • Tom Hayes' journey to a drab courthouse in London started on a buzzing trading floor in Tokyo in 2006.

Hayes had been at UBS Group for less than two months and was sitting on a losing bet on the direction of yen Libor, a lending rate set by a survey of banks.

On a call that afternoon, a broker in London suggested he could help the young trader by influencing where rival lenders set their rates, Hayes testified during his trial. The conversation was a light-bulb moment, he recalled.

And so began the nine-year saga which involved a lengthy investigation, a transatlantic tussle between prosecutors, a scrapped plea deal, two legal team changes and finally a 14-year sentence on Monday on eight counts of conspiracy to rig the London interbank offered rate (Libor), the benchmark used to value more than US$350 trillion (S$480 trillion) of loans and securities.

The prosecution sought to portray him as a calculating, greedy manipulator leading a conspiracy among traders and brokers to rig the interest rate only to boost his own trading book. He generated about US$260 million in revenue over three years, attracting the interest of competitors including Lehman Brothers and Goldman Sachs, which both tried to recruit him, Financial Times reported.

He left UBS for Citi at the end of 2009 after a dispute over pay. Citi fired him after less than a year, when they discovered he was trying to manipulate Libor.

The Libor scandal, over which some of the world's biggest banks and interdealer brokers had to pay US$9 billion in fines, has become a byword for much that went wrong with the financial system at the start of the 21st century.

Also at stake was the reputation of a legal system criticised for failing to hold bankers to account for their actions. It was an open secret that banks made submissions that favoured their own derivatives positions when estimating their borrowings costs for the yen Libor survey.

Hayes realised that interdealer brokers in London, the middlemen who matched buyers and sellers, were uniquely positioned to influence the submissions of multiple firms. In the months following that initial phone call in Tokyo, he recruited a group of brokers willing to skew their recommendations in exchange for lucrative commissions.

During the trial, jurors heard how Hayes bribed, bluffed, and bullied some 25 traders and brokers of at least 10 firms to do his bidding. Six will stand trial later this year.

Hayes started out in 2001 in Royal Bank of Scotland Group's graduate programme and joined Royal Bank of Canada three years later. He was obsessively focused on his trading book, he told jurors.

He would not shower for days if he was on a trading streak, colleagues said. On the rare occasions he went out with them for drinks, he would order hot chocolate, earning the moniker "Tommy Chocolate".

Hayes' brokers, reliant on him for income, routinely passed on his desired Libor figures to rate setters. He also started asking contacts at other banks for favours with their Libor submissions.

"I used to dream about Libors," Hayes said in a 2013 interview with the Serious Fraud Office. "They were my bread and butter."

He thought it would be business as usual when he joined Citibank and carried on asking his contacts for favours with Libor. What Hayes did not know was that Citigroup was already cooperating with investigations into Libor rigging.

In the months after he was fired, Hayes tried to move on, got married and was nearing the end of an MBA course in June 2012. He was charged in December.


A version of this article appeared in the print edition of The Straits Times on August 05, 2015, with the headline 'Libor dreams end in nightmare of prison for former trader'. Subscribe