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A big fine finally hit as a result of investigations into manipulation of an important financial benchmark.
We have been watching for this.
Ever since we noticed reports that both U.S. and British regulators were looking into “irregularities” and possible manipulation of the Libor rate we have been waiting for something to happen. Now something has.
The New York Times Deal Book is reporting that an $87 million fine is being imposed on a London broker called ICAP. Maybe that isn’t the billions we expected but it certainly is not nothing either. Here is how the fine was levied:
ICAP, a London-based company that acts as a broker for firms that trade financial products, agreed to a $65 million settlement with the Commodity Futures Trading Commission in the United States and a £14 million ($22 million) settlement with Britain’s Financial Conduct Authority.
The Justice Department also brought criminal charges against three former ICAP employees on Wednesday over their roles in the scandal.
Criminal charges too? Wow. Now we highly suspect there will be more to come. Criminal investigations generally are conducted at least concurrent with and often ahead of civil investigations. We’ll see if other firms get implicated in the whole Libor mess. In any case if anyone goes to jail for this it will certainly have an effect at least as powerful as the fines.
I don’t know if anybody who does not work as a trader really understands how Libor works but the Dealbook article at least tries to explain the history of this investigation:
The scandal over Libor, a benchmark to which interest rates on trillions of dollars of financial products are pegged, erupted in the summer of 2012, as investigators unveiled evidence that many big investment banks had manipulated the benchmark for their own profit. Libor is short for the London interbank offered rate.
Yes, you read those numbers right – “many big banks” and trillions of dollars involved.
Now I’d like to note that the specific agency which levied the U.S. version of the fine in this matter is the Commodity Futures Trading Commission. What’s important about that to those of us who work with whistleblowers is that the CFTC now has a whistleblower office and whistleblower regulations. The office and regulations are supposed to encourage people with information about such fraud to report it and get a share of any fine. This was all started as a result of the Dodd-Frank financial reforms and the CFTC whistleblower regulations even allow for anonymous reporting through attorneys. So, those who want to make a report but don’t want to have to risk their jobs to do it, at least not until the agency investigates the claims a little bit, now have an option.
The CFTC, at least according to this report, is actually out there investigating and fining financial institutions. They may be a good place for whistleblowers to report real information on financial fraud.
To be sure, the Libor scandal is a big deal. The article discusses ICAP’s relationship to the big bank UBS and the degree to which ICAP acted over four years to manipulate the Libor rate for private gain. It involves major fraud and some juicy details such as a trader who was referred to as “Lord Libor” and accusations of special inducements like this:
In one series of messages, a senior trader at UBS offers to buy an ICAP broker a Ferrari if he alters some of the Libor rates.
You have to almost admire that kind of inducement. Anybody who hears of a Ferrari-for-manipulating rates-deal out there probably should at least consider talking to counsel about reporting fraud. Based on the size of this scandal, it probably won’t be the last time this happens either.