Two former Barclays traders convicted of manipulating a benchmark interest rate were sentenced to as much as five years in prison by a London judge who warned those still working in the finance industry that misdeeds would bring jail time.
Former swaps trader Carlo Palombo received a four-year sentence, while his former colleague on the bank’s cash desk, Colin Bermingham, got a five-year term. They will both be eligible for parole after serving half of the prison time.
The charges against the two men relate to manipulation of the Euro interbank offered rate, which is related to trillions of dollars worth of loans and derivatives. In his remarks, Judge Michael Gledhill said on Monday that he wanted to send a message to those in banking and finance, as well as punishing wronging by Palombo and Bermingham.
“Those convicted of manipulating interest rates will face substantial custodial sentences,” Mr Gledhill said.
Last week’s verdicts were a boost for the beleaguered UK Serious Fraud Office, which was frequently criticised for mishandling high-profile cases. The Euribor prosecutions were marred early on by multiple defendants refusing to come to the UK for trial and a mistrial regarding the three Barclays traders last year.
But the agency has still managed to rack up a significant number of convictions of prominent bankers. Former UBS Group Libor trader Tom Hayes, whose name became synonymous with banker greed, was found guilty in 2015, and another high flyer, Deutsche Bank’s Christian Bittar, pleaded guilty last year shortly before the first trial of Bermingham, Palombo and former colleague Sisse Bohart, who was acquitted last week.
“These [two] men deliberately undermined the integrity of the financial system to line their pockets and to advantage the banks they worked for,” said Lisa Osofsky, director of the SFO. “We are committed to tracking down and bringing to justice those who defraud others and abuse the system.”
The Euribor rate is calculated with submissions from major banks and is meant to reflect the cost of borrowing between them. Palombo and Bermingham were accused of rigging the rate from 2005 to 2009.
“This is a very disappointing end to a very hard fought case,” Palombo’s lawyer John Hartley said in a written response. “He and his family are of course devastated by the outcome and he will need some time to come to terms with this decision whilst we consider the issue of any appeal.”
Throughout the trial, Palombo and Bermingham maintained that there was nothing wrong with taking a trader’s positions into account as long as the bank still submitted a legitimate rate from within a range.
In his remarks, the judge noted that neither the definition of Euribor, nor the code gave any instruction, guidance or assistance as to how the panel banks should determine the rates they submit.
“That failure might be thought by an interested observer to be at best foolhardy, if not utterly negligent,” the judge said. “It was an open door for those involved in the conspiracy to manipulate, or attempt to manipulate, the Euribor rate for the advantage of their own bank’s trading positions.”
Despite these shortcomings, Mr Gledhill said it was contrary to the spirit of the code and not permissible to choose a figure, even if it is within the range, in order to benefit a trader’s position. Senior managers also should have been aware of what was going and stopped it, the judge said.
The lengthier sentence for Bermingham took into account that he brought Ms Bohart into the conspiracy. She was acquitted of the charges.
“But for you, she would never have become involved,” Mr Gledhill said. “She looked to you as her mentor and you have badly let her down.”
Palombo came to Barclays without experience in finance and was placed under the tutelage of Philippe Moryoussef, an experienced and respected swaps trader. On behalf of Moryoussef, Palombo made a number of requests to the cash desk and also reached out to counterparts at other banks for them to make similar requests.
Moryoussef was convicted for his role in the conspiracy last year.
While the judge expressed sympathy that Palombo was left to learn from such a “forceful personality” as Moryoussef, that didn’t explain Palombo’s continued involvement. It couldn’t have been long before he realized the practice was illegal and dishonest, the judge said.
“Your motive was greed and your inhibitions were suppressed as you thought you would not be found out,” Mr Gledhill said.
Before the judge detailed his sentence, Palombo’s lawyer, Sean Larkin, made an emotional appeal to point out that Palombo and his wife are expecting their first child. As he explained that his client will be unable to provide any support to his wife, Palombo broke into tears.
While announcing Palombo’s sentence, the judge said he’d taken that into account as well as other factors such as that this was Palombo’s first offence. The four-year sentence was less than what the judge said was the range of five to eight years that was the starting point for considering such an offence.
