Libor scandal: Trader’s criminal miscalculation ends with 14 years in prison

A gifted maths graduate was jailed for 14 years this week for rigging the Libor lending rate. An obsession with figures may have led to his number being up, but Tom Hayes claims he is the scapegoat in the scandal.

Former trader Tom Hayes and his wife Sarah arrive at Southwark Crown Court in London. Peter Nicholls / Reuters
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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 whizz nicknamed Rain Man, who slept under a superhero duvet cover he had owned since he was eight.

Tom Hayes, found guilty on Monday of eight counts of conspiracy to defraud and sentenced to 14 years in jail, told the court he never thought he had been dishonest.

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 practice at the time.

That included influencing other traders and brokers to manipulate Libor – the London Interbank Offered Rate – used as a benchmark for $450 trillion in financial contracts worldwide.

Mukul Chawla, counsel for the prosecution, called Hayes the ringleader in a conspiracy of about 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, the DoJ, the FSA, you name the acronym,” he said, referring respectively to UBS and Citigroup; the United States department of justice; and Britain’s Financial Services Authority. “I was the guy everyone was going to blame.”

Some of those named in the Hayes case have been charged and others remain under investigation, Mr Chawla said. But so far, no senior executives have been prosecuted in a scandal that helped to shred public faith in the banks and has cost some of the world’s biggest lenders and brokerages $9bn in fines.

The scandal has also resulted in 21 people being charged. Four have pleaded guilty in separate Libor cases in Britain and the US, although they have yet to be sentenced.

UBS, where Hayes worked in Tokyo from 2006 through 2009, was fined about $1.5bn 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.

UBS 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 sacked Hayes just 10 months in the job in 2010 after an internal investigation into his methods, was fined by European antitrust authorities €70 million (Dh282m) in 2013 for participating in yen interest rate groups.

It declined to comment after the verdict.

Rain Man

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 did not take offence when colleagues called him Rain Man, after a 1988 Hollywood film about an autistic savant with a gift for numbers who wins big at blackjack. One trader would chant a punchline from the movie whenever he saw Hayes: “Qantas never crashed, Qantas never crashed” [in fact, though, Qantas had a fatal crash off New Guinea in 1951].

He was also nicknamed Tommy Chocolate because when out with colleagues, he drank cocoa while they drank beer.

For someone so immersed in 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. 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,” Mr Chawla told the jury. But he 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 could influence the rates.

“If you keep 6s [six-month Libor] unchanged today I will f---ing do one humongous deal with you, all right?” he told a broker in one phone call on September 18, 2008. “... If you do that then I will ... pay you $50,000, $100,000, whatever you want.”

From UBS to Citi

After three years at UBS, during which he earned the Swiss bank $300m, Hayes was lured to Citigroup’s Tokyo office with an offer of a £2.2m (Dh12.6m) bonus.

In his new job, he found it harder to persuade rate submitters to listen to his requests. He pushed London-based junior colleague Hayato Hoshino to approach the bank’s yen Libor submitter, Burak Celtic, to build a relationship on his behalf.

“Just try and catch him down in the toilet or something,” Hayes told Mr Hoshino. But when the colleague approached Mr Celtic soon after, the submitter promptly reported the incident to his boss Andrew Thursfield, a senior manager in Citigroup’s internal treasury office, who ordered an internal investigation.

At the time, nerves were on edge across the industry over a snowballing global investigation, begun in 2008, into allegations of rate rigging. A dozen banks were in the spotlight and executives were being questioned by authorities, including Mr Thursfield at Citigroup.

On a phone call on July 12, 2010, transcripts of which were read out in court, Hayes’s boss Chris Cecere asked Andrew Morton, Citigroup’s global head of rates based in London, whether the treasury department had reported “little Hoshino”.

“Yeah I heard that they, they, uh, complained to compliance or something like that,” Mr Morton says. “... I told you. Dude, I told you multiple times. Be f-----g careful with those guys.”

Mr Cecere replied: “What the f--k kind of bank is this? Turn your own people in instead of just picking up the phone and saying look, this is really not comfortable, please stop it.”

Hayes said he was “coached” by Mr Cecere and Brian McCappin, the former head of Citigroup’s investment bank in Japan, to tell Citigroup’s investigating lawyers that he had shared only general “market colour” and had not asked for rate moves.

Mr Cecere, Mr McCappin, Mr Morton and Mr Hoshino have not been charged with wrongdoing.

Mr Cecere said in 2012 that he had left Citigroup voluntarily with full bonus; his current employer, the hedge fund Brevan Howard, which had no involvement in the proceedings against Hayes, did not make Mr Cecere available for further comment.

Mr Morton and Mr McCappin, the latter now based in New York as a senior executive of global investor sales, declined to comment through Citigroup. Mr Hoshino left and moved back to Tokyo, according to his Facebook page. He could not be reached for comment.

When Hayes was summoned to a final meeting before being dismissed on September 6, 2010, he asked how much the bank would give him to go quietly. Citigroup reported the incident to the authorities and let him keep his £2.2m bonus.

Back to England

Bruised, Hayes returned to England and promptly married Sarah Tighe, a young lawyer he had met at a Tokyo swimming pool. With Mrs Hayes, his confidante who would become the mother of their son Joshua, he bought a seven-bedroom, seven-bathroom Victorian rectory in southern England.

In December 2012, he switched on the television to hear the US attorney general Eric Holder and criminal division chief Lanny Breuer announce he had been criminally charged over Libor. Terrified of extradition to the US, Hayes hired lawyers to approach British investigators to offer his cooperation with their inquiries.

“I had one focus, and one focus only, which was not to be flown to El Paso in Texas, a maximum-security prison, without my wife, without my son,” he said at trial. “I didn’t think about innocence, guilt or anything. My only consideration at the time was getting charged [in Britain] and avoiding extradition.”

While cooperating, he gave 82 hours of voluntary interviews to Britain’s Serious Fraud Office over about five months in 2013, during which he not only conceded that he had acted dishonestly, but named and implicated 25 other people.

Then, he abruptly withdrew his cooperation, pleaded not guilty and threw himself on the mercy of a British jury. He said that decision was taken out of anger at how he had been treated by the authorities and the banks that had “hung him out to dry”.

In court, Hayes gave an articulate account of himself when he testified in his defence, but grew testy and difficult under cross-examination. He occasionally flashed dry wit. Straight-faced, he told a latecoming reporter outside the courtroom during the tense days while the jury was still deliberating: “You missed it. I’ve been found not guilty on all counts.”

Mr Chawla told the jury the trial was about dishonesty. But for Hayes, it was always about numbers.

The evidence trail, he said, was testament to his belief that he had done nothing wrong. It had been a numbers game – the more people he asked to nudge rates, the more likely someone would do his bidding, the more he would earn for the bank. He insisted to the end that a cold look at the numbers would reveal he had done nothing wrong.

“For me this case is all about numbers and we don’t ever really look at the numbers properly, in my opinion,” he said.

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