Citibank (C) is the first U.S. bank to settle allegations of benchmark interest rate manipulation. To resolve the Commodities Futures Trading Commission claims that it manipulated the London Interbank Offered Rates (LIBOR), Citibank will pay $250M. It will pay $175M to resolve Euroyen Tibor and Yen Libor rigging claims. Also settling charges within this case are Citibank Japan Ltd (CJL) and Citigroup Global Markets Japan Inc. (CGMJ).
The CFTC claims that between ’07 and ‘12 Citigroup had specific traders input false information so their trading positions would benefit. It also claims that the bank’s affiliates issued false reports related to dollar Libor rates and ISDAFIX benchmark rates during the financial crisis so that its reputation would be protected.
Citigroup Global Markets Japan is charged with trying to rig Euroyen TIBOR and Yen LIBOR. Citibank Japan Ltd. is accused of engaging in false reporting related to the Euroyen TIBOR so that derivatives trading positions priced according to Euroyen TIBOR and Yen LIBOR would purportedly benefit.
Libor, along with the Tokyo Interbank Offered Rate (Tibor), is what banks use to establish the cost of borrowing from one another. Libor is also used to set the rates on mortgages, credit cards, derivatives, and other financial products.
The CFTC said that along with the Citigroup settlement, it has now fined banks and brokers over $5B in penalties for rigging interest rates and foreign exchanges. It is one of a number of regulators involved in the global probe to hold those responsible for benchmark manipulation accountable.
Regulators are not the only ones. Just last month, in their institutional investor fraud case, a number of municipalities and pension funds reached a $324M settlement with seven banks for rigging ISDAfix, which is used in the derivatives market. The deal resolves antitrust claims made against Bank of America (BAC), Citigroup, JPMorgan Chase (JPM), Barclays (BARC) Royal Bank of Scotland (RBS), Deutsche Bank (DB), and Credit Suisse (CS). Still, no top executives have gone to prison over the alleged wrongdoing.
While criminal charges have been brought against a number of individuals, it was just this week that the U.S. government has charged its first American trader. Matthew Connolly, the ex-head of Deutsche Bank’s pool trading desk in New York, has been apprehended. Also charged was ex-London derivatives trader Gavin Campbell Black.
The two men are accused of trying to manipulate Libor between ’05 and ’11 so that Deutsche Bank’s trading positions would benefit. They are charged with multiple wire fraud counts and conspiring to commit wire fraud and bank fraud. Black’s supervisor, former Deutsche Bank trader Michael Curtler, pleaded guilty last year.
The German bank has already consented to pay $2.5B in criminal and regulatory penalties to resolve the Libor manipulating allegations against it. It also accepted a criminal guilty plea for its British subsidiary that was involved.
Other New York-based traders have been charged over interest rate rigging in the U.K.
Meantime, in the UK, the criminal trial against five ex-Barclays traders continues. Alex Pabon, Jay Merchant, Styianos Contogouls, Ryan Reich, and Jonathan Matthew could face up to ten years behind bars if convicted.
Citibank Fined $425M in Rate-Rigging Cases, CFO, May 25, 2016
Seven Banks to Pay $324 Million to Resolve ISDAfix Claims, Washington Post, May 4, 2016
Libor Prosecution Snares Two Former Deutsche Traders, NY Times, June 03, 2016
Bank of America, Citigroup, JPMorgan Chase, Credit Suisse, Deutsche Bank, and Other Banks Settle ISDAFix Rigging Case for $324 Million, Institutional Investor Securities Blog, May 4, 2016