Featured image: Mike Partridge
London Trader Tom Hayes became the first person to be jailed in relation to the Libor fixing scandal, which affected one of the most important interest rates in finance and caused the manipulation of millions of financial deals. The allegations were first made in 2010, when Hayes was fired from his job at Citibank amongst suspicions he was orchestrating a large scale manipulation of the financial standard.
Libor is a London based global benchmark used to estimate the value of transactions, to allow banks to measure each other’s financial health, and to use the data to assign interest rates when loaning to other banks. At the time of the scandal, the deals that operated under Libor were valued at 800 trillion dollars according to the Wheatly report. The system’s rates were based on bank submitted estimations rather than measures of financial transactions, and as a result of this, suspicions emerged that banks were conspiring to submit false figures in order to change the rate of interest and gain themselves further profits. In the past three years, a multitude of large banks– including Barclays, RBS and JPMorgan– have been fined by banking regulators for this system of market manipulation, but there was never an individual who went to trial until Tom Hayes.
Hayes, having graduated from Nottingham University with a degree in mathematics and engineering, was quickly recruited by RBS thanks to his skills with numbers. It was at this bank that he first experienced the financial markets, and soon found that he had natural talent in the field. Unhappy with his salary, he moved to UBS, where he first started working with trades operating under the Libor Rate.
When accused of manipulating the Libor, Tom Hayes freely admitted to having done so. However, he argued the practice was commonplace in the banking industry. He argued that his superiors knew full well what he was doing and actively encouraged it, and that he was being made a scapegoat for the wrongdoing of the banking industry. Nonetheless, the prosecution argued that it was Hayes’ serial offences and set up of the manipulation ring that warranted the charges.
Hayes was faced with a multitude of evidence against him, with transcripts from the inter-bank messaging system painting a picture of a man inciting multi-million pound fraud. The messages ranged from Hayes promising to pay a broker 100,000 dollars to keep the Libor rate “as low as possible” to when asked about the process of getting the rate changed by a fellow trader, responding, “Just give the cash desk a Mars bar and they’ll set it to whatever you want.”
After a nine week trial, the jury found the 35-year old trader guilty on multiple accounts of fraud, culminating in a 14 year sentence. And while in the years following the scandal the UK government commissioned major reforms in the banking sector, including setting the rate based on actual transactions rather than estimations, many claim that Hayes was just the tip of the iceberg. The trader is the first individual to be jailed as a consequence of the scandal, but there remain an unknown number of others who profited from, participated in, and permitted the manipulative conspiracy.