Trader's 14-year sentence for Libor rigging sends message to banks

Tom Hayes and his wife Sarah arrive at Southwark Crown Court in London. Hayes may also be required to stand trial in the US. Photo / AP

A judge "sent a message" to the banking industry for its "dishonest and wrong" conduct after he sentenced a trader convicted of rigging the Libor rate to 14 years in prison.

Tom Hayes, a 35-year-old former yen derivatives trader at UBS and Citigroup, was found guilty of eight counts of conspiracy to defraud following a week of deliberations at the end of a two-month trial at Southwark Crown Court.

Sentencing him yesterday, Mr Justice Cooke said senior bankers "condoned ... embraced ... and even encouraged" Hayes' activity.

The judge added: "The conduct involved here is to be marked out as dishonest and wrong, and a message sent to the world of banking accordingly. The reputation of Libor is important to the City, as a financial sector, and the banking institutions of this City. Probity and honesty is essential, as is trust."

The court heard how Hayes was at the centre of a network of traders who conspired to rig the London interbank offered rate, triggering a scandal that has cost more than half a dozen banks billions of pounds in fines, and in several cases the jobs of the chief executives.

His ability to manipulate the rates earned Hayes close to 5 million while he was still in his 20s.

The Serious Fraud Office claimed victory after Hayes' conviction, having spent three years in a global inquiry into Libor manipulation across at least 10 banks and brokers.

The fraud squad, which had to ask for extra funds from the Treasury to continue its investigations, said the sentence "brings to an end one strand of the SFO's continuing Libor investigation", with 12 more people awaiting trial - including one unnamed banker who has already pleaded guilty. Several former traders have been banned from the City and fined by the Financial Conduct Authority after entering guilty pleas in the US.

Hayes' sentence is one of the stiffest handed down in Britain for a financial crime. Kweku Adoboli, who lost UBS an estimated 1.4 billion, was jailed for seven years in 2012. Nick Leeson was found guilty in Singapore for his part in the collapse of Barings, and was sentenced to six and a half years.

Hayes, who was granted legal aid for his defence, said in evidence that "everything I did was with complete transparency. Everything I did my managers knew about ... sometimes going up all the way to the CEO".

During his trial, Hayes claimed that he only admitted dishonesty during interviews with the SFO in 2012 to avoid extradition to the United States.

He reversed his position after changing lawyers and pleaded not guilty to eight counts of conspiracy to defraud in December 2013. He could now be sent to the US to stand trial there.

The court heard phone calls by Hayes asking associates at other banks to arrange Libor submissions that would benefit his trading positions. "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 in 2008. "If you do that then I will ... pay you $50,000, $100,000, whatever you want."

The Libor is used to calculate interest on US$450 trillion worth of financial products and contracts. A panel of 16 banks submit the rate of interest they thought they would have to pay to borrow from another institution, with an average rate calculated daily.

The Libor rates rigging case

• Libor - or London interbank offered rate - is woven into the fabric of the world's capital markets.

• The rate sets the price for banks, international financiers or anyone wanting to raise funds through the interest rate markets.

• From major international deals through to home mortgages, Libor is key to the relationship between borrowers and lenders globally.

• Financial instruments worth hundreds of trillions of dollars are tied to Libor.

• A British banking trade group sets the Libor every morning after international banks submit estimates of borrowing costs.

• Libor became engulfed in scandal after the global financial crisis and allegations emerged that banks had rigged these rates.

• A string of financial institutions have paid billions in settlements.