Five brokers acquitted in Libor rigging trial

Five former brokers charged with assisting Tom Hayes, former UBS and Citigroup trader to manipulate the Yen Libor rate, were acquitted of conspiracy to defraud in the Southwark Crown Court today.  The jury continues to deliberate a single charge against a sixth broker.

The case hinged on whether the defendants were party to a dishonest agreement with Hayes.

The defendants all put quite disparate defences together.  One of them said that the prosecution was a politically-motivated witch hunt.  Another said that he did not really have a sophisticated knowledge of the underlying financial matters or know that he was doing anything wrong. The defence ultimately placed enough doubt in the minds of the jury about how involved and culpable these individuals really were. The fact they were not bankers themselves probably contributed to their defence that they were not co-conspirators, nor pivotal to Hayes’ activities.

The role of third parties in facilitating illegal rate manipulation has a counterpart in administrative cases involving liability for cartels.  We've seen over the Yen interest rate cartel that ICAP, a broker, is appealing the European Commission’s finding that it was guilty of infringing Article 101 TFEU for its role as an alleged facilitator.  ICAP did not settle along with the banks and maintains that the Commission cast the net of liability for alleged accomplices far too wide.

Cases involving intermediaries are inevitably more complex than those involving direct perpetrators.  Bringing a watertight case involves a careful understanding of how the market operates, in this case how the broker-banker relationship functions, how trades are hedged and, ultimately, how bankers and brokers are motivated and remunerated. The defence said that the prosecution had underestimated these complexities and evidently the jury had its doubts.

The case probably doesn't say, never bring cases against intermediaries again, but is a reminder of the potential defences that are available to defendants the more removed they are from the central action and that there are opportunities to sow the seeds of doubt in the minds of juries.  Arguments such as these people are relationally distanced from the actual setting of rates, so that they could not have made any palpable difference and did not really understand the complexities helped the case to unravel.

If you can develop a theory of case which is built around the protagonists making excessive bonuses as a result of their actions where the defendants are the front runners, centre stage of illegal activity, that’s going to be more compelling to juries. Once you start moving away from that and to intermediaries, you've got much more challenges. You are going to need much more than citing incentives such as champagne and curries to convince a jury of the defendant’s state of mind and his role in illegal activity.

The prosecution must get its theory of the case right.  In the case of brokers, were they critical conduits or instrumental to Mr. Hayes’ activities or were they just telling people what they wanted to hear?

Court of Justice rejects two appeals by Toshiba against cartel fines

The Court of Justice has confirmed a penalty of EUR 13.2 million imposed by the European Commission on Toshiba for market sharing in the power transformer sector.  The judgment comes within a day of the Court upholding the Commission’s fine against Toshiba for its involvement in the gas insulated switchgear cartel over the period 1998-2004.

In the power transformer case the Commission maintained that the infringement involving a ‘gentleman’s agreement’ between Toshiba and its European competitors to protect their respective Japanese and EU markets was a restriction by object.  The Court dismissed claims by the members of the cartel that the arrangement had no effect on competition due to what were alleged to be insurmountable difficulties for Japanese companies to penetrate the EU market.

The case raises the familiar debate over the classification of restrictions of competition by object and restrictions by effect.  The Court concluded that the arrangements amounted to a market sharing cartel and as such constituted a restriction by object.

The outcome is not surprising.  It is a reminder that a claim that an agreement to stay out of a particular territory or reserve it to incumbent suppliers does not restrict competition will rarely be accepted by a competition authority.  In this case the Court upheld the Commission’s position that the agreement was a traditional hard core restriction and the Commission did not have to prove anticompetitive effects. 

The case can be contrasted with the recent Cartes Bancaires case which has revisited the debate over object restrictions.  Cartes Bancaires was less straightforward which explains why in that case the Court reminded the Commission of the need not to circumvent the evidential burden in cases involving more complex arrangements.

Case C-373/14 P Toshiba Corporation v European Commission, ECJ judgment, 20 January 2016 (ECLI:EU:C:2016:26)

Legal services sector under competition scrutiny

The legal services sector in England and Wales is facing a market study by the Competition and Markets Authority (CMA).  The study, announced on 13 January, has been prompted by concerns about standards and affordability of legal services, access to redress, low consumer empowerment and possible barriers to entry.

In announcing this study, the CMA explains that its aim is to ensure that sectors that play a significant role in the economy are subject to healthy competition.  Legal services are significant in their own right with a UK turnover of about £30 billion. 

Research by the OFT and ongoing monitoring by the CMA has found that the reforms brought about by the Legal Services Act 2007 have had beneficial effects in removing barriers to entry.  However, the CMA considers that concerns remain and that a full examination of the sector is now necessary.

The CMA has invited representations including on whether to make a market investigation reference by 3 February 2016.  If it proposes to make a market investigation reference (or has been urged to make one and proposes not to do so) it must begin a consultation no later than 12 July 2016.  The CMA must publish its market study report detailing the action it proposes to take, if any, no later than 12 January 2017.