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?