U.K. Fraud Agency Makes First Arrests Over Libor-Rigging

By Lindsay Fortado – Dec 11, 2012 8:37 AM ET

A former Citigroup Inc. (C) trader is among three people held in the first U.K. arrests as part of global probes into tampering with the London interbank offered rate, according to two people familiar with the matter.

Thomas Hayes, a former trader at UBS AG and Citigroup, was arrested by the Serious Fraud Office and City of London Police today, said the people, who asked not to be identified because the investigation is ongoing. The three men arrested, ranging in age from 33 to 47, are all British nationals living in the U.K., the SFO said in an e-mailed statement.

The Swiss Re Insurance building, left, and Tower 42, right, stand in the city of London. Photographer: Chris Ratcliffe/Bloomberg

Global authorities are investigating claims that more than a dozen banks altered submissions used to set benchmarks such as Libor to profit from bets on interest-rate derivatives or make the lenders’ finances appear healthier. Swiss lender UBS (UBSN) is expected to face a fine as early as this week that may surpass the record 290 million pounds ($466.6 million) paid in June by Barclays Plc, the U.K.’s second-biggest bank, to settle claims it attempted to manipulate Libor.

The agency and police also searched three homes in Surrey and Essex. Arrests in the U.K. are made early in investigations, allowing people, who may not be charged, to be questioned under caution.

Tokyo Trader

Hayes, a Tokyo-based trader for Citigroup, was previously dismissed for suspected involvement in the rate manipulation, two people familiar with the situation said earlier this year.

Jeff French, a spokesman for Citigroup in London, declined to comment or provide contact information for Hayes. A number for Hayes couldn’t immediately be located.

David Jones, an SFO spokesman, declined to comment beyond the statement. The City of London Police referred all calls to the SFO.

David Green, the director of the SFO, said in an interview last month the agency is considering levying conspiracy-to- defraud charges against individuals. Green said the agency is focusing on the most egregious attempts to manipulate Libor and other related rates. Investigations into firms, managers, traders and rate setters at lesser offenders will come later.

Libor, a benchmark for more than $300 trillion of financial products worldwide, is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association in London. The rates help determine borrowing costs for everything from mortgages to student loans.

Barclays Fine

The SFO opened the Libor probe in July at the request of British politicians after the Barclays (BARC) fine. Regulators in the U.S. and U.K. are looking into how derivatives traders and bankers who submitted interest-rate data colluded to rig benchmarks to benefit their own trades, and whether lenders low- balled submissions in 2008 to hide their true cost of borrowing.

Criminal probes by the SFO and U.S. Department of Justice are running in parallel with civil investigations being conducted by the Justice Department’s fraud division, the U.S. Commodity Futures Trading Commission and the U.K. Financial Services Authority.

The SFO has “Hoover-ed up all the stuff from the FSA and loaded it onto our computers,” Green said last month. It also received evidence from the U.S. Federal Bureau of Investigation and some banks. Green took over as director in April and now has 40 people working on the probe. The SFO’s previous director, Richard Alderman, declined to get involved in the case.

The agency is unlikely to conduct raids on banks, Green said. Its main focus is on targeting individuals and secondarily considering whether they can bring charges against firms. In order to do so, the SFO would have to prove that a “controlling mind” at a bank knew of the illicit behavior, Green said.

Jane de Lozey and Matthew Wagstaff are overseeing the Libor investigation, with staff from external consultancy, accounting and law firms, and with two people from the Crown Prosecution Service, Green said. The Treasury has earmarked 3.5 million pounds for the SFO’s Libor investigation.

To contact the reporter on this story: Lindsay Fortado in London at lfortado@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net