A former supervisor of Deutsche Bank’s Pool Trading Desk and a former derivatives trader were convicted today in New York for their participation in a scheme to manipulate the London Interbank Offered Rate (LIBOR), a critical global benchmark tied to trillions of dollars in derivatives, loans, mortgages, and other financial products.
Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division; Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division; and Special Agent in Charge Matthew J. DeSarno of the FBI’s Washington Field Office’s Criminal Division made the announcement.
Following a month long jury trial before the Hon. Chief Judge Colleen McMahon of the U.S. District Court for the Southern District of New York, a jury convicted former Deutsche Bank supervisor Matthew Connolly, 53, of Basking Ridge, New Jersey, of one count of conspiracy and two counts of wire fraud and former derivatives trader Gavin Campbell Black, 48, of London, of one count of conspiracy and one count of wire fraud. A sentencing date has not been set.
“Matthew Connolly and Gavin Black undermined the integrity of our financial markets by manipulating LIBOR, which is widely considered to be the most important number in the financial world because of its impact on trillions of dollars in financial products,” said Assistant Attorney General Benczkowski. “The Justice Department and its law enforcement partners will aggressively investigate and prosecute individuals and financial institutions who engage in this sort of misconduct.”
“Today’s convictions demonstrate our continuing commitment to prosecute those who fraudulently manipulated the financial markets for their own personal benefit and, in doing so, undermined free market competition,” said Assistant Attorney General Delrahim. “Such conduct will not be tolerated by this administration, especially when it threatens to destabilize global markets and financial stability worldwide. This case is a compelling example of effective coordination among law enforcement agencies — both at home and abroad. The Antitrust Division will continue to work with its many partners to aggressively pursue other individuals involved in this or other illegal schemes that undermine free financial markets.”
“Today’s conviction should serve as a reminder of our commitment to hold individuals and institutions accountable for their involvement in complex fraud schemes,” said Special Agent in Charge DeSarno. “The FBI will continue to work with our global partners in bringing those who undermine our financial markets to justice.”
According to evidence presented at trial, LIBOR is an averaged interest rate, calculated based on submissions from lending banks around the world, reflecting the honest and unbiased rates those banks believed they would be charged if borrowing from other banks. LIBOR was published by the British Bankers’ Association, a trade association based in London. The published LIBOR “fix” for USD currency was the result of a calculation based upon submissions from a panel of 16 banks, including Deutsche Bank.
Connolly was Deutsche Bank’s director of the Pool Trading Desk in New York, where he supervised traders who traded USD LIBOR-based derivative products. Black was a director on Deutsche Bank’s Money Market and Derivatives Desk in London, who also traded USD LIBOR-based derivative products. In order to increase Deutsche Bank’s profits on derivatives contracts tied to the USD LIBOR, Connolly directed his subordinates to reach out to Deutsche Bank’s LIBOR submitters to ask them to submit false and fraudulent LIBOR contributions consistent with his traders’ or the banks’ financial interests, rather than the honest and unbiased costs of borrowing, the evidence showed. The jury also heard evidence that Black asked Deutsche Bank’s cash traders who were responsible for submitting the bank’s LIBOR rates to ask that they adjust their submissions to favor his derivative trading positions. According to evidence at trial, several Deutsche Bank LIBOR submitters accommodated the defendants’ LIBOR manipulation requests.
In April 2015, Deutsche Bank entered into a deferred prosecution agreement to resolve wire fraud and antitrust charges and Deutsche Bank Group Services (UK) Limited pleaded guilty to one count of wire fraud, collectively agreeing to pay a $775 million fine, for the bank’s role in the scheme. Two Deutsche Bank traders pleaded guilty to fraud charges related to the LIBOR manipulation scheme.
Special agents, forensic accountants and intelligence analysts of the FBI’s Washington Field Office are conducting the investigation. Senior Litigation Counsel Carol L. Sipperly and Trial Attorney Alison L. Anderson of the Criminal Division’s Fraud Section and Trial Attorneys Michael Koenig and Christina Brown of the Justice Department’s Antitrust Division are prosecuting the case. The department acknowledges the contributions of Clair Dobbin, of Three Raymond Buildings Barristers, and Alan Ward, of Stephenson Harwood LLP, for their advocacy on behalf of the United States in the British courts.
The investigation leading to this case has required, and has greatly benefitted from, a diligent and wide-ranging assistance among various enforcement agencies both in the United States and abroad. In particular, the Department acknowledges and expresses its appreciation for this assistance from the Commodity Futures Trading Commission’s Division of Enforcement, the U.K. Financial Conduct Authority, and the U.K. Serious Fraud Office. Valuable assistance was provided by the Justice Department’s Office of International Affairs and the Civil Division’s Office of Foreign Litigation.
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Author: October 17, 2018