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UBS to pay $1.5 billion to settle Libor charges

Swiss banking giant UBS pleads guilty to fraud for its role in a scheme to manipulate interest rates. Two former traders also face criminal charges.

December 20, 2012|By Alana Semuels and Jim Puzzanghera, Los Angeles Times
  • Atty. Gen. Eric H. Holder Jr. discusses the UBS case Wednesday at the Justice Department.
Atty. Gen. Eric H. Holder Jr. discusses the UBS case Wednesday at the Justice… (Drew Angerer, Getty Images )

UBS has agreed to pay a fine of $1.5 billion to authorities and plead guilty to a felony count of wire fraud, the most recent developments in a far-reaching probe into how banks manipulated interest rates leading up to the financial crisis.

Two former traders were also charged with conspiracy in a complaint unsealed Wednesday, the first people charged criminally in the Libor scandal.

"We cannot and we will not tolerate misconduct on Wall Street of the kind admitted to by UBS today and by Barclays last June," said Assistant Atty. Gen. Lanny Breuer, head of the criminal division. In June, Barclays was the first bank to settle with authorities, paying $450 million.

The fine was one of the biggest leveled against a financial institution by American and British authorities, just short of the $1.9-billion fine HSBC agreed to pay last week over money laundering allegations.

The charges relate to the ways traders leaned on banks to manipulate the London interbank offered rate, or Libor, to benefit their own trading positions.

Officials said that from 2006 through 2009 UBS traders placed bets on the movement of Libor and manipulated the rate, which is used as a benchmark to set interest rates for many mortgages, credit cards and other consumer lending instruments. The traders profited by knowing which way the Libor would move.

In coming months, the probe probably will expand to include other banks that help determine the Libor, analysts say. But it's the criminal charges that turned some heads on Wall Street on Wednesday.

The plea agreement on wire fraud charges by a UBS subsidiary in Japan, which included a $100-million fine, marks the first time since 2005 that a major financial institution has pleaded guilty to criminal charges, the Justice Department said.

"For a bank to admit to criminality is kind of mind-blowing," said Peter Shapiro, managing director of Swap Financial Group in South Orange, N.J. "Obviously, they didn't do that easily — that was something that must have been a big priority of enforcement agencies."

Enforcement agencies have been feeling some pressure to level blame on financial institutions in the wake of the financial crisis, Shapiro said. No senior financial executives have served jail time for their roles in the financial crisis.

"Both the regulators and enforcement agencies feel somewhat beleaguered by the repeated assertions that they failed to deliver enough heads on a plate as a response to the financial crisis," he said.

U.S. officials also announced criminal charges against two former senior traders for UBS in connection with the scandal. Tom Alexander William Hayes, 33, of Britain, was charged with conspiracy and wire fraud, and Roger Darin, 41, of Switzerland, was charged with conspiracy. Both remain abroad, but the Justice Department will try to extradite them.

"The motivation here was nothing short of sheer greed, and the scheme was nothing short of a shell game, a Wall Street version of three-card monte," said Kevin Perkins, associate director of the FBI, which helped investigate the case.

More criminal charges at other banks could follow, said Anthony Sabino, professor of law at the Tobin College of Business at St. John's University.

"Once you start to round up some accused bad guys, that leads to more people being rounded up," he said. "This is a vast conspiracy among a multitude of banks, which therefore implicates a multitude of individuals."

Much of the activity took place at UBS Japan Securities Co., where Hayes was a senior trader. The Justice Department released internal UBS messages in which Hayes and others talked about their alleged manipulation.

In one from November 2006, Hayes told a UBS employee who submitted rate information for the Libor that he and Darin "skew the Libors a bit" and then said he needed the six-month rate to stay high for three days.

UBS traders were often colorful and emphatic in their pleadings, according to documents released by Britain's Financial Services Authority. One wrote, "I need you to keep it as low as possible.... If you do that, I'll pay you, you know, $50,000, $100,000, whatever you want."

The UBS fine was larger than that leveled on Barclays earlier in the year because UBS' misconduct was "considerably more serious than Barclays' because it was more widespread within the firm," the Financial Services Authority said. At least 45 individuals at UBS were involved in or aware of the rate-fixing practice.

UBS said that it had fully cooperated with authorities and that the interest-rate manipulations were the isolated actions of certain employees.

"Their misconduct does not reflect the values of UBS nor the high ethical standards to which we hold every employee," UBS CEO Sergio Ermotti said in a statement.

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