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UBS to plead guilty to fraud for interest-rate rigging
Bank also to pay $1.5 billion in fines, fees and penalties
Question of the Day
UBS Securities Japan, a subsidiary of the multinational financial institution UBS AG, agreed on Wednesday to plead guilty to charges of felony wire fraud in a scheme to manipulate the London Interbank Offered Rate, a key benchmark for financial products and transactions around the world.
The agreement was announced by Attorney General Eric H. Holder Jr., who said the company agreed to admit to its criminal conduct and, combined with roughly $1 billion in regulatory penalties and disgorgement fees, the criminal fines and penalties that would bring the total resolution to approximately $1.5 billion.
Mr. Holder described the agreement as part of the government's "latest actions in our ongoing efforts to investigate and prosecute financial crimes — and to move both fairly and aggressively in bringing the perpetrators of these crimes to justice."
He said UBS AG agreed to pay a penalty of $400 million to the U.S. government, to admit and accept responsibility for its misconduct, and to continue cooperating with the Justice Department's ongoing investigation as part of a non-prosecution agreement.
A criminal information in the case was filed Wednesday in U.S. District Court in the District of Connecticut.
Mr. Holder said the non-prosecution agreement illustrated the "significant steps" UBS has taken to help investigators uncover London Interbank Offered Rate (LIBOR) misconduct and to implement remedial measures strengthening the company's internal controls.
"And it reflects the department's determination to rigorously enforce federal financial crime laws — and underscores our willingness to bring criminal charges under these laws when they are supported by the facts," he said.
Additionally, in a separate complaint, Mr. Holder said two former UBS traders have been charged with conspiracy for their alleged roles in this scheme — which allowed UBS to boost its trading profits by placing bets on the movement of benchmark interest rates, and then manipulating those rates.
The former senior UBS traders were identified as Tom Alexander William Hayes, 33, of England and Roger Darin, 41, of Switzerland. Both were charged with conspiracy in a criminal complaint unsealed in Manhattan federal court earlier Wednesday. Mr. Hayes also is charged with wire fraud, based on the same scheme, and a price-fixing violation arising from his collusive activity with another bank to manipulate LIBOR benchmark rates.
"By causing UBS and other financial institutions to spread false and misleading information about LIBOR, these alleged conspirators — and others at UBS — manipulated the benchmark interest rate upon which many consumer financial products — including credit cards, student loans, and mortgages — are frequently based," Mr. Holder said.
"They defrauded the company's counterparties of millions of dollars. And they did so primarily to reap increased profits and secure bigger bonuses for themselves," he said.
UBS Japan signed a plea agreement with the government admitting its criminal conduct and agreed to pay a $100 million fine. UBS AG entered into a non-prosecution agreement with the government requiring it to pay an additional $400 million penalty.
Other penalties included $700 million as a result of action by the Commodity Futures Trading Commission, $259.2 million to the U.K. Financial Services Authority and $64.3 million as a result of the Swiss Financial Markets Authority action.
LIBOR, published by the British Bankers' Association (BBA), a trade association based in London, is calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The LIBOR for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks.
Between July 2006 and September 2009, the criminal information said, Mr. Hayes traded in interest rate derivatives that essentially consisted of bets against other traders on the direction in which Yen LIBOR would move. UBS was a member of the Yen LIBOR panel, and Mr. Darin was, at certain times relevant to the criminal complaint, a trader responsible for making and supervising LIBOR submissions to the BBA on behalf of the bank.
In a statement of facts, Mr. Hayes is referred to as "Trader-1" and Mr. Darin is referred to as "Submitter-1."
The criminal information said UBS Japan and Mr. Hayes employed three strategies to execute the scheme: conspiring with Mr. Darin and others to cause the bank to make false and misleading Yen LIBOR submissions to the BBA; causing cash brokerage firms to disseminate false and misleading information about short-term interest rates for Yen, which those banks could and did rely upon in formulating their own LIBOR submissions to the BBA; and communicating with interest rate derivatives traders employed at three other Yen LIBOR panel banks to cause them to make false and misleading Yen LIBOR submissions to the BBA.
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