• Charles Heighton

The Lion of LIBOR is being uncaged in January

By Charles Heighton – The London Financial Markets Editor and VP of Trading at King’s Global Markets

Thomas Hayes was jailed in 2015 for manipulating LIBOR (London Interbank Offered Rate). He is now set to be released from prison in January after serving 5 years. Hayes was guilty but his story is complex and the case was arguably far from fair. This article will attempt to sum up some of the most egregious aspects of his story, but those who are interested should read ’The Spider Network’ by David Enrich.

LIBOR set the rate for major financial transactions including loans between banks and many mortgages. This rate is calculated by asking participating banks the rate that they could borrow from other banks at. The prosecution alleged that Hayes used his connections with banks and brokers to have this rate manipulated to help his trading positions. He was effectively portrayed as the head of an international syndicate that defrauded the average person.

This was a gross misrepresentation and frankly, Hayes, in my opinion, was made a scapegoat in an era where prosecutors were desperate to send a banker to prison after the fallout of the financial crisis. The investigation that led to Hayes’ arrest was flawed and highly biased.

The regulators allowed UBS, the bank that employed Hayes during part of his career, to fully control what information they passed over. This enabled the bank to cover for those employees they still had while casting all the blame on Hayes. The case was built on the information that UBS provided, which was specifically filtered to implicate Hayes as a rogue ex-employee. In reality, Hayes’ superiors agreed with and even encouraged his actions. This was in part due to the lack of funding that these regulators had in the UK and US, but that is no excuse.

The investigation itself was also flawed in intent. They were hellbent on finding an international syndicate with a signal leader to prosecute. So, they saw something that did not exist. At the time public anger over the crisis was at a fever pitch and investigators were desperate to send someone to prison. In this way, Hayes became a scapegoat for a decade of financial impropriety and recklessness that led to the financial crisis. Although it is important to note that no actual crime was committed during the crisis. Rather, the public outcry related to the high salaries and bonuses of these bankers who had wrecked the economy.

The biggest problem with Hayes’ case, in my opinion, was the decisions of the Judge presiding over it. Judge Cooke declared it an open and shut case before the trial began, possibly tainting the jury. He also refused to allow Hayes’ defence to include his Aspbergers Syndrome as evidence. This condition means that Hayes is a loyal and naïve person, he is unable to decide between right and wrong like the average person. The Judge asked the jury to consider whether they felt that Hayes believed he was acting dishonestly at the time of his actions and told them that if they did, they should convict him. To reflect on Hayes' thoughts, you had to know that he suffered from Aspbergers, and understand how that could have affected not only his moral compass but also his judgement. To prevent the jury from learning that information was a miscarriage of justice. This is especially hard to understand, as the thousands of pieces of evidence that the SFO had gathered detailing Hayes’ calls and messages showed that he did not believe he was acting dishonestly or illegally. Otherwise, why would he have made the requests using lines of communication that he knew were recorded. His Aspbergers also arguable impacted his defence as he took poor advice to cooperate with the SFO, which probably cost him his freedom.

Judge Cooke also gave Hayes a fourteen-year sentence, an overly punitive length of time. The longest ever at the time in the UK for a white-collar crime. While this was later reduced by three years, it is still shocking when you consider that none of Hayes’ alleged co-conspirators were sent to prison. Even the two RadoBank traders who were also convicted of LIBOR manipulation received a total of 3 years of prison time put together. In Hayes' circle, all six of his brokers were found not guilty and served no time, which in reality demonstrates the flaws of a jury system deciding complex cases. Alykulov, who flipped and helped the authorities not only stayed out of prison but he was also allowed to remain in the industry as a broker despite admitting to manipulating LIBOR. Mccappin, who at a minimum knew of Hayes’ actions and probably encouraged and participated in them, was promoted at Citi as Hayes was sent to prison. Citibank was where Hayes worked after UBS. Of the great ‘Spider Network’ Hayes is the only one who went to jail while most are now far wealthier and were just as responsible.

Hayes was guilty but he was not a lone rogue trader, and he did not control a syndicate of illegal traders. He made bad and illegal decisions in part due to his Aspbergers. Did he deserve to go to prison? Probably yes. But he did not deserve such a lengthy sentence nor should he have been the only one in his network to be behind bars. Now he is to be released in January 2021, after serving five years in prison. His actions were wrong and illegal, but his punishment was monstrous and his early release does not change that.

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