LONDON--A top executive at brokerage firm ICAP PLC (IAP.LN,
IAPLY) knew of an arrangement with UBS AG (UBS, UBSN.VX) that U.S.
and British regulators allege was part of a scheme to rig benchmark
interest rates, according to people familiar with the matter.
The ICAP executive, David Casterton, was included on emails
between ICAP and UBS officials in 2007 as they negotiated a deal
that regulators say was designed to compensate ICAP brokers for
helping UBS traders manipulate the London interbank offered rate,
or Libor, these people say. Mr. Casterton ultimately signed off on
the arrangement, they say.
British regulators have described the arrangement, which they
say involved UBS making quarterly payments to ICAP allegedly to
reward brokers for helping rig Libor, as "corrupt." The Swiss bank
admitted wrongdoing when it settled Libor-rigging charges with U.S.
and British authorities last December.
That Mr. Casterton knew of the arrangement with UBS hasn't been
disputed. But ICAP officials have told U.K. regulators that the
arrangements have been misconstrued and were appropriate commercial
transactions, according to people familiar with the discussions.
ICAP and Mr. Casterton haven't been accused of wrongdoing.
"Neither the company nor its senior management was aware of any
corrupt payment from any source at any time," said ICAP spokeswoman
Brigitte Trafford. "All payments received from UBS were documented
and invoiced. ICAP strongly refutes that Mr. Casterton or anybody
else in ICAP senior management were ever aware of, or involved in,
any improper activities in relation to the attempted manipulation
of yen Libor. Any suggestion otherwise is false and
defamatory."
Mr. Casterton didn't respond to requests for comment. The
18-year ICAP veteran and a longtime deputy to Chief Executive
Michael Spencer would be one of the most senior finance executives
to be drawn into the Libor saga.
Known by colleagues as "Clumpy," Mr. Casterton is head of global
broking at the London-based firm, which describes itself as the
world's largest interdealer broker, helping facilitate transactions
among financial institutions. In 2007, when the transactions in
question were allegedly arranged, Mr. Casterton was responsible for
ICAP's interest-rate-derivatives business, among other
functions.
ICAP has previously said it is cooperating with U.S. and British
authorities investigating the brokerage firm as part of their
rate-manipulation probes. The firm has suspended or put on
administrative leave a handful of brokers in connection with the
Libor investigation, but no senior executives, according to a
person familiar with the matter.
The inclusion of Mr. Casterton on emails about the alleged
Libor-related payments is the latest example of top industry
executives supposedly knowing their subordinates were involved in
activities that authorities now describe as improper.
Barclays PLC (BCS, BARC.LN) Chief Executive Bob Diamond and
Chief Operating Officer Jerry del Missier resigned last summer
after the British bank settled accusations it tried to manipulate
rates, in some instances allegedly at the behest of Messrs. Diamond
and del Missier. Documents released by U.K. Parliament showed the
two executives instructed their subordinates to submit artificially
low Libor data. While Barclays admitted wrongdoing, both former
executives denied doing anything improper.
A senior UBS executive, Carsten Kengeter, resigned in February,
days after The Wall Street Journal reported he had been on internal
emails that discussed the abilities of a UBS trader to influence
Libor. UBS said Mr. Kengeter's departure wasn't related to the
Libor disclosures. Mr. Kengeter declined to comment.
And two top executives at R.P. Martin Holdings Ltd., a small
London interdealer brokerage, recently were suspended amid a
British investigation into the roles allegedly played by R.P.
Martin brokers in the Libor scandal. The company hasn't been
charged with wrongdoing, and a representative declined to
comment.
The U.K.'s criminal investigation of alleged Libor rigging is
continuing.
Last week, fraud prosecutors charged former UBS and Citigroup
Inc. (C) trader Tom Hayes with eight counts of allegedly conspiring
to defraud by manipulating rates. Two of those counts relate to Mr.
Hayes's alleged efforts to manipulate Libor with the help of ICAP
employees, prosecutors said.
Mr. Hayes, who also has been charged with fraud in the U.S.,
hasn't entered a plea to either country's charges. He wrote in a
January text message to The Wall Street Journal that "this goes
much much higher than me."
The payments between UBS and ICAP came to light last December
when UBS settled rate-rigging charges with U.S. and British
authorities. In public settlement documents, the U.S. Commodity
Futures Trading Commission and the U.K.'s Financial Services
Authority said UBS traders enlisted employees at interdealer
brokers to help manipulate Libor and other benchmarks.
To reward the brokers for their help, the UBS employees provided
various brokers with commission-generating trades and other types
of compensation, the regulators said.
In ICAP's case, UBS in 2007 arranged for a "special compensation
package" to be paid to a helpful broker and his colleagues,
according to the CFTC and FSA settlement documents. Neither
regulator identified ICAP by name, but people familiar with the
investigation said the firm is ICAP.
The package allegedly included a quarterly "fixing service"
payment of about $27,000 that was shared among several ICAP
employees. One broker personally received about $9,000 per quarter,
according to the CFTC. The package was in place for nearly two
years, generating a total of about $216,000 for the brokers, the
CFTC said.
The CFTC said the payments to the brokers were "in return for
their unlawful assistance." The FSA, now known as the Financial
Conduct Authority, described the transactions as "corrupt
payments."
ICAP officials are telling regulators they have misinterpreted
the nature of the transactions, according to the people familiar
with the discussions. The officials say the UBS payments were based
on transactions ICAP handled for the Swiss bank and weren't related
to Libor, and that they aren't aware of any payments going from UBS
directly to any individual ICAP brokers, these people say.
The transactions were negotiated at least in part via email, and
the correspondence is now in the hands of regulators, according to
the people familiar with the matter. Mr. Casterton, who was on some
of the emails, approved the deal, the people said.
Write to David Enrich at david.enrich@wsj.com
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