By David Enrich
LONDON--Is a 35-year-old mathematician the modern face of
financial crime?
In a trial starting Tuesday in London, British prosecutors will
contend that the answer is yes. They are preparing to cast Tom
Hayes, a former star trader at UBS AG and Citigroup Inc., as the
ringleader of a global conspiracy to manipulate the London
interbank offered rate, or Libor.
Mr. Hayes's expected defense: He is being unfairly singled out
for behavior that was widespread all over Wall Street. The argument
rests primarily on the fact that his bosses knew what he was doing
and sometimes participated alongside him, which explains why he
didn't think what he was doing was wrong.
UBS has pleaded guilty to manipulating Libor and acknowledged
that managers were involved. A Citigroup unit in Japan was punished
for rate rigging in 2011. At the time, the bank apologized to
clients, but it didn't formally admit to wrongdoing or address
whether people senior to Mr. Hayes were involved. Citigroup hasn't
entered into settlements with U.S. or British regulators.
"This goes much much higher than me," Mr. Hayes said in a 2013
text message to The Wall Street Journal, his only public comment on
the case aside from entering his not-guilty plea. Libor underpins
interest rates on trillions of dollars of mortgages, loans and
other products.
The trial is taking place as U.S. and European banks continue to
get in trouble for their financial misdeeds, in particular the
attempted manipulation of important markets and financial
benchmarks. Last week, five banks were fined a total of about $5.6
billion for trying to rig currency markets, an offense that they
admitted committing.
Despite the record-breaking fines meted out against financial
institutions, law-enforcement authorities in the U.S. and U.K. are
under public pressure to hold individuals accountable. In the U.S.,
Justice Department officials said last week that they are
continuing to investigate individual traders for possible crimes in
the foreign-exchange case.
Mr. Hayes, who has been charged with fraud and collusion in both
the U.S. and U.K., is one of more than a dozen former traders and
brokers who have been charged in one or both countries for
Libor-related offenses. Another handful of former traders at major
banks were named by the U.K's Serious Fraud Office as Mr. Hayes's
co-conspirators, but haven't been indicted.
All of them were low- and midlevel employees. No senior
executives have been criminally charged.
Mr. Hayes is the first person to go on trial for alleged Libor
manipulation. If convicted, he could face up to a decade in prison.
His trial will be followed this fall by the trials of several
former brokers who allegedly helped Mr. Hayes rig interest rates.
The brokers have all pleaded not guilty.
Mr. Hayes's trial is expected to last up to 12 weeks. Mr. Hayes
himself is likely to spend more than a week on the witness stand.
Other witnesses are expected to include UBS and Citigroup
executives.
Public interest in the case is expected to be high. The
Southwark Crown Court, where the trial is being held on the south
bank of the River Thames, has been issuing tickets to the event in
advance. Some routine pretrial hearings have been so jammed with
spectators that they have had to be relocated to larger
premises.
The trial represents a key test for the Serious Fraud Office, a
chronically underfunded agency whose officials acknowledge they are
struggling to prove their crime-fighting mettle. The SFO's
director, David Green, has been personally involved in details and
key decisions involving the case.
As a trader in London and Tokyo, Mr. Hayes was gifted but
socially awkward, according to people who knew him at work.
Colleagues nicknamed him "Rain Man" and "Kid Asperger." At one
office Christmas party, he sat in the corner reading a book. Even
as he earned millions of dollars, he shopped for secondhand clothes
on eBay. He currently lives in a village outside London with his
wife and young son.
The defendant isn't the only interesting character. The judge
presiding over the case, Jeremy Cooke, is a former professional
rugby player who, after years as a trial lawyer, became a judge in
2001, the same year he was knighted. Mukul Chawla, the prosecutor
handling the case for the Serious Fraud Office, is a hotshot fraud
lawyer who regularly tweets about the late nights he spends working
in his legal chambers.
Write to David Enrich at david.enrich@wsj.com
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