Britain's Serious Fraud Office arrests three in Libor-tampering scandal

PUBLISHED : Wednesday, 12 December, 2012, 12:00am
UPDATED : Wednesday, 12 December, 2012, 4:13am

Britain's Serious Fraud Office (SFO) and City of London Police made the first three arrests in global probes into tampering with benchmark interest rates, notably the London interbank offered rate (Libor).

The three men arrested, aged 33 to 47, were British nationals living in the country, the SFO said. The agency - an independent British government department - and police also searched three homes in Surrey and Essex.

Global authorities are investigating claims that more than a dozen banks altered submissions used to set benchmarks such as Libor to profit from bets on interest-rate derivatives or make the lenders' finances appear healthier.

Sources said Thomas Hayes, a former trader at UBS and Citigroup, was one of those arrested. The other two worked at brokerage firm RP Martin, according to the sources.

Swiss lender UBS is expected to face a fine as early as this week that may surpass the record £290 million (HK$3.61 billion) paid in June by Barclays, Britain's second-biggest bank, to settle claims it attempted to manipulate Libor.

Arrests in Britain are made early in investigations, allowing people, who may not be charged, to be questioned under caution. David Jones, an SFO spokesman, declined to comment.

SFO director David Green said last month the agency was considering levying conspiracy-to-defraud charges against individuals. Green said the SFO was focusing on the most egregious attempts to manipulate Libor and other related rates. Investigations into firms, managers, traders and rate setters at lesser offenders will come later.

Libor, a benchmark for more than US$300 trillion of global financial products, is derived from a survey of banks conducted daily on behalf of the British Bankers' Association in London. The rates help determine borrowing costs for everything from mortgages to student loans.

The SFO opened the Libor probe in July at the request of British politicians after the Barclays fine.

Regulators in the United States and Britain are looking into how derivatives traders and bankers who submitted interest rate data colluded to rig benchmarks to benefit their own trades, and whether lenders low-balled submissions in 2008 to hide their true cost of borrowing.

Criminal probes by the SFO and US Department of Justice are running in parallel with civil investigations by the Justice Department's fraud division, the US Commodity Futures Trading Commission and Britain's Financial Services Authority.

The SFO has "hoovered up all the stuff from the FSA and loaded it onto our computers", Green said last month. It also received evidence from the US Federal Bureau of Investigation and some banks.