Last updated: May 25, 2016 10:22 pm

Citigroup fined $425m for rate-rigging violations

©ReutersFormer UBS and Citigroup trader Tom Hayes

Senior managers at Citigroup’s markets business knew Libor trader Tom Hayes sought to manipulate the market at his former employer before he started work at the US bank, authorities found as they ordered the group to pay $425m.

US authorities on Wednesday handed out the first penalty to an American bank over attempted manipulation and misreporting of Libor, as part of a settlement with Citi over alleged abuses of several global benchmarks.

Hayes, a former UBS and Citi trader, is serving an 11-year prison sentence in the UK for conspiring to manipulate Libor. He was the first individual to be found guilty by a jury over the scandal that has ensnared global banks.

Despite the findings from the Commodity Futures Trading Commission, however, Citi itself looks set to avoid criminal charges.

The Department of Justice said on Wednesday it had closed an investigation into the bank over alleged manipulation of the global derivatives benchmark known as Isdafix. It had already told Citi it would not prosecute over Libor.

US authorities have issued fines running into several billion dollars over Libor to several European banks, including Deutsche Bank, Royal Bank of Scotland and Lloyds Banking Group.

Some European banks have complained privately that their US counterparts have escaped similar scrutiny, although American regulators have issued penalties to domestic institutions over alleged currency manipulation.

In documents published on Wednesday the CFTC did not identify Hayes by name but people familiar with the matter confirmed it was referring to him.

The regulator said that in meetings with Citi managing directors after the trader was hired but before he started work, he “talked openly about how he had tried to manipulate” Yen Libor fixings while at UBS.

Yet Citi managers “did not convey” the disclosures of the illicit practices to anyone in the bank’s compliance or legal departments, the watchdog added — even though they knew regulators were already investigating its Libor submission practices.

As soon as Hayes began trading, according to the CFTC, he began attempts to manipulate Yen Libor — using some of the brokers and other market contacts he had known at UBS.

The regulator said that on “multiple occasions” Citi also misreported and attempted to manipulate US Dollar Isdafix between 2007 and 2012.

It did so to benefit the bank’s trading positions at the expense of its derivatives counterparties.
Citi falsely reported US Dollar Libor during the financial crisis as accurate submissions could “raise questions about the stability of the bank”, the CFTC found.

“The submitters realised that the bank’s submissions could draw negative media attention”, it said. Some of the submissions, as a result, “did not accurately or solely reflect Citi’s assessment of the cost of borrowing unsecured funds in the London interbank market.”

Divisions of the bank also sought to benefit derivatives trading positions by manipulating Yen Libor and Euroyen Tibor, the regulator said.

The order on Wednesday brings the CFTC’s total penalties to more than $2.8bn for manipulative conduct over Libor and other benchmark interest rates, and $2.2bn for rigging Isdafix and FX benchmarks.

Aitan Goelman, director of enforcement, said: “As evident by today’s actions, the CFTC’s vigilance includes holding a financial institution, like Citi, responsible each time it acts to undermine a benchmark for its personal profit or benefit.”

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Citi said the settlements “represent a significant step for Citi in resolving its legacy benchmark rate investigations”.

“In addition to adopting industry-wide reforms related to participation in benchmark rates, Citi has made substantial investments in its systems, controls and monitoring processes to better guard against inappropriate behaviour.

“Our greatest priority is to ensure that we conduct business in keeping with the highest ethical standards. We continue to fully co-operate with pending investigations conducted by other agencies related to benchmark rate submissions.”

Citigroup said the costs of the settlement would be covered by its existing legal reserves. Investors appeared to take the penalty in their stride. At the close in New York, shares in the bank were up 2.4 per cent at $46.94, about in line with its peers.

 http://www.ft.com/cms/s/0/f6b57fea-2...e01fabc0c.html