Big Banks Face Another Round of U.S. Charges

By BEN PROTESS and JESSICA SILVER-GREENBERG OCTOBER 6, 2014 9:30 PM October 6, 2014 9:30 pm

Attorney General Eric H. Holder Jr. at the Justice Department in Washington.Credit Susan Walsh/Associated Press
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The Justice Department is preparing a fresh round of attacks on the world’s biggest banks, again questioning Wall Street’s role in a broad array of financial markets.

With evidence mounting that a number of foreign and American banks colluded to alter the price of foreign currencies, the largest and least regulated financial market, prosecutors are aiming to file charges against at least one bank by the end of the year, according to interviews with lawyers briefed on the matter.

Ultimately, several banks are expected to plead guilty.

Interviews with more than a dozen lawyers who spoke on the condition of anonymity to discuss private negotiations open a window onto previously undisclosed aspects of an investigation that is unnerving Wall Street and the defense bar. While cases stemming from the financial crisis were aimed at institutions, prosecutors are planning to eventually indict individual bank employees over currency manipulation, using their instant messages as incriminating evidence.

The charges will most likely focus on traders and their bosses rather than chief executives. As a result, critics of the Justice Department might view the cases as little more than an exercise in public relations, a final push to shape the legacy of Attorney General Eric H. Holder Jr., who was blamed for a lack of criminal cases against Wall Street executives.

Yet the breadth of the suspected wrongdoing in the currency inquiry — Deutsche Bank, Citigroup,JPMorgan Chase, Barclays and UBS are among the dozen or so banks under investigation — might distinguish it from the piecemeal nature of the crisis-era investigations.

And prosecutors are testing a new negotiating tactic, two lawyers said, using the currency investigation as a cudgel to potentially reopen other cases. Arguing that the misconduct would violate earlier settlements involving interest rate manipulation, prosecutors have threatened to impose new penalties in the interest rate cases.

Those interest rate cases, which have already led to settlements with five banks and laid the groundwork for the currency investigation, are experiencing something of a resurgence. For one thing, prosecutors are preparing additional charges against at least one trader suspected of manipulating the London interbank offered rate, or Libor, a benchmark that underpins the cost of trillions of dollars in credit card, mortgage and other loans.

CreditAaron Byrd/The New York Times

Some banks also remain under investigation. In the last major rate-rigging case against a bank, prosecutors are discussing the possibility of forcing Deutsche Bank or one of its subsidiaries to plead guilty to manipulating Libor, the lawyers said. The lawyers added that the German bank’s New York branch faces a separate action from Benjamin M. Lawsky, New York State’s banking regulator, who until now has sat out the Libor settlements.

A spokeswoman for Deutsche Bank said the bank was “cooperating in the various regulatory investigations and conducting its own ongoing review into the interbank offered rates matters,” adding that “no current or former member of the management board had any inappropriate involvement.”

The Justice Department’s focus on financial misdeeds comes at a time of transition; top prosecutors are leaving its criminal division, which is handling the benchmark investigations along with the antitrust division. And for Mr. Holder, entering his final weeks at the Justice Department, the cases offer a last opportunity to address public and political complaints that prosecutors have gone soft on Wall Street.

He has sought to swing the tide through a series of recent cases: record fines against JPMorgan Chase and Bank of America and guilty pleas from Credit Suisse and BNP Paribas.

The public lust for charges is at odds with the view on Wall Street, where bankers and lawyers report fatigue with what seems like unrelenting investigations. With each inquiry, the fines have multiplied, stretching to nearly $17 billion for Bank of America.

And the scrutiny could drag on for years. The Justice Department, lawyers said, has widened its focus to include a criminal investigation into banks that set an important benchmark for interest rate derivatives, a previously unreported development that coincides with international regulators’ proposing overhauls to the rate-setting process.

The flurry of activity strikes at the heart of Wall Street’s role in setting benchmarks across the globe.

The investigations suggest that banks, seeking to benefit their own trades, have compromised the sanctity of rates like Libor and the “4 p.m. London fix” for currencies, which investors use to value their positions.

As the currency investigation gains momentum, it is unclear which bank will settle first or which will plead guilty. As was the case in the Libor investigation, lawyers said, UBS was accepted into the antitrust division’s leniency program in exchange for its cooperation, though it still faces an action from the criminal division. Several banks, including at least one American bank, are expected to plead guilty.

Prosecutors have explained publicly that banks would earn credit for exposing their misbehaving employees or face charges for protecting them. Already, banks have fired or suspended about 30 employees linked to the currency investigation, although no one has been accused of wrongdoing.

While prosecutors are aiming to bring at least one currency case this year, the heavy workload could delay action until early next year. The pace also could stall as prosecutors seek to coordinate with theCommodity Futures Trading Commission, Mr. Lawsky and federal banking regulators.

In Britain, however, regulators are nearing a settlement with several banks in the currency case. The Financial Conduct Authority of Britain met last month with six banks — Citigroup, JPMorgan, Barclays, UBS, the Royal Bank of Scotland and HSBC— to discuss the contours of a collective settlement that it plans to announce this fall.

Those banks are not necessarily the most culpable, but rather the ones most willing to reach a settlement. While American prosecutors have not ruled out joining a global settlement, lawyers said, such a move appears unlikely.

Altogether, the British regulator could collect fines that total up to $3.3 billion, people briefed on that settlement said. Of the six banks, one person said, the size of Citigroup’s payout is expected to fall in the middle.

Banks are eager to put the case behind them as they prepare to submit their capital plans to the Federal Reserve. Under the Fed’s rules, the banks must set aside enough cash to cover a potential settlement, which can become an expensive guessing game without clarity from prosecutors.

At Deutsche Bank, facing both Libor and currency investigations, there is growing momentum to resolve at least one of them. In the Libor case, prosecutors have begun to coordinate with the bank’s American regulators, including Mr. Lawsky, about the fallout from a potential guilty plea for the bank or one of its subsidiaries, lawyers said. That planning reflects a desire to criminally punish the bank without imperiling its ability to operate in the United States.

At their core, the investigations into Libor and currency trading center on suspicions that banks manipulated the benchmarks for their own gain. In Libor, a measure of how much banks charge one another for loans, several banks submitted false rates to benefit their trading positions.

The foreign exchange inquiry has pointed to a more complex scheme to fix currency prices and game the market. Authorities suspect that banks, using information gleaned from their clients, collaborated to flood the market with orders just seconds before the so-called 4 p.m. fix, which serves as the benchmark for foreign exchange rates. The aim in part, authorities suspect, was to drive up the price of, say, euros before selling them to clients at an inflated price.

Traders at competing banks met in private chat rooms. Some traders became so cozy that they earned the nickname “the cartel” and “the bandits club.”

Jenny Anderson and Matthew Goldstein contributed reporting.

U.S. Investigates Currency Trades by Major Banks


Eric H. Holder Jr., the U.S. attorney general, says groups of traders from several major banks may have influenced currency benchmarks to benefit their employers.

A version of this article appears in print on 10/07/2014, on page A1 of theNewYork edition with the headline: Big Banks Face Another Round Of U.S. Charges .