[Vision2020] Whores Slapped On The Wrist

[Art Deco]

[image: DealBook - A Financial News Service of The New York
Times]<http://dealbook.nytimes.com/>
February 6, 2013, 8:10 amRoyal Bank of Scotland Settles Case on RiggingBy BEN
PROTESS <http://dealbook.nytimes.com/author/ben-protess/> and MARK
SCOTT<http://dealbook.nytimes.com/author/mark-scott/>

A campaign to root out financial fraud secured a victory on Wednesday, as
authorities took aim at the Royal Bank of Scotland for its role in an
interest rate manipulation scheme that has emboldened prosecutors and
consumed the banking industry.

American and British authorities struck a combined $612 million settlement
with the bank, the latest case to emerge from the global investigation into
rate-rigging. The Justice Department dealt another blow to the bank,
forcing its Japanese unit to plead guilty to criminal wrongdoing.

The penalty for the subsidiary, a hub of rate manipulation, underscores a
recent shift in the way federal authorities punish financial wrongdoing.
The R.B.S. case echoed an earlier action taken against a
UBS<http://dealbook.on.nytimes.com/public/overview?symbol=UBS&inline=nyt-org>subsidiary,
which similarly pleaded guilty to felony wire fraud as part of
a larger settlement. These cases represent the first units of a big bank to
agree to criminal charges in more than a decade.

"I want financial institutions to know that this department will absolutely
hold them to account," Lanny Breuer, head of the Justice Department's
criminal division, said in an interview Wednesday.

Some of the world's largest financial institutions remain caught in the
cross hairs of the rate manipulation case, an investigation that could drag
on for years. Authorities suspect that more than a dozen banks falsified
reports to influence benchmarks like the London Interbank Offered
Rate<http://topics.nytimes.com/top/reference/timestopics/subjects/l/london_interbank_offered_rate_libor/index.html?inline=nyt-classifier>,
or Libor, which underpins the costs for trillions of dollars in financial
products like mortgages and credit cards.

A person involved in the investigation indicated that the first banks to
settle were among the worst actors in the rate case. But they also received
a "discount" for their eager cooperation, according to people with
knowledge of the matter.

That approach raises the prospect that remaining banks could face
high-priced settlements.

Deutsche Bank<http://dealbook.on.nytimes.com/public/overview?symbol=DB&inline=nyt-org>,
which set aside an undisclosed amount to cover potential penalties and
suspended five employees tied to the case, is expected to settle with
authorities in late 2013, several people briefed on the matter said. But
the timetable could shift. The bank is not in formal settlement talks and
is not prepared to resolve the case, the people said.

While foreign banks have borne the brunt of the scrutiny, an American
institution could be among the next to settle.
Citigroup<http://dealbook.on.nytimes.com/public/overview?symbol=C&inline=nyt-org>and
JPMorgan
Chase<http://dealbook.on.nytimes.com/public/overview?symbol=JPM&inline=nyt-org>are
under investigation by the Commodity
Futures Trading
Commission<http://topics.nytimes.com/top/reference/timestopics/organizations/c/commodity_futures_trading_commission/index.html?inline=nyt-org>,
the American regulator leading the case, though actions are not imminent.

The R.B.S. action concluded a first phase of rate-rigging investigations
for authorities, who are now planning to take a brief hiatus from filing
cases. The next case is not expected until spring at the earliest, two of
the people briefed on the matter said.

Some bank executives, fearful that fallout from the case will stain their
firms, are pushing for a broad deal encompassing multiple institutions. But
authorities are balking at a "global settlement," people involved in the
case say, arguing that investigations are proceeding at different stages
and involve widely varying fact patterns.

As regulators continue to pursue actions, prosecutors are planning charges
against traders involved in the scheme. The first charges came last year
when the Justice Department filed actions against two former UBS traders.

"Our investigation is far from finished," Mr. Breuer said.

The rate-rigging case has centered on how much banks charge each other for
loans. Such figures form the basis of Libor and other rates. But banks
corrupted the process. Government complaints filed over the last year
outlined a scheme in which banks reported false rates to lift trading
profits.

Authorities announced the first Libor case in June, extracting a $450
million settlement with the British bank
Barclays<http://dealbook.on.nytimes.com/public/overview?symbol=BCS&inline=nyt-org>.
In December, UBS agreed to a record $1.5 billion settlement with
authorities. The Justice Department also secured the guilty plea from one
of the bank's subsidiaries.

Royal Bank of Scotland, based in Edinburgh, had aimed to avert the guilty
plea for its Japanese subsidiary, people involved in the case said. But the
Justice Department's criminal division declined to back down, and the bank
had little leverage to push back. It decided not to formally appeal its
case to Attorney General Eric H. Holder
Jr.<http://topics.nytimes.com/top/reference/timestopics/people/h/eric_h_holder_jr/index.html?inline=nyt-per>,
another person said.

With fines coming from multiple authorities, the $612 million case amounted
to the second-largest penalty levied in the multiyear investigation into
rate manipulation. "The settlement with R.B.S. is much more than a slap on
the wrist," argued Bart Chilton, a member of the trading commission who is
critical of soft fines on big banks.

The settlement represents the latest setback for Royal Bank of Scotland,
which has struggled to shake the legacy of the 2008 financial crisis. The
British firm, which is majority-owned by the government after a bailout,
already has put aside $2.7 billion to compensate customers who were
inappropriately sold loan insurance in recent years.

Since the financial crisis, the bank has shaken up its management team and
refocused its operations, as part of an effort to repair its bruised image.
On Wednesday, it announced plans to claw back bonuses to help pay for the
latest settlement.

At a news conference in London on Wednesday, Stephen Hester, the bank's
chief executive, admitted that the rate-rigging episode significantly
strained the bank. "It is one of the most difficult moments over the entire
period," he said.

As authorities stitched together the R.B.S. case, they seized on a series
of colorful e-mails that highlighted an effort to influence the
rate-setting process, a plot that spanned multiple currencies and countries
from 2006 to 2010. One Royal Bank of Scotland trader mused in a 2007
message how the process was becoming a "cartel," adding "its just amazing
how libor fixing can make you that much money."

The wrongdoing spread broadly, authorities say, noting that Royal Bank of
Scotland "aided and abetted" UBS and other firms. A senior official at the
Justice Department's antitrust unit, Scott D. Hammond, contends that the
bank "secretly rigged" interest rates.

A UBS trader, the department said, once asked a co-worker to "have a word
with" another bank about Libor submissions. The UBS trader, Thomas Hayes,
who was recently charged by the Justice Department with fraud, indicated
that he had already approached R.B.S. for help.

The government complaints also portray a permissive culture that allowed
rate-rigging to persist for four years. David Meister, the enforcement
director of the trading commission, declared that "the environment was ripe
for manipulation at R.B.S."

The bank's own records captured the scheme in striking detail, revealing
how traders pressured other employees to submit certain rates. Submitters
and traders sat in earshot of each other in London, forming what
authorities termed a "cozy ring." The bank eventually separated the
employees, who then moved to make additional requests via instant messages.

To persuade employees who submitted Libor rates, some traders promised
affection. Others offered steak and sushi. One trader resorted to begging,
invoking a plea of "pretty please." Another trader, after pressuring a
colleague to submit a certain rate, offered a reward of sorts: "I would
come over there and make love to you."

When authorities began scrutinizing the bank, the traders adopted a more
covert approach. In 2010, a Libor submitter rebuffed an instant message
request to influence rates. But then the submitter called the trader to
explain "we're not allowed to have those conversations" over instant
message.

The employees laughed, according to a transcript of the call, and the
submitter reassured the trader that he would fulfill the request: "Leave it
with me, and uh, it won't be a problem."
See Comments:
http://dealbook.nytimes.com/2013/02/06/as-unit-pleads-guilty-r-b-s-pays-612-million-over-rate-rigging/?nl=todaysheadlines&emc=edit_th_20130207

-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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