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UBS Libor Pact Said to Include $1.6 Billion, Charges

By Greg Farrell and Lindsay Fortado
December 15, 2012 7:00 PM EST 17 Comments
UBS logo.
UBS logo.

U.S. prosecutors are planning to file charges this week against multiple bankers associated with UBS AG (UBSN)’s rigging of Tokyo interbank lending rates, according to a person with knowledge of the case.

The charges would be the first brought by the U.S. Department of Justice against individuals alleged to have manipulated the London interbank offered rate, or Libor, and comparable lending rates in Europe and Japan.

The prosecution is slated to begin in tandem with an announcement that UBS Securities Japan Ltd., the Japanese unit of the Zurich-based bank, would plead guilty to manipulating Japanese interest rates starting in 2007, said the person, who asked not to be named because the matter is private.

UBS is set to pay as much as $1.6 billion to settle charges of interest rate manipulation with the Justice Department, the U.S. Commodity Futures Trading Commission, the U.K. Financial Services Authority and the Swiss Financial Market Supervisory Authority, said another person familiar with the probes. The announcement could come as early as Dec. 18, said the person, who asked not to be identified because they aren’t authorized to speak publicly about the matter.

That $1.6 billion figure would be more than three times the 290 million pounds ($469 million) that Barclays Plc (BARC) agreed to pay last June to settle allegations that its employees conspired to manipulate Libor, a rate used in bank borrowing.

No Comment

Christoph Meier, a Zurich-based spokesman for UBS, Liam Parker, a spokesman for the FSA, and Tobias Lux, a spokesman for the Swiss financial markets regulator, declined to comment on the settlement amount.

Karina Byrne, a spokeswoman for UBS, said last week in an e-mail: “We continue to work closely with various regulatory authorities to resolve issues relating to the setting of certain global benchmark interest rates. As we are in active discussions with these authorities, we cannot comment further.”

Unlike the pending settlement with UBS, the Justice Department didn’t require Barclays to enter a guilty plea to a specific charge. In deciding against a charge last June, prosecutors praised Barclays’ “timely, voluntary and complete disclosure of facts.”

UBS has been “granted conditional leniency or conditional immunity” by the Justice Department’s antitrust division, in connection with potential antitrust violations related to submissions for interbank lending rates in Tokyo, according to the Swiss bank’s most recent annual report.

U.S. Guidelines

According to Justice Department guidelines, a corporation can secure favorable treatment from prosecutors if it’s the first to pledge full cooperation in an antitrust investigation. In order to win that leniency, however, the corporation has to include an admission that it was part of an antitrust conspiracy, and help identify other participants in the scheme.

One year ago, Japanese regulators sanctioned UBS’s Japanese operations, curtailing the bank’s ability to participate in the Tokyo interbank derivative market for a week, and ordering the bank to improve its regime of compliance and internal controls.

Last week, a former Citigroup Inc. trader was among three people detained in the first U.K. arrests as part of the global Libor probes, according to two people familiar with the matter.

Thomas Hayes, a former trader at UBS and Citigroup, was arrested by the Serious Fraud Office and City of London Police, said the people, who asked not to be identified citing the continuing investigation.

The other two men arrested worked at brokerage firm RP Martin Holdings Ltd., according to one of the people and a third person familiar with the investigation, who also requested anonymity. The employees are Terry Farr and Jim Gilmour, people with knowledge of the investigation said. They were later released on bail.

To contact the reporters on this story: Greg Farrell in New York at gregfarrell@bloomberg.net; Lindsay Fortado in London at lfortado@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Anthony Aarons at aaarons@bloomberg.net

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