The Last Look…
Posted by Colin Lambert. Last updated: July 11, 2023
Although in many cases they are under a different regime, authorities who sought, and often achieved, convictions over alleged market manipulation are finding out what many of us knew from the start – while there may have been manipulation, the wrong people were targeted.
The latest blow to the authorities comes from the referral of Tom Hayes’ case to the UK Court of Appeal and if – and it remains an ‘if’ for now – the conviction is overturned, the last support brick will be kicked out from the increasingly shaky house on which these charges were brought, and the whole structure will come tumbling down. At least it would, if there was a proper investigation into why so many people were wrongly targeted – whether that occurs is another matter entirely.
I say the “wrong people” have been targeted, because – as many in the industry have known all along – there was manipulation of markets to some degree, it’s just it was rarely, if at all, initiated at the trading desk level. The hugely impressive work done by BBC journalist Andy Verity into the Libor cases highlights how directions often came from senior management at the banks involved, and on occasion they were passing on the word from figures of higher authority.
It is not a stretch to imagine – and I stress I am not saying this did happen – a government minister or senior financial individual, trying to dampen down the sense of panic that was growing in financial markets at that time and welcoming lower Libor fixings. After all, the Libor rate was widely seen as the barometer of how deep in the mess the financial world actually was in 2008, what better way to avoid, for example, tricky questions from opposition parties over financial conditions?
Assuming Tom Hayes’ conviction is overturned, another case stands out as a miscarriage of justice in the financial markets’ world – Mark Johnson. The circumstances are different, no doubt, and Johnson was not overtly pressured by senior management to deliberately engage in a process of alleged manipulation, but the basis of his conviction was also weak – in fact I would argue it was probably the weakest of all of them.
One case is in the UK, the other in the US and as we have seen, there is a world of difference between how the two legal systems approach financial law. That said, surely the collapse of the cases against the Libor traders in the US – including Hayes – means the authorities there should take another look at the Johnson case?
At the time it was widely felt that Johnson was a “body” that could be given up to assuage the demands of the US government for someone to be held accountable for the financial crisis. It was a nonsense that they picked on someone in the one financial market that didn’t actually contribute to the GFC, but that didn’t register. In the Libor cases, there was also the sense that a few smaller fish, thrown to the authorities, would protect the bigger fish in the pond.
This is reflected in the fact that in both the FX and Libor world, the banks paid billions of dollars in fines, but in human terms, the value they put on these billions were a bunch of traders who, while senior in their world, were, with all due respect, highly insignificant in the day-to-day running of the bank.
No-one could reasonably argue that a trader will steadfastly refuse to engage in chat rooms if ordered by their management (although I am aware of many that never went near the rooms), but they could reasonably ask why they were told to do so in the first place?
The FX and Libor fines had one thing in common – the improper sharing of information – but it is intriguing why the UK authorities in particular didn’t go after the FX traders as aggressively? I suspect it could be because so many traders won unfair dismissal cases fairly early on in the legal process. What was highlighted there – and is a fact in both the FX chatroom and Libor issues, is that the behaviour, rightly or wrongly, was condoned – even encouraged – by senior management. I have never forgotten my feelings when I read that one dismissed trader had actually been given more participation in chatrooms as an appraisal goal for the next year. They were told to go in chatrooms, and then dismissed for doing so.
I wrote several times at Profit & Loss that account needed to be taken of the actions of senior managers, and until now, nothing has happened. It may be that no-one wants to turn that particular rock over, but at the very least, those traders dismissed should have some closure in the form of a potential stain on their character removed.
I personally think the Employment Tribunals in the UK largely got their decisions right – the traders were unfairly dismissed, but contributed to their dismissal by engaging in conduct they should have known was ethical unsound. No-one could reasonably argue that a trader will steadfastly refuse to engage in chat rooms if ordered by their management (although I am aware of many that never went near the rooms), but they could reasonably ask why they were told to do so in the first place?
Thus far, no-one in authority has asked that question, perhaps now is the time?