LONDON – A U.S.-instigated investigation into alleged manipulation of benchmark Libor interest rates expanded from dollar rates to include yen rates only in late 2010, a London court heard on Thursday.
Steven Sletten, a lawyer from Gibson Dunn and Crutcher, told the jury in the trial of former UBS and Citigroup trader Tom Hayes that the Swiss-based bank received three subpoenas from the U.S. Commodity Futures and Trading Commission (CFTC) regulator between April 2011 and July 2012.
The CFTC initiated an investigation into dollar Libor rates in 2008 and it was two years before this was expanded to the area in which Hayes specialized.
Hayes, a former yen derivatives trader based in Tokyo, is charged by Britain’s Serious Fraud Office (SFO) with eight counts of conspiracy to defraud between August 2006 and September 2010, a criminal offense that can carry a 10-year jail sentence.
Hayes, 35, has pleaded not guilty and is due to lay out his defense later in the trial — the first of an individual accused of Libor rigging — which is scheduled to last into August.
Evidence and material was discovered that led authorities in other countries to start probing yen rates after the U.S. regulator investigated allegations of manipulation of the vast dollar Libor rate.
Swiss regulator FINMA, the U.K. regulator, Department of Justice (DoJ) criminal division, the CFTC, Securities and Exchange Committee and Japanese regulator FSA were all investigating by 2010, prosecutor Mukul Chawla said.
Sletten, called as a witness for the SFO, said his firm was appointed by UBS, which had previously instructed U.K.-based law firm Allen & Overy, to deal with the rapidly expanding global Libor investigation in December 2010.
During the course of the internal UBS investigation, that focused on January 2005 to end-2010, Sletten said the law firm interviewed witnesses and collected 31 million documents globally in relation to 92 “custodians,” including current and former UBS staff, as part of an operation spanning the U.K., United States, Switzerland, Japan, Hong Kong, Singapore and Australia.
In the subpoenas sent by the CFTC, which were also addressed to Sletten and shown to the jury, UBS was ordered to produce targeted searches of communications as well as documents relating to members of the UBS board of directors and executive committee and group treasury reports.
Sletten said UBS was ordered to hand over around 1 million of the documents to the SFO.
However, around 8 million of the documents were created in or retained in Switzerland, where they had to be dealt with according to Swiss bank secrecy and privacy laws, he added.
The SFO alleges Hayes was a ringleader in a conspiracy with 25 staff from at least 10 banks and brokerages to rig Libor, the London interbank offered rate used to price an estimated $450 trillion in financial contracts and loans worldwide.