Tom Hayes: the unluckiest trader or a scapegoat?

Tom Hayes was a bank trader: well-paid and well-respected by his employers. But having been investigated by the Serious Fraud Office (SFO) and then convicted by an English court because of what he did in his job, the 36 year-old is now in a high security jail, HMP Lowdham Grange. From there, he has written regular letters to the press. Accentuated by his Asperger syndrome, they focus inevitably on his misfortune. The most recent, published by the Times in August, began:

“This time last year, I sat on a Serco bus departing from Southwark crown court contemplating the 14-year prison sentence that lay ahead of me. I was terrified, my mind racing, unable to focus, my hands shaking constantly. I have come a long way since then. But equally, a lot has happened to me in the last 12 months to reaffirm my belief that the British criminal justice system, unseen by most in their day-to-day lives, is completely broken.”

In 2001, Hayes started life as an interest rates derivatives trader at the Royal Bank of Scotland (RBS), which was then on a path of hubristic growth. He swiftly moved up the ladder after being hired by the Royal Bank of Canada (RBC), then UBS, and finally, Citibank. During his career, he earned many millions for his employers and several million for himself by way of financial reward for his efforts.

It all came to a juddering halt in 2010 when he was dismissed by Citibank in Tokyo, where he was based. Then in December 2012, Hayes was one of three individuals arrested by officers from the SFO and the City of London Police. He alone was eventually tried in May 2015 for offences of conspiracy to defraud through the manipulation of (Yen) Libor (London Interbank Offered Rate), a daily commercial lending rate between banks across the world.

Central to Hayes’ defence was that he was requesting Libor rates from within that day’s market trading range, therefore within the limits of the Libor system, as were  traders in other banks. But senior managers at UBS and Citibank were not. Instead, his lawyers argued, they were involved in ‘lowballing’ in order to avoid suggestions of liquidity or solvency issues in the stressed markets of 2007‐09. The prosecution was not able to prove that any specific counterparty had suffered losses as a result of Hayes’ Libor requests, while the trial judge, Mr Justice Cooke, concluded that it was “impossible to assess the scale of the losses caused to the counterparties to the trades in which you and your employers participated.”

Nevertheless, after a three-month trial, Hayes was convicted of eight counts of conspiracy to defraud. This resulted in a 14-year prison sentence – the longest given by a British court to any trader for such a crime. In sentencing him, the judge said that he wanted to “send a signal” to bank traders: pour encourager les autres. He added: “The essence of your defence was that the type of activity in which you were involved was commonplace in the market at the time and was established practice, not perceived as wrong by those involved. The fact that others were doing the same as you is no excuse, nor is the fact that your immediate managers saw the benefit of what you were doing and condoned it and embraced it, if not encouraged it.”

His sentence was reduced to 11 years by the Court of Appeal in December 2015. After being denied leave to appeal to the Supreme Court in March, Hayes, who strongly maintains his innocence, is planning a further appeal. Putting aside the legal merits of his case, there are three reasons why he can be regarded as the unluckiest trader.

First, his sentence. When rogue trader Nick Leeson brought down Barings in 1995 after creating losses of $1.4bn, he received a six-and-a-half year sentence in Singapore, a jurisdiction known for harsh sentencing and where the death penalty still applies for several offences.

At Hayes’ trial, the judge said: “The maximum sentence is 10 years for a count of conspiracy, which is generally recognised as too low.” But in reviewing the list of City traders convicted of serious fraud over the last 20 years, no sentence equals that given to Hayes. Under the Sentencing Guidelines for judges, the tariff has normally been around half of what he originally received. The following serve as useful benchmarks:

  • In 2012, Kweku Adoboli, a former UBS equity trader was given a seven-year sentence in London for unauthorised trading that cost the bank $2bn.
  • In July 2016, four former Barclays traders were sentenced by a British court to between 33 months and six-and-a-half years each for conspiring to rig Libor.

Second, the fact that Hayes alone was prosecuted and convicted, even though he was no Leeson or Adoboli; he was not a rogue trader acting in isolation. Instead, he was part of an alleged conspiracy: traders at up to 16 different banks, who between them allegedly requested  Libor rates from within that day’s market trading range but which were drawn from the high, middle or low end of that  range. These were marginally in  favour of the traders’ employer banks, thereby making money for them by trading derivatives that fixed against the published Libor rate.

But in this alleged conspiracy involving multiple participants acting in concert with each other to fix Libor, only Hayes was convicted. Nearly four years on from his arrest, all of Hayes’ alleged co-conspirators who have been charged have since been acquitted and no other co-conspirator has subsequently been charged by the SFO.  One of his managers has even been exonerated by the Financial Conduct Authority (FCA) despite having engaged in this behaviour with Hayes.  At his trial, Hayes alleged that the behaviour described above was both common market practice for 20 years (although that did not provide a defence, according to the trial judge), and the subject of a written instruction sheet at UBS, so enshrined was it in bank culture.

Third, no senior figure at any bank operating in London has been charged by the SFO in relation to any rate-rigging by any of their Libor traders or in relation to ‘lowballing’. At his trial, the chief prosecutor, Mukul Chawla QC, indicated to the jury that Hayes’ “managers will be next”. As the judge pointed out: “Immediate managers saw the benefit of what you were doing and condoned it and embraced it, if not encouraged it.”

This had already been confirmed in a report into Citibank’s Yen Libor trading, published in December 2011 by by Japan’s Financial Services Agency. But to this day, no one else from Hayes’ former employer banks has been charged. Meanwhile, senior bank executives claim not to have known what was going on and that the individual traders concerned were acting on their own account – without any authority from the bank, or from their immediate managers.

And yet the list of fines imposed upon several banks would clearly suggest that some senior figures not only may have known, but almost certainly did know. In June 2012, Barclays was fined $200m by the Commodity Futures Trading Commission (CFTC), $160m by the US Department of Justice (DOJ) and £59.5m by the UK Financial Services Authority (FSA) for Libor manipulation. Barclays’ chairman, Marcus Agius, resigned immediately; as did the bank’s CEO, Bob Diamond. Questioned afterwards by Treasury Select Committee, Diamond said he had been totally unaware of the manipulation.

Other Libor related fines followed. In December 2012, UBS paid $1.2bn to the US DOJ and CFTC, and £160m to the UK FSA. A year later, the European Commission announced more fines relating to Libor submissions: RBS – €260m; Deutsche Bank – €259m; and JP Morgan – €80m. In April 2015, Deutsche Bank was fined $2.18bn by US regulators, and €227m by British authorities.

While Hayes was found guilty on the evidence put before the court in 2015, the outcome of any future appeal will depend upon the strength of legal argument put forward by his lawyers and the availability of fresh evidence. But through the complex web of information relating to Libor and its widespread manipulation over several years, a single fact remains undisputed: one man seems to be paying an unduly heavy price for the misdeeds of many. Tom Hayes is certainly an unlucky man. The question is whether he is also a scapegoat. Somewhere inside the banks, the City of London Police or the SFO, someone knows the answer.

Dominic Carman is a journalist, writer and legal commentator

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