5 Big Banks Plead Guilty in Antitrust Investigation ; Fines Total $5.6 Billion for Fixing Interest and Foreign Exchange Rates

By Michael Corkery; Ben Protess | International New York Times, May 21, 2015 | Go to article overview

5 Big Banks Plead Guilty in Antitrust Investigation ; Fines Total $5.6 Billion for Fixing Interest and Foreign Exchange Rates


Michael Corkery; Ben Protess, International New York Times


Traders, including some who called themselves "the cartel," colluded to manipulate the foreign exchange market, federal and state authorities said Wednesday.

Adding another entry to Wall Street's growing rap sheet, five big banks have agreed to pay about $5.6 billion and plead guilty to multiple crimes related to manipulating foreign currencies and interest rates, federal and state authorities announced on Wednesday.

The Justice Department forced four of the banks -- Citigroup, JPMorgan Chase, Barclays and the Royal Bank of Scotland -- to plead guilty to antitrust violations in the foreign exchange market as part of a scheme that padded the banks' profits and enriched the traders who carried it out.

The traders were supposed to be competitors, but much like companies that rigged the price of vitamins and automotive parts, they colluded to manipulate the largest and yet least regulated market in the financial world, where some $5 trillion changes hands every day, prosecutors said.

Underscoring the collusive nature of their contact, which often occurred in online chat rooms, one group of traders called themselves "the cartel," an invitation-only club where stakes were so high that a newcomer was warned, "Mess this up and sleep with one eye open."

To carry out the scheme, which went on nearly every day for five years through 2012, one trader would typically build a huge position in a currency and then unload it at a crucial moment, hoping to move prices. Traders at the other banks agreed to, as New York State's financial regulator put it, "stay out of each other's way."

The banks also misled their clients about the price of currencies, the federal and state authorities said, imposing "hard mark-ups," which one Barclays employee described as the "worst price I can put on this where the customers decision to trade with me or give me future business doesn't change." Or, to put their mission in the starkest of terms, the employee said: "If you ain't cheating, you ain't trying."

A fifth bank, UBS, also pleaded guilty on Wednesday to manipulating the London Interbank Offered Rate, or Libor, a benchmark rate that underpins the cost of trillions of dollars in credit card purchases and other loans. Federal prosecutors had previously agreed not to prosecute the Swiss bank over the Libor scheme. But in a rare stand against corporate recidivism, the Justice Department voided that nonprosecution agreement after learning that UBS was also taking part in the effort to manipulate currency prices.

The guilty pleas, which the banks entered in federal court in Connecticut on Wednesday, represent a first in a financial industry that has been dogged by numerous scandals and investigations since the 2008 financial crisis. Until now, banks have either had their biggest banking units or small subsidiaries plead guilty. But with the four banks charged with currency violations, the guilty pleas came from their parent companies.

That result represents a victory for a Justice Department, which has faced criticism for going too soft on big banks, whose size and significance to the global economy had rendered them -- in the minds of some regulators and politicians -- too big to jail.

"Today's historic resolutions are the latest in our ongoing efforts to investigate and prosecute financial crimes, and they serve as a stark reminder that this Department of Justice intends to vigorously prosecute all those who tilt the economic system in their favor; who subvert our marketplaces; and who enrich themselves at the expense of American consumers," Attorney General Loretta E. Lynch said on Wednesday.

For the banks, though, life as a felon is likely to carry more symbolic shame than practical problems. Although they could be technically barred by American regulators from managing mutual funds or corporate pension plans or from performing certain other securities activities, the banks have obtained waivers from the Securities and Exchange Commission that will allow them to conduct business as usual. …

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