Regulators fine British firm ICAP $87 mil in Libor scandal

Financial firm altered reported figures from which Libor is compiled, in exchange for steaks, a Ferrari

LONDON — U.S. and British authorities moved a step further Wednesday in their investigation into the manipulation of the benchmark interest rate known as Libor, fining the British financial firm ICAP a combined $87 million for its role.

The regulators said Wednesday that ICAP’s employees had altered the reported figures from which Libor is compiled, in exchange for promises of curry meals, steaks, a Ferrari and financial payments.

The agreement represents the fourth settlement with a large financial institution in the investigation, and while the penalty was smaller for ICAP, reportedly because of its smaller size, British regulators said the misconduct there was more serious.

The Justice Department also brought criminal charges against three former ICAP employees over their roles in the scandal. The men - Darrell Read, Daniel Wilkinson and Colin Goodman, according to U.S. prosecutors - could face up to 30 years in prison for each of the three counts: one count of conspiracy to commit wire fraud and two counts of wire fraud. They are not yet in custody.

The scandal over Libor, which is set daily and used to determine the cost of short-term loans around the world, erupted in the summer of 2012, as investigators unveiled evidence that many big investment banks had manipulated the benchmark for their own profit. Libor is short for the London interbank offered rate.

In total, ICAP, a company based in London that acts as a broker for firms that trade financial products, has agreed to a $65 million settlement with the Commodity Futures Trading Commission in the United States and a 14 million pound ($22 million) settlement with Britain’s Financial Conduct Authority.

“This was insolent conduct impacting a benchmark rate that influences almost anything consumers buy on credit,” a commodity commission member, Bart Chilton, said on Wednesday. “These benchmarks are just too important to become a playground for some big-talking bad guys.”

During more than four years through early 2011, ICAP employees spread misleading information about the Yen-Libor-linked interest rates in an effort to manipulate them, according to the regulatory filings released Wednesday. The ICAP brokers, including Goodman, who was called Lord Libor, received more than 400 requests from a senior trader at UBS to alter the rates for financial gain, the filings said.

The sometimes-colorful email messages, quoted in documents released Wednesday, outlined the financial and other incentives that were offered to ICAP employees by unnamed traders at some of the world’s largest banks. In one series of messages, a senior trader at UBS said he would buy an ICAP broker a Ferrari if he altered some of the Libor rates, while traders also offered Champagne, dinners and eventually around $72,000 in kickbacks to alter the rates.

“Life is tough enough over here without having to double-guess the Libors every morning and get zipper-de-do-da,” an ICAP broker wrote in April 2007, according to the filings. “How about some form of performance bonus per quarter from your bonus pool to me for the Libor service.”

The former ICAP employees used two tactics to manipulate the rates on behalf of the UBS trader, according to U.S. and British regulators. One included daily rate suggestions for participating Libor banks, with the figures skewed in favor of the UBS trader’s financial positions. The brokers also provided false Libor information to individual rate submitters in an effort to make them change their daily rates.

“The misconduct in relation to Libor has cast a shadow over the financial services industry,” said Tracey McDermott, director of enforcement and financial crime at the Financial Conduct Authority.

The British lenders Barclays and the Royal Bank of Scotland, as well as UBS of Switzerland, have already agreed to pay a combined $2.5 billion in fines related to Libor. Other banks, including Citigroup and Deutsche Bank, remain under investigation, and future penalties could be announced before the end of the year.

While several large banks have paid multimillion-dollar fines, no people have yet been convicted in the scandal.

“By allegedly participating in a scheme to manipulate benchmark interest rates for financial gain, these defendants undermined the integrity of the global markets,” Attorney General Eric H. Holder Jr. said Wednesday. “They were supposed to be honest brokers, but instead, they put their own financial interests ahead of that larger responsibility.”

British prosecutors have also started to file charges against individuals in the Libor case. In June, a former UBS and Citigroup trader, Tom A.W. Hayes, was charged with eight counts of fraud. Britain’s Serious Fraud Office also charged Terry J. Farr and James A. Gilmour, two former brokers at RP Martin Holdings, a rival of ICAP.

ICAP’s $87 million fine is much lower than those imposed on the banks to take into consideration ICAP’s smaller size, according to a person with knowledge of the matter who was not authorized to speak publicly.

British regulators, however, said that even though the fine was smaller, the misconduct at ICAP was widespread, the risk management systems and controls were inadequate and managers “failed to report misconduct or were complicit in it.”

ICAP said that a total of 10 employees had been caught up in the rate-rigging scandal. The three brokers facing criminal charges already have left the firm, while the majority of the other seven also no longer work at the interdealer broker, according to ICAP’s chief executive, Michael A. Spencer.

“This is not a cultural problem. It’s sadly a rotten apple situation,” Spencer said. “No one saw Libor as a potential problem. We failed to pick it up.”