I recently wrote about compliance issues in the FOREX investigation (here), where 5 banks just agreed to pay nearly $6 billion for fixing the price of foreign exchange rates. But, the earlier Libor investigation is also still in the news. Tom Hayes, a former UBS and Citigroup trader, is one of the few individual defendants (so far) to be charged for his alleged role in the vast financial price fixing cases. Hayes has been charged in the UK with being the “ringleader” of the Libor rate rigging scheme. He is currently on trial. Hayes claimed that the rate rigging was industry wide. He also claimed he was “confused about everything,” including what rules may have been broken. He added: “As far as I was concerned, any rules I’d broke were retrospectively being applied. And I wasn’t sure … Libor wasn’t a regulated product. We had no compliance training. No rules were outlined to us.” Hayes didn’t deny he knew he was engaging in “dodgy” activity but pleaded “I knew I was operating in a grey area. I knew that I probably shouldn’t do it but like I said I was participating in an industry wide practice at UBS that pre-dated my arrival and post-dated my departure. The full story is here in The Telegraph.

Hayes initially agreed to plead guilty and cooperate in return for a lighter sentence. He gave a full confession to Britain’s Serious Fraud Office. He later changed his mind and apparently decided to appeal to a jury that: a) he is being singled out for an industry wide practice; and b) he had no training on the rules.

This will be an interesting trial. Hayes “confessed” but is still hoping a jury will acquit him for lack of intent (or simply jury nullification.) The public rightly clamors for individuals to be held accountable, yet this is no easy task. And, if prosecutors were to try to go to levels above traders like Hays, the going gets even tougher. The general public is sure the higher-ups “knew what was going on.” But when an individual is chosen on a jury she generally take the oath of “proof beyond a doubt” very seriously. And there is a wide gap (often referred to as acquittal) between “they must have known what was going on” and “proof beyond a reasonable doubt.” I often wonder if the government wouldn’t be better off going after some higher-ups on a civil case for damages and other remedies. It is not the deterrent that a criminal case would be, but a”more likely than not” standard of guilt is more likely than not to produce some deterrence. It is better than no prosecution at all. Otherwise, nothing seems to change. Sadly, the Libor investigation predated the Forex investigation. So, while governments around the world were investigating and prosecuting the banks for rate rigging on Libor, colleagues were still busy in chat rooms labeled “The Cartel” fixing foreign exchange rates.

Thanks for reading.