BULLETIN: Traders Operated ‘The Cartel’; Banks Charged Criminally

breakingnews72Forex traders at four multinational banks — Citicorp, JPMorgan Chase & Co., Barclays PLC and Royal Bank of Scotland plc — formed “The Cartel” and conspired to manipulate the prices of the U.S. dollar and the euro, the U.S. Department of Justice said today.

All four banks have been charged criminally in an investigation that began when Eric Holder was Attorney General, said Loretta Lynch, Holder’s successor.

UBS AG, a fifth multinational, has been charged criminally with manipulating the London Interbank Offered Rate (LIBOR) and other benchmark interest rates, the Justice Department said. The UBS prosecution came about after the agency ripped up an earlier nonprosecution agreement (NPA) with bank, alleging that UBS had violated the terms of a pact reached in December 2012 to resolve the LIBOR matter.

Barclays also breached an NPA struck in June 2012 over the LIBOR matter and has agreed to pay an additional $60 million, the Justice Department said.

The charges, all felonies, include conspiring to fix prices and rig bids. They are filed against Citicorp, Barclays, JPMorgan and RBS.

A felony charge of wire fraud was filed against UBS, the Justice Department said.

“In other words,” Lynch said, according to her prepared remarks released by the Justice Department, “UBS promised, in other resolutions, not to commit additional crimes — but it did.”

As for Citicorp, Barclays, JPMorgan and RBS, Lynch said, “Starting as early as December 2007, currency traders at several multinational banks formed a group dubbed ‘The Cartel.’ It is perhaps fitting that those traders chose that name, as it aptly describes the brazenly illegal behavior they were engaged in on a near-daily basis. For more than five years, traders in ‘The Cartel’ used a private electronic chatroom to manipulate the spot market’s exchange rate between euros and dollars using coded language to conceal their collusion.”

All five of the banks have agreed to plead guilty to the criminal charges at the “parent level,” the Justice Department said.

Here, according to the Justice Department, are the market-manipulation timelines and the agreed-to criminal fines:

  • Citicorp, involved from as early as December 2007 until at least January 2013, $925 million.
  • Barclays, involved from as early as December 2007 until July 2011, and then from December 2011 until August 2012, $650 million.
  • JPMorgan, involved from at least as early as July 2010 until January 2013, $550 million.
  • RBS, involved from at least as early as December 2007 until at least April 2010, $395 million.
  • UBS (for NPA breach that occurred after December 2012), $203 million.

A statement by the Justice Department includes the type of language the agency normally directs at street criminals when it is trying to send a message. In this instance, however, the language is directed at the banks. From the statement (italics added):

Citicorp, Barclays, JPMorgan, RBS and UBS have each agreed to a three-year period of corporate probation, which, if approved by the court, will be overseen by the court and require regular reporting to authorities as well as cessation of all criminal activity.  All five banks will continue cooperating with the government’s ongoing criminal investigations, and no plea agreement prevents the department from prosecuting culpable individuals for related misconduct.  Citicorp, Barclays, JPMorgan and RBS have agreed to send disclosure notices to all of their customers and counter-parties that may have been affected by the sales and trading practices described in the plea agreements.

Today, in connection with its FX investigation, the Federal Reserve also announced that it was imposing on the five banks fines of over $1.6 billion; and Barclays settled related claims with the New York State Department of Financial Services (DFS), the Commodity Futures Trading Commission (CFTC) and the United Kingdom’s Financial Conduct Authority (FCA) for an additional combined penalty of approximately $1.3 billion.  In conjunction with previously announced settlements with regulatory agencies in the United States and abroad, including the Office of the Comptroller of the Currency (OCC) and the Swiss Financial Market Supervisory Authority (FINMA), today’s resolutions bring the total fines and penalties paid by these five banks for their conduct in the FX spot market to nearly $9 billion. 

Holder, Lynch said, “oversaw this investigation from its inception.

“His relentless work made this resolution possible, and I want to thank him for his commitment to this important effort,” she said.

Lynch replaced Holder last month.

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3 Responses to “BULLETIN: Traders Operated ‘The Cartel’; Banks Charged Criminally”

  1. SEC Commissioner Kara M. Stein appears to be quite displeased that the full commission granted waivers to the banks above.

    Her full statement is reproduced below. Footnote material is available through the source link below:


    Public Statement
    Dissenting Statement Regarding Certain Waivers Granted by the Commission for Certain Entities Pleading Guilty to Criminal Charges Involving Manipulation of Foreign Exchange Rates

    Commissioner Kara M. Stein

    May 21, 2015

    I dissent from the Commission’s Orders, issued on May 20, 2015, that granted the following waivers from an array of disqualifications required by federal securities regulations:[1]

    1) UBS AG, Barclays Plc, Citigroup Inc., JPMorgan Chase & Co. (“JPMC”), and the Royal Bank of Scotland Group Plc (“RBSG”), waivers from the provisions under Commission rules that automatically make them ineligible for well-known seasoned issuer (“WKSI”) status;[2]

    2) UBS AG, Barclays, and JPMC waivers from automatic disqualification provisions related to the safe harbor for forward-looking statements under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934; and

    3) UBS AG and three Barclays entities[3] waivers from the automatic Bad Actor disqualification provided under Rule 506.[4]

    The disqualifications were triggered for generally the same behavior: a criminal conspiracy to manipulate exchange rates in the foreign currency exchange spot market (“FX Spot Market”), a global market for buying and selling currencies. Traders at these firms “entered into and engaged in a combination and conspiracy to fix, stabilize, maintain, increase or decrease the price of, and rig bids and offers for,” the euro-dollar foreign currency exchange (“FX”).[5] To carry out their scheme, the conspirators communicated and coordinated trading almost daily in an exclusive online chat room that the traders referred to as “The Cartel” or “The Mafia.”[6] Additionally, salespeople and traders lied to customers in order to collect undisclosed markups in certain transactions.[7] This criminal behavior went on for years, unchecked and undeterred.[8]

    There are compelling reasons to reject these requests to waive the automatic disqualifications required by statute or rule. Chief among them, however, is the recidivism of these institutions. For example, in the face of the FX criminal action, a majority of the Commission has determined to grant Citigroup yet another WKSI waiver, its fourth since 2006. It is worth noting that Citigroup was automatically disqualified from WKSI status between 2010 and 2013 for unrelated misconduct, meaning that it has effectively now triggered WKSI disqualifications five times in roughly nine years. Further, through this latest round of Orders, the Commission has granted:

    Barclays its third WKSI waiver since 2007;
    UBS its seventh WKSI waiver since 2008;
    JPMC its sixth WKSI waiver since 2008; and
    RBSG its third WKSI waiver since 2013.

    The Commission has thus granted at least 23 WKSI waivers to these five institutions in the past nine years. The number climbs higher if you include Bad Actor and other waivers.

    This latest round of criminal charges also comes on the heels of the Department of Justice’s actions against UBS, Barclays, and RBSG for their collusive manipulation of the London Interbank Offered Rate (“LIBOR”), a benchmark used in financial products and transactions around the world. The manipulation of LIBOR was flagrant and “impact[ed] financial products the world over, and erode[d] the integrity of the financial markets.”[9] As part of the settlements in the LIBOR matters, UBS, Barclays, and RBSG each entered into agreements with the Department of Justice in which they undertook not to commit additional crimes during the term of the agreements.[10]

    Allowing these institutions to continue business as usual, after multiple and serious regulatory and criminal violations, poses risks to investors and the American public that are being ignored. It is not sufficient to look at each waiver request in a vacuum.

    And today the Commission heads further down this path. After the LIBOR guilty pleas, UBS was granted a WKSI waiver that was explicitly conditioned on compliance with the judgment in the LIBOR-related matter.[11] That explicit condition has now been violated. Yet, the Commission has just issued UBS a new WKSI waiver.

    It is troubling enough to consistently grant waivers for criminal misconduct. It is an order of magnitude more troubling to refuse to enforce our own explicit requirements for such waivers. This type of recidivism and repeated criminal misconduct should lead to revocations of prior waivers, not the granting of a whole new set of waivers. We have the tools, and with the tools the responsibility, to empower those at the top of these institutions to create meaningful cultural shifts, yet we refuse to use them.

    In conclusion, I am troubled by repeated instances of noncompliance at these global financial institutions, which may be indicative of a continuing culture that does not adequately support legal and ethical behavior. Further, I am concerned that the latest series of actions has effectively rendered criminal convictions of financial institutions largely symbolic. Firms and institutions increasingly rely on the Commission’s repeated issuance of waivers to remove the consequences of a criminal conviction, consequences that may actually positively contribute to a firm’s compliance and conduct going forward.


    SOURCE: http://www.sec.gov/news/statement/stein-waivers-granted-dissenting-statement.html

  2. It appears this isn’t Ms. Stein’s first rodeo. Here’s the text of a speech she gave in June of 2014 in the same vein…