The Department of Justice announced today the indictment of two former Deutsche Bank traders—the bank’s supervisor of the pool trading desk in New York and a derivatives trader in London—for their alleged roles in a scheme to manipulate the USD London InterBank Offered Rate, a benchmark interest rate to which trillions of dollars in interest rate contracts were tied.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division and Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office made the announcement after the indictment was unsealed today.
On May 31, a federal grand jury in the Southern District of New York returned a 10-count indictment charging Matthew Connolly and Gavin Campbell Black, with one count of conspiracy to commit wire fraud and bank fraud and nine counts of wire fraud for their participation in a scheme to manipulate the USD LIBOR rate in a manner that benefited their own or Deutsche Bank’s financial positions in derivatives that were linked to those benchmarks.
Connolly was taken into custody today and is expected to make his initial appearance this afternoon. The case has been assigned to Chief U.S. District Judge Colleen McMahon of the Southern District of New York.
Michael Curtlera former Deutsche Bank derivatives trader and manager of the London money market derivatives (MMD) desk in London, pleaded guilty in October 2015 to one count of conspiracy to commit wire and bank fraud in connection with his role in the scheme.
According to the indictment, LIBOR was an average interest rate, calculated based on submissions from leading banks around the world, reflecting the honest and unbiased rates those banks believed they would be charged if borrowing from other banks. LIBOR was published by the British Bankers’ Association, a trade association based in London. The published LIBOR “fix” for USD currency was the result of a calculation based upon submissions from a panel of 16 banks, including Deutsche Bank.
According to allegations in the indictment, Connolly was Deutsche Bank’s director of the pool trading desk in New York, where he supervised traders who traded USD LIBOR-based derivative products. Black was a director on Deutsche Bank’s MMD Desk in London, who also traded USD LIBOR-based derivative products.
In order to increase Deutsche Bank’s profits on derivatives contracts tied to the USD LIBOR, Connolly allegedly directed his subordinates, and Black allegedly asked Curtler and others at Deutsche Bank, to submit false and fraudulent LIBOR contributions consistent with the traders’ or the bank’s financial interests rather than the honest and unbiased costs of borrowing.
The charges in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
In April 2015, Deutsche Bank entered into a deferred prosecution agreement to resolve wire fraud and antitrust charges and Deutsche Bank Group Services (UK) Limited pleaded guilty to one count of wire fraud, collectively agreeing to pay a $775 million fine, for the bank’s role in engaging in a scheme to defraud counterparties to interest rate derivatives trades by secretly manipulating USD LIBOR and other currencies submissions.
The Justice Department has previously announced resolutions with five other banks for their roles in manipulation of benchmark interest rates, including Barclays Bank, UBS, The Royal Bank of Scotland, Coöperatieve Centrale Raiffeisen-Boerenleenbank, and Lloyds Banking Group.
The Department has also charged 13 individuals as a result of this investigation. Three of those individuals have pleaded guilty, two have been convicted at trial, and the charges against the others are pending.