The Supreme Court is set to review the cases of Tom Hayes and Carlo Palombo, former traders implicated in the high-profile Libor scandal. Previously, in 2015, Hayes was convicted on charges of conspiracy to defraud. He was sentenced to 14 years in prison for his role manipulating global interest rate benchmarks. The ruling, which is still pending, will be made in a national climate of unprecedented public demand on the courts. Senior politicians have claimed that the two traders were unfairly scapegoated for practices prevalent across the financial industry.
The Libor scandal that exploded in the early 2010’s. This resulted in the prosecution of 37 traders at firms like Deutsche Bank, Goldman Sachs and Barclays for colluding to manipulate interest rates, including the London Interbank Offered Rate (Libor) and the Euro Interbank Offered Rate (Euribor). Hayes’ conviction uncovered widespread, systemic abuses in the banking industry. It was revealing to learn that many other traders engaged in the same practice.
Hayes and Palombo would end up fighting their cases all the way to the U.S. Supreme Court. Their legal teams had contended that the judges in lower courts misled juries about the legality of their calls for ‘high’ or ‘low’ rates. These demands were aimed at the banks’ cost of borrowing. Changes in these rates might change trading margins, but they wouldn’t make a radical difference in sector averages. These applications would start to nudge the rate setting process in the right direction. Any difference would be negligible, at least one eighth of one hundredth of a percentage point (0.00125%).
In his defense, Hayes argued that he hadn’t ever asked for bogus responses to Libor inquiries. Rather, he claimed that as a private actor his directive was to make sure his bank got a good market rate, commercially advantageous. There, prosecutors painted a very different picture. They claimed that Hayes had attempted to fraudulently influence the Libor rate to benefit not only the bank’s trading positions, but his bonuses.
The U.S. Department of Justice and the Serious Fraud Office have labeled Hayes a “ringmaster.” They claim he headed up an international fraud conspiracy. This characterization was particularly important, as it highlighted the gravity of the charges he faced. In 2018, as part of an ongoing investigation called Operation Varsity Blues, 19 people were convicted on conspiracy to defraud. Nine of these were given prison sentences following trials in the UK and the U.S.A.
That all changed in January 2022, when a U.S. appeals court issued a landmark ruling. Judge Kaplan’s ruling had the effect of acquitting two former Deutsche Bank traders, Matt Connolly and Gavin Black. The ruling raised questions on the validity of other convictions related to the scandal. What it did do was raise serious doubt about the applicability of Hayes and Palombo. In spite of the acquittal on one side of the Atlantic, Hayes and Palombo are at this moment convicted criminals in the UK.
Prominent politicians have voiced their concerns over the treatment of Hayes and Palombo, suggesting that they are victims of a broader systemic issue within the financial industry. As former shadow chancellor John McDonnell put it, they were “scapegoated” for things that people had all done.
During the ongoing legal discussions, Mr. Justice Jeremy Cooke remarked on the accountability of individuals involved in such practices:
“The fact that others were doing the same as you is no excuse, nor is the fact that your immediate managers saw the benefit of what you were doing and condoned and embraced it, if not encouraged it.” – Mr Justice Jeremy Cooke
Carlo Palombo spoke of his anger at being convicted. He challenged the justice of being branded a felon when other people doing much of the same thing got away with it.
“If that’s not criminal, how can I be a criminal?” – Carlo Palombo
As these legal proceedings continue, the potential ramifications could reach further than Hayes and Palombo. The Supreme Court’s decision could potentially overturn previous convictions linked to the Libor scandal and reshape perceptions of accountability within the financial sector.