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Libor Scandal: RBS Managers Condoned/Participated

Posted by Larry Doyle on September 25, 2012 7:11 AM |

Crisis management 101 would maintain that during periods of turmoil a problem should be ring-fenced and a proper firewall developed so that the fallout does not spread. I believe that senior Wall Street management is utilizing that exact game plan in the midst of the Libor-manipulation scandal.

Wall Street would welcome paying token fines and sacrificing a handful of ‘rogue traders’ for the  rigging of Libor. Those penalties would be exceptionally cheap prices to pay for the largest financial scandal in Wall Street history. If token fines being levied and a small cadre of traders being fired and perhaps prosecuted are how justice is defined in this scandal then American justice and America itself will have sunk to a new low. 

It is incomprehensible to think that a scandal of this magnitude could have gone on for so long without the knowledge and approval of senior Wall Street management. To that end, we learn this morning of new details in this ongoing intrigue that strongly support that premise. Bloomberg writes, RBS Managers Said to Condone Manipulation of Libor Rates,

Royal Bank of Scotland managers condoned and participated in the manipulation of global interest rates, indicating that wrongdoing extended beyond the four traders the bank has fired.

In an instant-message conversation in late 2007, Jezri Mohideen, then the bank’s head of yen products in Singapore, instructed colleagues in the U.K. to lower RBS’s submission to the London interbank offered rate that day, according to two people with knowledge of the discussion. No reason was given in the message as to why he wanted a lower bid. The rate-setter agreed, submitting the number Mohideen sought, the people said.

Mohideen wasn’t alone. RBS traders and their managers routinely sought to influence the firm’s Libor submissions between 2007 and 2010 to profit from derivatives bets, according to employees, regulators and lawyers interviewed byBloomberg News. Traders also communicated with counterparts at other firms to discuss where rates should be set, one person said.

“This kind of activity was widespread in the industry,” said David Greene, a senior partner at law firm Edwin Coe LLP in London. “A lot of the traders didn’t consider this behavior to be wrong. They took it as the practice of the trade. This is how things operated, and it seemed harmless.”

I personally do not think it would be difficult to pinpoint individual traders, managers, and executives who participated, condoned, and ultimately approved the manipulation of Libor.

But who and what are really on trial here? The system of American justice itself.

Please refer to my other commentary today highlighting the ineptitude of financial regulators and legislators. Will these individuals largely stand idly by, mete out some token fines, and allow some traders to go down as the definition of justice for this greatest of all financial scandals?

The managers across Wall Street occupying the rungs of the ladder that runs to the top of Wall Street’s banks MUST be seriously questioned in this investigation. Can Wall Street survive a scandal of this magnitude?

I would ask a different question.

Can capitalism and America survive if real justice is NOT fully and properly pursued?

Navigate accordingly.

I humbly resubmit these related Sense on Cents commentaries: 
Libor Scandal: Will Wall Street Run Out The Clock? 
Libor Scandal: New York AG Takes Center Stage

Libor Scandal: UBS Plays the “Most Dangerous Game” 
Libor Scandal: Trader Highlights  Manipulation in 1991
Barclays Libor Scandal: Naming Names
Barclays Libor Scandal: Wake Up, America!!
Barclays Libor Scandal: The Complicit Regulators
Barclays Libor Scandal: The Precedent
Barclays Libor Scandal: Holding Regulators to Account
Barclays Libor Scandal: “Diamond Lied”
Barclays Libor Scandal: Who’s Really to Blame? 
Barclays Libor Scandal: When Did Manipulation Start?
Barclays Libor Scandal: How Big Will This Get?
Barclays Libor Scandal: Reports Regulators Knew; Time for Independent Investigation and Eliot Spitzer
Barclays Libor “Price Fixing”: Collusion Is Illegal. . .
Barclays Libor Scandal: Prison Will Remedy

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • LD

    In regard to the ongoing Libor scandal, there is not only today’s story at Bloomberg implicating management at Royal Bank of Scotland but also this bombshell provided by The Wall Street Journal,

    Mr. Gensler’s appeal for greater oversight was echoed by European Internal Market Commissioner Michel Barnier, who is seeking to emulate U.S. laws that criminalize the manipulation of market benchmarks. Mr. Barnier said a “new system of sanctions is absolutely crucial.”

    He also asked if regulators should limit the use of indexes, mirroring an approach Mr. Barnier has sought in the past when he advocated limits on the use of credit ratings. That proposal failed to find broad support.

    “I don’t believe in self-regulation of the markets,” he said. “We need to have rules and we need to have supervision.”

    Gensler Calls for Libor Replacement

  • Jack

    Who within the regulatory community dares take on these banks and will really try to get to the absolute bottom of this scandal?


  • Diana

    Bravo, Mr. Doyle! Yours is the first voice I have “heard” that is calling for a thorough investigation and appropriate penalties for ALL who were complicit in this most egregious scandal. Careful scrutiny of the regulators who did not regulate and the system that coerced their integrity and / or judgment must be a critical part of the “post-mortem”.

  • Virginia

    I spent the last week in a fraud complaint regarding an case unrelated to foreclosure – but the elements for fraud are the same as what I think every homeowner with a LIBOR loan should consider. I had to do extensive research to plead in specificity . . . See if you agree…


    After reading Bailout – I totally agree with Neil Barofsky –

    Every LIBOR promissory note should be void. That doesn’t mean the homeowner didn’t borrower the money – it just means that it establishes an issue where the transaction was based in fraud. The rate was fabricated low to induce the borrower into a deal; that had the rate not been rigged it may likely have been higher where (1) the homeowner may not have qualified for the loan, and (2) the homeowner may have decided not to do the mortgage deal.

    It actually goes deeper into the fact that these defective ARMs were structured using rigged LIBOR rates omitting certain facts to the borrower …. Like the reason why they could promise the borrower he could refinance before the end of the loan was because they knew they could rig the system…

    It appears there was an act of fraud perpetrated on the homeowner in that the banks intentionally withheld information (omission), a trickery, in order to induce the homeowner’s reliance so that he would sign the documents and obligate himself to the loan. A written offer was used to induce the borrower into committing to a contract that had he been informed of the truth – as a rational person – he may not have participated. You have to ask yourself – if you had known that the banks were participating in a fraudulent rigging scheme – would you have contracted with them – thereby aiding and abetting criminal activity? If the answer is no… I think that says it all.

    Now, did you get the money? Yes… Because you unwittingly participated in a fraudulent scheme. This is where the courts seem to be having their moral hazard attacks… However, part of the scheme was inflating the value of the appraisal (already proven in major investor cases and as a result of the current economy pricing). So, it would seem logical that the inflated portion – easy to identify these days by using current real estate marketing tools like Zillow, that the principal be reduced to the current market value and the homeowner’s payments be void of interest except for maybe a 1% handling fee that a state agency uses to collect the payments and keep the records on a new 30-40 year loan. The homeowner could accelerate the payments if he desired to pay off the loan and save the interest without penalty.

    I’m just a paralegal – this is not meant to be legal advice. This is based on research and logic.

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