The Spider Network

by David Enrich

  Hayes had been under the mistaken impression that Goodman, like Farr, had an informal, casual way of spreading the Libor misinformation through the market. He hadn’t realized that there was actually an e-mail that Goodman sent every morning. Before Hayes and Goodman met, Read instructed Goodman, “please don’t tell him too much about your run-throughs you send out as I often lie about what you have sent if it doesn’t suit him!” To be extra safe, Read had gotten in touch with Wilkinson with a similar cautionary message. If Hayes phones you about Libor, Read had said, “I have asked you to pull in favors to keep three-month [Libor] up.” Read hadn’t actually relayed that request; he was just covering himself in case Hayes started asking questions.

  So it had gone for a while, and so it would continue. When Read told Hayes that his WestLB buddy was out of town, and that’s why the German bank’s Libor submission moved the wrong way, it was a lie; the reality was that his old schoolmate just wasn’t in a position to help that day. Ditto when he told Hayes that Goodman had exhausted his goodwill with a trader at another bank; Goodman just didn’t want to expend his goodwill on Hayes’s behalf. When he told Hayes that other ICAP colleagues had convinced an RBS trader to move Libor in a helpful direction, the move was just a lucky coincidence. And when he revealed to Hayes what numbers Goodman was disseminating, sometimes Goodman wasn’t even at work. Time after time, Hayes bought the lies, and his friend Read kept churning them out.

  * * *

  The MGM Grand Garden Arena, tucked in the bowels of the bright green hotel and casino on the Strip in Las Vegas, was jammed with a capacity crowd of 16,459. Many in the audience on this Saturday night in late 2007 were rowdy Brits. Some were playing trumpets. Others pounded on drums and belted out “God Save the Queen.” Thousands of boos rained down on the singer who performed “The Star-Spangled Banner.” The fans had flown in for what was being billed as an epic boxing match: Ricky Hatton versus Floyd Mayweather. The Brits were there to cheer on Manchester native Hatton, whose boxing trunks this night had a Union Jack flag splayed on the posterior.

  The fight was a hard ticket to come by. Hatton and Mayweather were both undefeated; the winner would be crowned the welterweight champion of the world. The crowd was sprinkled with celebrities, including Angelina Jolie and Brad Pitt. And there, sitting not far from the ring in a roped-off VIP section, was Hayes, flanked by Charlie, his childhood friend, and Nigel Delmar. The tickets were part of a VIP package that included unlimited food and booze as well as the killer seats. The tickets had cost more than $3,000 apiece, but Hayes and his pals hadn’t paid: ICAP had picked up the tab.

  The weird thing was, no ICAP brokers were at the event with Hayes. Delmar, who worked for Tullett Prebon, had formed a tight bond with Hayes, regularly coming over to his apartment on Friday nights to watch TV, and Tullett had covered the costs of the three men’s hotel and some of their nights out. It hadn’t taken much arm-twisting for Delmar to get his boss to sign off, given that Hayes had already raked in $50 million in profits that year. Here was a client they couldn’t afford not to entertain.

  Similar logic explained why ICAP was paying for the VIP tickets. David Casterton had personally okayed the expense after he nailed down the £75,000-a-month UBS deal. “Whilst I do not usually sanction buying expensive tickets for customers,” he explained to another executive, “in the unusual case that Tom is, I feel it is worth it.”

  Las Vegas was an appropriate place for traders and brokers to go for a weekend of debauchery. It wasn’t just that the desert city was synonymous with gambling. Through years of rapid, speculative real estate development, Vegas also had become a symbol of the easy credit and ubiquitous home ownership that defined America in the early and mid-2000s. By the time of the Hatton-Mayweather bout, the foundation of that epic boom was starting to crumble. More and more homeowners were falling behind on their mortgage payments. Banks and mortgage brokers that had splurged on reckless loans were going belly up. Soon Las Vegas’s outer tracts would be littered with abandoned, boarded-up, and half-built homes. Of course, Hayes and his ilk weren’t responsible for that mess—they hadn’t doled out the ill-considered loans, even if some of their employers had. But the instrument that Hayes wagered on most voraciously—Libor—was embedded in many of the home loans that had fueled the frenzy and now were at the heart of the Great American Mortgage Bust. Flying into Las Vegas’s McCarran International Airport, it would have been hard for Hayes and his pals to miss the impact of the giant bubble: plot after plot of cookie-cutter housing developments, some of them still under construction, stretching for miles into what not long ago had been barren desert.

  The fight that night lasted ten rounds. In the final round, Mayweather landed several vicious blows. Hatton staggered back to his feet, but the referee ended the fight, Mayweather the victor by way of TKO. Luckily, Hayes and his disappointed friends had plenty of other fun still to look forward to—the night was young, and it was all, of course, on someone else’s dime.

  Chapter 7

  Your Name in Print

  On a scorching Sunday afternoon, Hayes decided to go swimming. He went to the InterContinental hotel, nestled among the skyscrapers of the trendy Roppongi neighborhood, to take advantage of the outdoor “garden pool” on its fourth floor. The piano-shaped pool was surrounded by umbrellas and lounge chairs, as well as a small kids’ pool. Visitors could pay a hefty fee—nearly $100—for access to the facility. By now, in September 2007, that was pocket change to someone like Hayes. Plus, he respected the supply-and-demand dynamics that clearly were at play in setting the steep price.

  No sooner had he sat down poolside than something shiny caught his eye. Sitting on the terrace floor was a tall, pale-skinned, blond woman. She was wearing a pink crocheted bikini. It wasn’t just her looks: Even from afar, there was something about her mannerisms that captivated him. He stared at her for the next half hour, wondering if she would notice him. She didn’t. Hayes didn’t consider trying to talk to her. He was far too shy for that. Plus, he was living with his girlfriend—what point would there be in trying to strike up a conversation with a random woman? Then he noticed that she was reading a book that he had just read himself, Queen Camilla, a satire about the British royal family taking up lives as commoners. Hayes took it as a sign. He nervously walked over to the woman. “That was the bravest I’ve ever been,” he would later recall.

  Sarah Tighe was a London-based associate at the corporate law firm of Shearman & Sterling. The twenty-seven-year-old had a month of unpaid leave at work as she waited to officially become a lawyer and so had gone on vacation with a friend. After a week in Tokyo, they’d been scheduled to catch a flight to Okinawa, but a typhoon grounded the plane. They got a room at the InterContinental. Then Tighe came down with food poisoning. As she slowly recovered, she parked herself at the hotel pool to read and perhaps take a nap.

  Tighe sat poolside, dangling her toes in the cool water. Suddenly a shadow blocked out the sun. Tighe looked up from her barely opened book. Standing above her was a slim, nerdy-looking man wearing a red England soccer jersey and matching shorts. His golden Queens Park Rangers pinky ring glinted in the bright light.

  “Alright, good book?” Hayes blurted out.

  “Oh my God,” Tighe thought to herself, appalled by the man’s childish outfit and awkward demeanor. An overeager, oversize boy—this was the last thing she wanted to be dealing with right now. She made her best “bitch face,” hoping to scare him away. “I don’t know, I’m on the first page,” she hissed. As far as she was concerned, the conversation was over.

  But it wasn’t. Hayes plopped down next to her. He started to talk about Queen Camilla. Then his monologue veered into finance. A crisis was brewing, he excitedly told her. In the United States, banks were starting to teeter as borrowers fell behind and then defaulted on their mortgages. In Europe, funds run by BNP Paribas, which made the mistake of investing in products linked to those American mortgages, were collapsing. In England, customers were lining up
to pull their money out of troubled mortgage lender Northern Rock. These were the early tremors in what would soon become an extraordinary, globe-swallowing earthquake. These were crazy times.

  Tighe didn’t care. Her stomach was unsettled, and she wanted to get back to sunbathing. But Hayes wouldn’t leave her alone. He looked at the terrace’s tiled floor and the sparkling pool and the hazy blue sky. He didn’t make eye contact. Eventually the one-sided conversation meandered to Tighe’s line of work. She explained that she was an aspiring lawyer and hoped one day to specialize in oil and gas law.

  “What’s the price of a barrel of oil?” Hayes demanded.

  “I don’t know,” she said. “I’m on holiday.” The reality was she wouldn’t have known even if she wasn’t on vacation.

  “How can you be an oil lawyer if you don’t know the price of oil?” Hayes asked, unimpressed.

  Tighe was tempted to tell him to scram. But she didn’t have the heart—she was beginning to feel a little sorry for the guy. It was obvious how much effort he was pouring into the strained conversation. She figured she would let him extract himself gradually to save face. But Hayes was just getting started talking about the markets.

  Two hours later, the sun was starting to set. The pool would be closing soon. Tighe, still in her bikini, was getting cold. But she was also intrigued. It turned out that she and Hayes had things in common. Both had moved as young teenagers from large urban centers to towns in the Hampshire region, Hayes to Winchester and Tighe to Fleet, where both struggled to acclimate and were picked on because of their lower-class accents. Tighe had a close relationship with Emma, her younger sister; Hayes was similarly close with his younger brother, Robin. Hayes liked that Tighe, loyal to her childhood home, still supported Birmingham-area soccer team Aston Villa. It even turned out that they had both attended a 1994 match when QPR faced off against Aston Villa in London; Hayes recalled the game’s exact date and score. Tighe could tell this was an extraordinarily intelligent man. And, come to think of it, he wasn’t bad-looking, either.

  They walked together into the hotel to the locker rooms. Tighe was in town for a few more days, and she was hoping Hayes would ask for her phone number or e-mail address. But she wasn’t going to be the one to make the first move; she had a policy of not asking guys out, and she wasn’t about to stray from that now. Granted, the policy hadn’t served her very well over the years—aside from a college boyfriend, Tighe hadn’t ever had a serious relationship. Finally, before disappearing into the men’s locker room, Hayes dug a crumpled business card out of his shorts and shoved it into Tighe’s hand. “E-mail me if you want to go out with your friends sometime,” he said. He still wasn’t making eye contact. His face was flushed with embarrassment. He didn’t mention that he was living with his girlfriend.

  Two days later, Tighe e-mailed Hayes. The subject line was “Ce soir”—this evening in French. “It’s Sarah from the Intercontinental pool,” she wrote. She invited Hayes out to dinner with her friend that night. Hayes accepted the invitation, then inundated Tighe with detailed instructions about how to explain to a cabdriver where the restaurant was. Tighe responded a few hours later to confirm. She noted in passing that she hoped she had caught him before he left the office. “Caught me in time? I’m usually in the office till 8pm!” he boasted.

  It was a fun, boozy, late night. Hayes brought along Nigel Delmar. The group met at the swanky Oak Door Bar on the sixth floor of the Grand Hyatt hotel. Hayes told Tighe that he’d been flummoxed by the “Ce soir” subject line. He didn’t know what it meant, and, after he figured it out, he couldn’t understand why an English speaker, communicating with another English speaker, would write something in French. It’s not as if they were in France. Then he grilled Tighe with endless questions. Did she want kids? (Perhaps.) Did she smoke? (No, she lied.) Was she a vegetarian? (Hell no.) Did she have a strong work ethic? (Yes.) Was she committed to her career? (Very much so.) What were her political leanings? (Apolitical; Hayes, much to his parents’ chagrin a Tory of Thatcherite leanings, was unimpressed.) Did she enjoy reading and, if so, what kind of books did she favor? (Yes; fiction about wars, assassins, and spies.) How much had she read by Michael Lewis, one of his favorite authors? (None.) Tighe was taken aback by the machine-gun nature of Hayes’s questions, which seemed designed to gauge their compatibility as mates. She was also charmed.

  The next day at work, Hayes was hurting. He wasn’t accustomed to drinking on weeknights. He usually was in bed not long after 9 p.m., and now his head was pounding, his mouth cotton-dry. None of that mattered when a note from Tighe arrived in his UBS e-mail account. She told him that she “had an awesome time.” Hayes couldn’t suppress a smile. He typed an effusive response. “It was really, really nice to meet you . . . Was pretty tired and hungover this a.m. but luckily the market is being kind to me today, so am making some money without doing too much, maybe I should go out more often!” He continued: “I really enjoyed your company and it’s a shame we live 6,000 miles apart!” He said he’d be back in England in the next few months. It “would be nice to catch up in London at some point.”

  * * *

  In 2007, his first full year at UBS, Hayes earned about $48 million for the bank. It was a strong performance, but not a blowout; some traders at rival banks were easily generating twice as much, although many more had been losing money in the now-turbulent markets. UBS itself was suffering mountainous losses, but on top of his roughly $170,000 salary, Hayes got a $1 million bonus. To most people, especially someone in his late twenties, that would be a life-changing windfall. It certainly was the biggest haul of Hayes’s career. But he viewed it as too low by at least half given the small fortune he’d generated for the Swiss bank. He was devoting his entire life to an intense, exhausting job, and he didn’t feel like he was being adequately valued. The good news, Hayes told Read, was that “they sort of promised me a better one next year, even if I only make half the money.”

  “Try and get that in writing, mate,” Read said, marveling at Hayes’s naïveté. “If the bank has a hard time again this year, the same excuses will roll out and you are two years further down the line.”

  Hayes’s trading in those early crisis days had been frenzied. He was executing at least fifty transactions a day, sometimes double or triple that. He was trading products tied to the yen and dollar iterations of Libor. He was trading products linked to Tibor. He was trading currencies. He was trading something called overnight index swaps. Occasionally, he’d squeeze twenty or thirty trades into five minutes. The transactions whizzed across his computer screens faster than he could enter them into his spreadsheets. The risks and interrelationships between positions became dizzying, the three-dimensional puzzle pieces getting jumbled. It wasn’t unusual for him to make or lose $10 million in a single day.

  Hayes’s managers, especially Pieri, were impressed. His 2007 performance review credited him with having “greatly enhanced” UBS’s trading profile and helping to build an “outstanding” business, generating revenue “above expectations . . . through some of the most challenging markets.” But, Pieri’s review added, Hayes had some problems: He was too intense. He yelled too much. Some younger employees were scared of him. “Needs to work on self-control and stress levels,” Pieri wrote. “Learn about how to deal and talk to others such that you can achieve your desired result without anger. Learn about emotional intelligence.” As he had back in school, Hayes acknowledged his shortcomings in a self-assessment: “I can be snappy and need to stop this.” He knew that his tendency to growl “you’re useless” at colleagues was not endearing.

  The explosive attitude wasn’t reserved exclusively for his colleagues. His developing reputation for incivility and pushing the envelope a shade further than anyone else won him fewer and fewer allies. In the testosterone-fueled trading community, rivals weren’t shy about calling him out on his tactics. One day in March 2008, a Lehman Brothers trader in Tokyo named Jeremy Martin noticed that Hayes was trying to n
udge one part of the market involving short-term interest rates (known as “the short end”) in a favorable direction. The prior year, Martin had invited Hayes to a meeting to talk about a possible job offer; Hayes later concluded that Martin had simply been trying to trick him into revealing information about his investments in the hope of pilfering his ideas. Since then, Hayes had been doing whatever he could to make Martin miserable—including offering to buy or sell a certain volume of instruments, then withdrawing or downsizing his offer as soon as Martin took him up on it. Martin didn’t realize that Hayes was just messing with him; he thought the UBS trader was trying to influence prices by momentarily appearing to increase demand. The tactic was common, but it nonetheless struck rivals as manipulative.

  “If you want to fuck around in the short end then you should do market size when you are hit,” Martin wrote to Hayes in an instant message. In other words, he should honor the amount he was offering to trade if someone accepted his offer. “Everyone is getting pissed off with your shit.”

  “What is market size please, seeing as you are the short-end expert?” Hayes replied sarcastically.

  “I just want to trade,” Martin wrote back. “You seem more interested these days in pushing markets rather than trying to trade. It is frustrating for people like me who want to do something in the market because half the time it is not real.”

  “Yes, clearly I am not a big player and you are, that really bothers me!” Hayes sneered.

  “It’s not about big or small, it’s about being professional.”