by David Enrich
Hayes was escorted across the bank’s sprawling second-floor trading room, buzzing with more than five hundred traders and salesmen, each with as many as eight computer monitors, multiple phones, and squawk boxes. He felt at home. In a far corner, Hayes reached his destination: the small group of interest-rate traders and Libor submitters led by Andrew Thursfield. By now it was nearly 10 a.m., half an hour after Hayes was scheduled to meet with Citigroup’s fastidious Libor man. “Oh yeah, sorry I’m late,” Hayes said nonchalantly. “I thought it started at ten o’clock.” Thursfield noticed that the disheveled trader was carrying a printout of his schedule that clearly listed the appointment time as nine thirty.
Thursfield didn’t even understand why he was supposed to meet this guy. Hayes wasn’t based in London. He wouldn’t be working in Thursfield’s section of the bank. He wasn’t even employed by Citigroup yet. Thursfield introduced himself, explaining that, among other things, his desk’s duties included submitting Citigroup’s Libor data. Hayes didn’t miss a beat: “Great, you can help us out with Libor,” he said. Thursfield looked taken aback but didn’t say anything. Hayes thought he seemed a bit stuck-up. The pair walked up and down rows of surrounding desks, with Thursfield introducing him to traders and Hayes making snide comments about the bank’s antiquated phone systems. When they circled back to Thursfield’s desk, Hayes launched into a monologue about his dominant position in the Japanese market, where he said he was responsible for 40 percent of all interest-rates trades, and his strong relationships with Libor submitters and traders at other banks. He talked about how he routinely asked them to move their submissions to suit his trading positions. He mentioned, a couple of times, the killing that UBS had made after Gollum alerted him to Deutsche Bank’s plans to slash its Libor submission.
Thursfield was stunned. Of course, he knew a lot of this was happening in the market. But especially lately, with U.S. regulators showing a keen interest in Libor, he figured all banks, not just Citigroup, were trying to steer clear of such machinations. He, for one, was trying to preside over a squeaky-clean process. His team, in particular Laurence Porter, canvassed other parts of the bank and various market participants to try to ascertain exactly what it was costing Citigroup to borrow money from other banks. Sometimes Porter came up with bad information, but at least he was diligent. And in any case, Hayes’s boastfulness offended Thursfield. It seemed impolitic to talk so openly about the dirty business of moving Libor to benefit your bank’s trading positions.
The next day, Thursfield and another executive, Steve Compton, spoke on the phone. Compton asked what he had thought of Hayes. Thursfield paused, considering how to word his response. Normally, he would try to adhere to British etiquette and cushion any caustic comments with understatement.* But he had found Hayes too objectionable to be polite. He was “unimpressive” and “ultra-arrogant,” Thursfield replied, describing how he openly talked about getting information from other traders. Compton asked if he got the impression that Hayes planned to continue such practices at Citigroup. Absolutely, Thursfield said, appalled. “I mean, we just paid another $75,000 bill to the lawyer this week for the work they’re doing on the CFTC investigation. So, that side of things, I mean it obviously happens, and you know it’s all subtleties about it.” Based on his short visit with Hayes, subtlety didn’t seem to be his strong suit.
“I’m a bit nervous about anyone that kind of really touts the fact so openly that they are sort of 40 percent of the market,” Compton agreed. “I don’t think it’s ever a good thing to be 40 percent of the market.”
But there wasn’t much either man could do about it. Chris Cecere, who had hired Hayes, had some formidable allies inside the bank. He’d been recruited by a fellow Lehman Brothers veteran named Andrew Morton, who had wisely resigned from the Wall Street firm a week before it filed for bankruptcy protection. Now Morton was Citigroup’s head of interest-rate trading—a powerful role, multiple rungs above Thursfield. (Morton, one of those who interviewed Hayes before Citigroup signed him, was a minor legend on Wall Street. As an academic in the 1980s, he had helped devise a model to value obscure interest-rate derivatives. The system was widely adopted by bank traders and came to be known as the Heath-Jarrow-Morton framework.) At Citigroup, Morton’s mandate was to revitalize what had been a key profit engine in its investment banking division. And the way to do that, at least as far as he was concerned, was to pump lots of money into hiring hotshot traders with hearty appetites for risk. There was no way Thursfield was about to pick a fight with Morton or one of his lieutenants to protest them hiring Hayes.
But Thursfield had other weapons in his arsenal—namely, letting everyone know just how much he disliked the new trader. Later that day, in a phone call with a Citigroup trader in New York named Mark Smith, Thursfield derided Hayes as an “absolute idiot.” When Smith countered that he’d heard good things about him, Thursfield went on a tirade. “He came across as a total wide boy,” he said, using British slang that loosely translates as a sleazy wheeler-dealer. “He was basically saying he made half his money just on finding out what Deutsche were doing on their fixings ’cause it was his best mate around there. And he was quite open about that.”
“Sounds a bit risky,” Smith said, “given we’re being investigated.”
“I find it amazing that if he was being that blatant, whether it be by phone or by e-mail or anything, that it’s not gonna get picked up,” Thursfield ranted. Surely, he said, “UBS will be supplying information to the CFTC.”
It didn’t improve Thursfield’s mood that a rumor was circulating that the bailed-out bank had agreed to pay Hayes an astronomical bonus. The figure Thursfield had heard was $6 million. “He is probably telling everyone,” Smith grumbled.
* * *
While Hayes was rubbing people the wrong way at Citigroup, Obie was also in London. He was there for a regulatory conference being held in the luxurious Royal Garden Hotel in Kensington. On the conference’s first day, he was a speaker on a panel with his former boss at the CFTC, Gregory Mocek. Bespectacled and balding, with a penetrating blue-eyed stare, Mocek had run the agency’s enforcement division during the Bush administration, the period in which Obie pursued some of his career-defining energy cases. The Louisiana native, a passionate duck hunter, was now in private practice in Washington, tasked with helping clients defuse CFTC investigations. One of his marquee clients was Barclays.
That evening, Mocek and Obie caught up over drinks. They met in a private lounge at the Grosvenor House hotel, across the street from Hyde Park and a short walk from the conference venue. Mocek, exhausted, stretched out on an overstuffed red sofa. He had a surprising message: Barclays wanted to meet with Obie as soon as possible. Obie couldn’t help feeling suspicious—after all, most banks had been doing everything possible to avoid assisting the CFTC. Why did Barclays suddenly perceive it as beneficial to change tack? Mocek explained that the bank had stumbled upon some important new Libor evidence.
A day or two later, Obie showed up at the FSA’s headquarters, considered neutral ground, to meet with Mocek and the Barclays officials. In a large, glass-walled room, Mocek explained that the bank had been sifting through more than 22 million e-mail records, audio files, and other documents, in the process racking up tens of millions of dollars of legal and other fees (a number that, presumably to Mocek’s delight, was growing by the day). Mocek fiddled with a computer, and then the scratchy sound of two men with thick British accents played over the room’s speaker system. The voices, Mocek explained, belonged to a Barclays trader and his manager; the recording was from the previous fall, at the peak of the financial crisis. The two men were debating whether to move Libor lower to avoid unwanted public scrutiny. The trader, who was in charge of the bank’s Libor submissions, resisted, fearing such a move would breach BBA rules. His manager said they didn’t have a choice—the order to reduce Libor was coming straight from executives at the bank, who in turn had received the instructions from someone senior at th
e Bank of England. This was a bombshell: Not only were bankers on tape talking about gaming their Libor data, but they were doing so at the behest of a central banker! As the recordings played, Obie’s adrenaline surged. Then Mocek showed some follow-up e-mails that the unhappy Libor submitter had sent to his manager and the bank’s compliance department, in which he reiterated how uncomfortable he was with the orders he was receiving. Barclays promised to provide all the material in duplicate to any regulator who wanted it. Finally, Obie thought, a breakthrough!
That evening, he and Cole met for a previously scheduled dinner at a riverside restaurant with views of Tower Bridge and the City’s distinctly shaped skyscrapers, their lights twinkling in the damp night. The two regulators discussed the stunning materials Barclays had just disclosed. Cole’s skepticism about the Libor investigation seemed to have faded. Obie managed to suppress a glib smile.
* * *
Back in Washington, Obie received a package containing a compact disk with the audio files and other materials that Mocek had disclosed in London. By now, bits of evidence had been trickling in for a few months from banks that seemed to be hoping that they could get the CFTC off their backs by providing convoluted spreadsheets and copies of mostly innocuous e-mails and internal chat sessions. Occasionally, the team stumbled across something shiny, such as a trader making a potentially incriminating remark. Then Lowe and her teammates would start searching for that trader’s name in other places. Most of the time, though, they found nothing.
The Barclays package was different. Toting the CD, Obie raced up to Gensler’s suite, two floors above the enforcement staff’s seventh-floor warren. “I’ve got something you need to see,” he told Gensler. The agency chief didn’t use a computer, so they walked out to his assistant’s desk. Obie ducked behind the desk, slid the CD into the computer, then double-clicked one of the audio files. The scratchy sound of cockney-accented bankers filled the windowless foyer.
At first, Gensler didn’t say anything, processing what he had just heard. Then he asked: “If a central bank official is directing this, is it illegal?”
“That would be a creative defense,” Obie replied. He was surprised by Gensler’s muted reaction. He didn’t really know what he’d expected—it’s not as if the no-nonsense multimillionaire was going to start jumping up and down in excitement. But Gensler soon became more enthusiastic. At the next meeting of the agency’s five commissioners, Obie played a few of the Barclays recordings, not just the one with the Bank of England reference but also other snippets of banter, cursing, and bluster. As he did so, Gensler kept interrupting. “Wait, listen to this part!” he blurted before especially juicy bits. The recordings had their intended effect: When Obie finished, the room was silent except for the soft hum of a ventilation system and the sound of one commissioner chuckling in disbelief.
* * *
Hayes whiled away the remainder of his gardening leave in Tokyo. He caught up on British TV programs and made lots of sausages. He slept in. He paid frequent visits to a local bowling alley, where he and Nigel Delmar tried to improve their mediocre games. He celebrated his thirtieth birthday in October at a party Tighe threw at a fancy Mediterranean restaurant called Cicada. Cecere and his wife came; Brian Mccappin, eager to impress his new hire, made an appearance. Hayes immersed himself in planning his wedding, scheduled for September 2010.
And he contacted Read with an unusual request. He planned to be in London for the holidays and was looking for a nice place to take Tighe and a group of ten friends out to dinner on New Year’s Eve. The catch: He didn’t want to pay. He bluntly asked Read if ICAP would foot the bill. This took chutzpah. Following Hayes’s departure, UBS had frozen its fixed-fee arrangement with the brokerage. And since he wouldn’t be trading for the next few months, ICAP wasn’t making money off him. But Hayes told Read that the whole tab wouldn’t be much more than £1,000. Read pulled some strings and made it happen. The soon-to-be millionaire would get his free meal.
* * *
Ever since working on the energy cases earlier in the decade, Obie had been dying to land another investigation that would allow him to harness the fearsome power of the Justice Department and its investigative arm, the FBI. Now he called a longtime acquaintance, Robertson Park, in the Justice Department division that pursued fraud cases.
Park, tall and gregarious with a thick gray beard, was at his desk on the third floor of the Bond Building, a 108-year-old relic a block away from the White House, when his phone rang. Obie told him he had something special for him to hear. Park looked out his window at a construction site, surely the lustrous new home of an expensive law firm or lobbying shop. Over the phone, he heard typing and then muffled static and then the voices of the Barclays traders. “Oh my God,” Park said when the recording ended. He didn’t know much about the Libor investigation, but he could tell this was extraordinary. Obie filled him in on the backstory, noting the parallels to the energy cases they had worked on together.
Park didn’t require much persuading. By now, more than a year after the onset of the worst crisis since the Great Depression, the public was yearning for someone, anyone, to be held accountable. No executives on Wall Street—or any other major financial center, for that matter—had faced jail time for their roles torpedoing the world’s economies. In fact, some of the dethroned bank CEOs had walked away from their crippled institutions with immense personal fortunes. To anyone who had lost his home or been chased down by bill collectors, it was offensive, and public outrage was increasingly aimed at government authorities who didn’t seem to be doing much to identify, much less prosecute, the crisis’s villains.
Part of the problem was Justice’s aversion to indicting big companies. In 2002, the department had filed criminal obstruction-of-justice charges against Arthur Andersen, which had been Enron’s auditor and had destroyed thousands of documents as the Houston energy company collapsed in a massive accounting fraud. The case against Andersen was meant to showcase the Bush administration’s seriousness in its crackdown against corporate crime, but the presumption at the time was that the giant accounting firm would strike a deal to avoid the case actually ending up in court. Instead, the ninety-year-old firm decided to roll the dice by going to trial. After a six-week trial and ten days of deliberations, the jury delivered its verdict: guilty. Andersen, already severely wounded by the loss of important clients and employees, now unraveled entirely. More than twenty thousand employees lost their jobs.*
The destruction of a major company caused prosecutors to become painfully conscious about the possible consequences of charging a firm whose business hinged on public confidence. The Bush administration quickly changed tack to focus on rehabilitating the cultures of wayward companies rather than punishing them for wrongdoing. The banking industry deftly exploited this new stance, repeatedly pointing out that tens of thousands of jobs were on the line. The scare tactics were effective; with a few small exceptions, neither banks nor their executives got charged. “In reaching every charging decision, we must take into account the effect of an indictment on innocent employees and shareholders,” Lanny Breuer, the assistant U.S. attorney general, would tell a gathering of New York lawyers. Obama’s attorney general, Eric Holder, later echoed that sentiment, prompting congressional critics to print Monopoly-style cards bearing the image of a winged Rich Uncle Pennybags escaping from a cage, along with the message: “Your bank has been deemed ‘too big to jail’ by the U.S. Department of Justice.”
By 2010, newspaper opinion pages were beginning to brim with unfavorable comparisons to the reckoning that took place after the Depression, when a Senate panel named and shamed the industry’s leaders. Even after the much smaller savings-and-loan crisis of the 1980s, more than eight hundred bank officials had ended up behind bars. The harsh comparisons weren’t entirely fair—just because Wall Street fat cats were despised didn’t mean they had committed any crimes. In fact, the nation’s banking laws had been sufficiently watered down during decades of de
regulatory zeal that much of what the bankers had done was perfectly legal. And building criminal cases was difficult. Many senior bankers had used layers of managers to insulate themselves from the potentially incriminating process of sending e-mails or having recorded phone calls about sensitive topics. The one thing worse than not going after any banks, some prosecutors believed, was going after a big bank and losing.
Fair or not, the public attacks resonated in the upper echelons of the Obama administration. Inside the Bond Building, they stung the longtime prosecutors who wanted nothing more than to build a big case that would generate banner headlines and quench the public’s thirst for justice.
Until now, Park hadn’t ever paid attention to Libor. Now he started spotting references to it everywhere—in the business section of newspapers, in online advertisements, even in personal loan documents. It was one of those things that could make you feel the fool: Here was this number that was connected to so much, and yet it had remained hidden in plain sight.
Park went to his boss, Denis McInerney, who had been hired earlier that year by Breuer to run Justice’s fraud division. The white-haired McInerney had been a longtime prosecutor in New York and in the federal Whitewater investigation against the Clintons; as a defense lawyer, he’d represented Arthur Andersen in its obstruction-of-justice case. One of the reasons Breuer had hired him was to pursue more financial crime cases. “Denis, this is important,” Park told him, before explaining what he’d heard from Obie. The two men summoned a team of fraud investigators from their unit and invited the CFTC over to the Bond Building to strategize. The gathering was held in a dilapidated and claustrophobic conference room nicknamed the Flag Room. It was ringed with banners from different branches of the U.S. military and the seals from the government investigative agencies, such as the CFTC, that Justice tended to partner with; low ceiling panels had been removed in a few places to allow flagpoles to poke through. An ancient TV-VCR combo was mounted on the wall. The chairs surrounding the conference table were in various states of disrepair and uncomfortable to sit in. None of that mattered when Obie, once again, played the Barclays recordings. Their significance was clear to everyone in the hushed room. This was the whale they’d been hunting for—a winnable case against the big, rich banks.