by David Enrich
Hayes struggled to comprehend the words. A dreamlike haze seemed to cloud the room. Was this really happening? Someone asked Hayes to sign the letter. He refused. “It’s ironic,” he said angrily, “because Brian was doing the exact same thing.”
“But he didn’t have any trading positions,” a lawyer responded.
Hayes asked for a severance payment. The executives exchanged glances and whispered to each other. Hayes was escorted to a tiny room with nothing but a table and a phone. They told him to wait there. Left alone, he called Cecere, who didn’t answer. Then he phoned Tighe. She was in the middle of getting a massage. “Look, I’ve been fired,” he announced.
“Oh shit,” she said. “I’ll come home.”
The meeting reconvened; Hayes’s request for severance was turned down. But he was allowed to keep his signing bonus, as well as another $2.4 million he’d collected in the ensuing ten months. And the bank promised not to tell any prospective employers in the future about the circumstances in which he’d left. Hayes considered that to be a victory. Pushing for more, he told the group that nobody had ever explained to him the rules he was now accused of violating. He said he wanted to invoke a whistle-blower’s clause in his contract to point the finger at senior management: Cecere and Mccappin knew what was happening and participated. Hayes threatened to sue. The meeting ended, about forty-five minutes after Green had tapped him on the shoulder. Now Green ushered Hayes down the hall. He asked what Hayes wanted to take from the office. Just his two lucky pandas, he said. Anything else? Green asked. “A noose,” Hayes responded. Then Green marched him out of the building.
* * *
Hayes went home and slumped onto the sofa. He was in a state of shock. “I can’t believe it,” he told Tighe over and over. He alternated between holding his face in his hands and raking both hands through his hair, sending flakes of dandruff into the air. Tighe wasn’t so surprised by the situation. She had seen this, or something like this, coming weeks ago.
Hayes called Farr on his cell phone. The broker was stunned when he heard what had happened. Hayes told him that during the hours of interviews, the lawyers had played tapes of some of his phone calls with Farr about Libor. This, Hayes said, was a big part of why he’d been fired. Terrified and confused, Farr decided not to tell his RP Martin managers.
Rumors about Hayes’s abrupt departure began to circulate. The prevailing wisdom was that he’d been fired for losing a lot of money. “Can’t say I am too surprised. Shame though,” an ICAP executive e-mailed Wilkinson. But others were closer to the real reason. Pete the Greek and Sascha Prinz were among those trying to figure out what happened. Prinz by now was at Bank of America. Pete the Greek was still looking to escape UBS and was pressing Prinz to get him an interview. “You heard about Tom Hayes?” Prinz asked.
“Yeah, sacked for cause. Pretty nasty.”
“Supposedly he tried to influence New York guys in setting Libor, and they have that on tape,” Prinz gossiped.
“That is ugly,” Pete the Greek said.
Elsewhere, traders and managers wondered why Hayes had been fired for doing what so many others also were doing. “Of course [he] requested that submissions be favorable to his position, [but Citigroup] evidently took a hard line with him for some reason,” a puzzled Deutsche Bank trader e-mailed his managers.
* * *
Morton and other Citigroup executives needed to figure out how to explain Hayes’s disappearance to the outside world. Eventually they settled on cryptic, imprecise language: “Tom breached the internal rules at Citi for the management of his positions” and “left the firm yesterday.” If pressed for more details, employees could respond: “He attempted to manipulate daily markings on his positions”—which wasn’t true. A memo cautioned against linking his departure to Libor. “Never talk about Libor fixing,” it said. “If we talk about his wrongdoing on fixing of [yen] Libor, most customers would think Citi committed a violation.”
Clients were also to be told that the damage would be limited because, with Hayes’s three-week wedding and honeymoon approaching, he had already exited many of his positions in advance. That was not altogether convincing, and in fact Hayes’s investments proved painful to unwind, in part because they were so well known across Tokyo’s trading community. Citigroup officials later estimated they incurred about $50 million in losses.
* * *
Hayes and Tighe flew back to England together, in synch with her previously planned departure, but a week earlier than he’d planned to travel. He was still working the angles, looking for new jobs. Adolph had sent him a commiserating text message when he heard about the firing, noting that he had endured a similar experience at Merrill Lynch back in April 2008: “You got fired just before your wedding, just like me.” He then helped arrange a job interview for Hayes at Deutsche Bank’s London office. But when Hayes checked in at the reception desk, word came down that he was not to enter the building. A Deutsche Bank executive, Mark Lewis, instead met Hayes at a nearby restaurant. He brought Adolph along. Hayes and Adolph, despite their long history, had never actually met. Hayes was left with the impression that Deutsche Bank was interested in hiring him, but the process would need to work its way through the bank’s internal bureaucracy.
Stress was causing Hayes to act even more strangely than usual. A day or two before the wedding, Sandy drove her son to Tighe’s parents’ house. Tighe and her mother, Karen, invited the two in for lunch. Hayes answered on his mother’s behalf: “Oh no, Karen, don’t worry about that. Mum was just saying to me in the car, ‘Oh God, I don’t have to go in for food with them, do I?’”
The Tighe women looked at each other, stunned. Hayes stood there grinning.
“I didn’t mean it like that, I really didn’t,” Sandy stammered. “It’s just that I’ve already eaten.”
Nobody was offended, Karen assured Sandy, who didn’t look like she believed it. Afterward, Tighe told her fiancé why what he’d just done was inappropriate. Hayes responded with a bout of hysterical laughter.
Tighe was devastated by Hayes’s firing. She had been eagerly anticipating returning to Tokyo as a full-time student. That door now had slammed shut. “I am home but very depressed,” she wrote to one of her Japanese friends, who had asked whether she should wear Western or Japanese garb to the wedding. “I can’t really be bothered to even think about the wedding. I can’t get my mind off the fact that I am being forced to leave Japan.” She and Hayes had been talking about starting a family of their own. That idea, too, was shunted to the back burner. “I feel very unsettled about what has happened and I guess I am going to have to go back to work if he can’t get a job. Sigh,” she wrote to Cecere’s wife, Megan. “I only just quit!”
The wedding took place in the English countryside on the third anniversary of Hayes and Tighe meeting at the InterContinental swimming pool. Hayes had picked the date; Tighe considered that to be probably the most romantic thing he’d ever done. The venue was a Four Seasons hotel in an old Georgian manor house surrounded by rolling farmland, near where Tighe grew up. Tuxedoed waiters served cocktails and hors d’oeuvres in a courtyard where wild rabbits hopped. Hayes wore a formal British morning suit. (At Tighe’s insistence, he stopped wearing his golden QPR pinky ring in advance of the wedding.) Tighe was in a body-hugging, strapless white dress with her back exposed. Custom-made diamond jewelry sparkled on her neck and ears. Hayes had invited several former colleagues. Cecere couldn’t make it, but a bunch of brokers—Brent Davies, Noel Cryan, Darrell Read, and others—and their wives were there. Cryan and Read huddled in a corner, gossiping about Hayes’s firing and wondering what the full story was. Despite the careful choreography and dancing lessons, Hayes botched the second promenade of their first dance. As the party wound down, Hayes wrapped his arm around his wife, and they watched as more than $10,000 of fireworks exploded in the night sky. Hayes had booked the second-nicest suite at the hotel; the king of Thailand was occupying the best rooms.
Afterw
ard, they flew to the Maldives for their honeymoon. They stayed in a villa on stilts in the Indian Ocean. The weather was awful. They huddled together inside, listening to rain and waves lash the house.
Part III
The Second Scam
Chapter 14
He’s the One
David Meister came from a family of engineers, and for many years he was inclined to honor that heritage. He went to the University of Delaware and earned a degree in chemical engineering. Meister cherished the certainty behind the finite, controllable science and math. But he soon recognized another certainty, which was that chemical engineering wasn’t sexy. Meister’s attention strayed. He kept reading news stories about the era’s fearless prosecutors, who were cracking down on the New York Mafia’s five families and the likes of Ivan Boesky and Michael Milken, the financiers who would go to jail for crimes related to insider trading. Meister was inspired—and, if he was honest about it, lured by the flame of publicity. Abandoning engineering, he enrolled in law school.
After graduating, Meister landed a job at a firm where he defended accused financial criminals for a few years. Then, eager to round out his résumé, he became a federal prosecutor in the U.S. Attorney’s Office in Manhattan. He worked under John Carroll, one of the lawyers who had prosecuted Milken back when Meister was in college. The experience cemented the new prosecutor’s interest in financial crime, which he found more subtle and complicated than open-and-shut Mafia cases. And his engineering background gave him an added advantage: He wasn’t afraid of numbers.
Meister soon returned to private practice, following Carroll to Skadden, Arps, Slate, Meagher & Flom, one of Wall Street’s most powerful legal outfits. There, Meister became rich. But by 2010 he was itching for a new challenge. He had plenty of money, but he was nearly fifty years old and wanted to make sure he left his mark somewhere. Maybe he could try another stint working for the government?
As it happened, Gary Gensler was in the market for someone to run the CFTC’s enforcement division. He had grown sick of Obie, who he felt wasn’t paying enough attention to headline-grabbing cases. Meister didn’t know much about the CFTC. But the world of former federal prosecutors—the world in which Gensler was searching for his top cop—was small and tight-knit. He wanted an aggressive and ambitious individual who would take an expansive view of what constituted the agency’s powers and would bring new urgency to the job. Before long, word reached Gensler that Meister was on the market. Then word traveled back to Meister to gauge his interest. He was intrigued and, after meeting the impressive Gensler, decided to take the job, splitting his time between CFTC headquarters and the agency’s New York offices, two blocks from where the twin towers once stood.
When Meister arrived in early 2011, the Libor investigation was one of the agency’s top priorities. But it wasn’t moving fast. No longer was the FSA the main impediment—slowly but surely, information was starting to trickle across the Atlantic. The bigger problem was of the CFTC’s own making: Its investigators may have been enthusiastic, but they didn’t seem to be acting with much urgency. Meister was by nature impatient. He thought government bureaucracies tended to waste time on investigations. It wasn’t that no progress had been made, but the Libor investigation was mired in a never-ending cycle of data mining. Each time McGonagle, Lowe, and their small band of investigators found a piece of potential evidence, they socked it away, and then the search resumed. The way Meister saw it, the agency already had the goods—not just in the form of cold, hard data, but also the juicy phone calls and electronic messages in which Barclays employees talked about their manipulative schemes. All this additional forensic work struck him as unnecessary.
Meister wasn’t the only one to reach that conclusion. On the CFTC’s ninth floor, some of the commissioners had come to view McGonagle, Lowe, and Obie as talented, dogged investigators who were unable to close the deal. They seemed too cautious, a tendency that had been reinforced by the agency’s historical culture. The consensus was that they weren’t the right people to be running a major federal investigation.
Meister drew up plans to revamp the CFTC’s strategy. Then a bombshell from Tokyo detonated.
* * *
After salvaging their rain-drenched honeymoon with a shopping spree in Dubai, Hayes and Tighe returned to Japan to pack their belongings. They had a small farewell party at the Windsor. Hayes—feeling nostalgic and recognizing that this was the end of an era for him—sought to patch things up with some former colleagues. “Despite the end, I had a good time here and wanted to say thanks for bringing me over a few years ago,” he e-mailed Pieri. It was a generous—arguably naïve—gesture, considering that Hayes by now knew about Pieri’s elaborate efforts to destroy him. Pieri responded a few hours later congratulating Hayes on his wedding and updating him on Donna giving birth to their second child, a boy. Pieri suggested that they grab beers in London at some point to reminisce about the crazy events of recent months.
“It’s not the same without you in the team for sure,” Pieri wrote. “I will remember those years with fond memories.”
Then Hayes and Tighe departed Japan for the last time. Hayes left behind a large unpaid tax bill stemming from the millions he’d collected from Citigroup that year.
At Citigroup, Mccappin grew increasingly worried about his vulnerability to the expanding investigations. He wrote himself, for posterity, a long e-mail with bullet points on what he knew, and when, about Libor. “Daily submissions would try to be biased to the lower side,” he said without mentioning that the strategy was crafted at least in part with specific trading positions in mind. Mccappin didn’t see anything wrong with this: “I know we have now heard this (everywhere) but I was genuinely not aware of any formal policy/guideline on these matters.”
With Hayes out, Read called it quits, too—just as he had said he would years earlier. But a few months into his second retirement, he got a phone call from the head of ICAP’s Wellington outpost. The office was suddenly doing a brisk business in New Zealand bonds and other products; would Read be interested in coming back? Bored at home, he took the bait and returned. It wasn’t the same without Hayes around. Now he had multiple clients, none of whom he knew well. The screaming was gone, but so was much of the fun.
At RP Martin, despite the loss of a second crucial client, spirits remained high. Caplin, feeling generous, doled out a round of bonuses to the yen-derivatives squad in late September. Farr pocketed the equivalent of $31,000. Lee Aaron got a five-year contract extension and a $16,000 bonus. The cash-strapped Gilmour also collected $16,000.
Citigroup’s compliance and HR departments concluded that Hoshino had just been following Hayes and Cecere’s orders and that while the impressionable young man hadn’t acted as he should have, he had learned his lesson. He certainly was contrite. His punishment was a written warning—essentially a second chance.
As for Cecere, he handed in his resignation shortly after Hayes was terminated. It was voluntary, but Citigroup had told him he might be fired if he didn’t step down on his own. His cell phone and e-mail were quickly disconnected. Always the salesman, Cecere described his resignation to Hayes as an act of protest—he said he did it “in disgust.” Cecere wasn’t terribly worried about the future: He was already in talks to join a huge international hedge fund, Brevan Howard, as a trader in its Geneva headquarters.
Before leaving Tokyo, Cecere had one last thing he wanted to do: take a shot at Pieri, whom he had come to loathe ever since spying on his conversation in the bar. Cecere called a friend at UBS and told him exactly why Hayes had been fired. Was UBS aware, Cecere asked, that Hayes and Pieri had been doing the same thing during their time together? Given the escalating nature of the government investigations, he suggested, perhaps it would be in the Swiss bank’s interests to take a look at Pieri’s and Hayes’s records. The message was passed up the chain of command at UBS and, miraculously enough, it wasn’t shunted aside. Instead, the bank decided that someone needed to trawl
through Hayes’s communications to see what they contained—exactly the sequence of events that had worried Hayes back when he had left UBS a year earlier. Who would handle this distasteful task? Not, it turned out, the compliance department or the bank’s legal team or the outside law firm, Allen & Overy, that the CFTC had forced UBS to hire. UBS instead told Pieri to investigate himself and his former underling.
Pieri decided it would be simplest to focus solely on Hayes’s communications with Alykulov. He quickly reported that, lo and behold, Hayes and his mentee had been trying to move the bank’s Libor submissions to benefit their trading portfolios.
That was enough to prompt UBS to take things more seriously. Pieri was relieved of his investigative responsibilities in favor of a major U.S. law firm, Gibson, Dunn & Crutcher. It didn’t take long for the attorneys to grasp the depth of the problem: It wasn’t just a couple of Tokyo traders freelancing as Libor manipulators. The wrongdoing was institutional, stretching from Tokyo to Singapore to London to Zurich, and involving not just low- and midlevel traders but also their managers, their managers’ managers, and even some high-ranking executives who either knew what was going on or should have. And it involved numerous banks and brokerages—a systemic racket.