The Spider Network
Page 34
Hayes began to question whether he could trust his lawyers. He certainly didn’t trust the SFO, and that left him worried about striking a deal with the agency. “What if the SFO abandon me?” he asked his lawyers. Even his mother seemed to desert him. Sandy had never liked the idea of her son working for a bank, and the current mess, she concluded, was the inevitable outcome of him joining a despicable industry. Sandy was so angry about the shame that Hayes had brought on her family that, one day in early 2013, she refused to babysit Joshua. Her lack of support opened a deep rift within the family. “How can I convince a jury that I’m innocent if my own mum doesn’t believe it?” Hayes asked himself. Tighe was irate and would remain so for years. Hayes and Sandy wouldn’t speak to each other for the rest of 2013.
One night, unable to sleep, Hayes searched the Internet for Brits who had faced similar situations. He came across David Bermingham, one of the so-called NatWest Three investment bankers who were extradited to face U.S. criminal charges for their roles in the Enron scandal. Hayes e-mailed Bermingham asking if they could talk. Bermingham had been following Hayes’s case in the media. He invited Hayes to come out to his home in Oxfordshire, a northern exurb of London.
When they met, Bermingham told Hayes his bizarre tale. After Enron imploded, he and his two British colleagues had been investigated for personally enriching themselves, to the tune of millions of dollars, in a complex deal with Enron and some of its executives. When the Justice Department charged the bankers in 2002 in Houston, Bermingham’s lawyers urged the SFO to investigate and file its own charges against him so he could avoid extradition. The SFO refused, so Bermingham’s lawyers sued—perhaps the only time in history that someone had sued a government to force it to file criminal charges against the plaintiff. The ploy failed, although the three former bankers’ public images evolved at least slightly from greedy “womanising buccaneers” into victims of America’s imperialistic approach to enforcing its laws all over the world. In 2006, they were sent to the United States, where they pleaded guilty and were sent to jail before being shipped back to England to serve the remainder of their thirty-seven-month sentences.
Bermingham—clean-cut and looking every bit the preppy retired investment banker—told Hayes the key was to find a way to defuse the U.S. situation. Otherwise, it could literally ruin his life; the United States would stop at nothing to get its hands on him. “If those charges are out there, you can never leave the country again,” he warned.
Driving home, Hayes was struck by the anger still burning in Bermingham’s eyes, years later, at having pleaded guilty to a crime he didn’t feel guilty of. Nonetheless, his lawyers were hard at work trying to put Hayes on a path to do just that: cooperating with the SFO—and pleading guilty to its anticipated criminal charges—to take U.S. extradition off the table. It was a matter of some urgency. In mid-January, the American embassy in London contacted the SFO to notify it that the United States planned to move forward with an extradition request. In Washington, Tyrrell put out feelers to Justice to see if they’d be interested in having a dialogue with Hayes; maybe they could strike a deal. Justice was at best lukewarm. So at a meeting with the SFO, Hayes’s lawyers made their pitch for their client to be admitted into a special cooperation program, normally reserved for members of organized crime, that would ensure he got credit for assisting. “I can imagine he would be quite a useful person,” Jonson told them.
The SFO’s Stuart Alford agreed that Hayes would be valuable. The agency “is keen to do all it can to look at not the low-lying fruit but to take it beyond that,” he said. “Cases can be jumped forward” with help “from the inside.”
* * *
On the morning of January 29, Hayes headed into London to sit down with the SFO, the initial step in becoming a cooperating witness. Hayes’s lawyers and the SFO had reached an informal deal: He would plead guilty and agree to testify against his alleged co-conspirators. The agreement unofficially called for a sentence of about twenty months of prison time, although technically that decision would be up to a judge. Hayes’s lawyers told him that, if all went well, he’d probably serve less than a year in jail, plus some time with an electronic monitoring device. It didn’t sound fun, but it beat the alternative.
First, though, Hayes had to convince the SFO that he would be sufficiently open and honest that his cooperation warranted a deal. It was called a “cleansing interview”—he had to come clean about all his wrongdoing and provide the investigators with an overview of the kind of stuff he could tell them. It was essentially an audition, and it would extend over a couple of grueling days. Jonson had coached him, especially about how to respond to the SFO’s inevitable question about whether he had acted dishonestly. The key was to sound candid, not defensive. During rehearsals, though, Hayes kept veering off onto tangents and struggling to remember exactly what to accept responsibility for. Jonson, desperate to avoid a disaster, e-mailed him a few talking points. “I accept that I was influencing a rate that was intended to be completely independent and devoid of any influence other than that of an independent submitter,” the note read. “Clearly I did this to benefit the bank’s position.”
When Tighe left her husband at the train station that morning, he looked like he was about to cry. “I’m so proud of you,” she texted him. He responded that there was nothing to be proud of. On board the train, he looked for the printout of Jonson’s talking points. It wasn’t in his bag. Panicked, he called Tighe, who had just arrived home. “I don’t know how to answer the dishonesty question!” he told her. Tighe ordered him to calm down. She rifled through his papers and found the missing printout. She typed its contents into her phone and e-mailed it to Hayes, who received it just before getting off the train in London.
Inside the SFO’s offices, a ring of interview rooms was arranged around a central atrium. To block out noise from the busy street below, the rooms were windowless, creating an intimidating, claustrophobic effect, even for experienced lawyers. With recording equipment switched on, the meeting got under way. Hayes confirmed that he would be willing to testify against his former colleagues. Then came the questions. The first topic concerned whether Hayes had ever previously committed a crime. The answer was surprisingly complicated. Hayes admitted that he’d been busted speeding on multiple occasions and, in order to avoid hefty fines, had taken two speed-awareness classes in a three-year period. That might have violated rules limiting the number of times an individual could escape a penalty, Hayes said. And he admitted that he hadn’t paid his taxes when he left Tokyo in 2010. (A few weeks later, he wired money to a friend in Japan, who paid the taxes on his behalf.)
Then Hayes started coming clean about his misadventures in banking. He noted the accusations he’d faced at both RBS and RBC when he left. He admitted that he repeatedly had violated UBS’s internal policy governing gifts and expenses. He had taken Tighe out to dinners that cost up to £1,000 and had brokers reimburse him. He hadn’t declared the gifts to UBS.
Asked if he admitted having acted dishonestly by manipulating Libor, he answered with one word: “Yes.”
“I probably deserve to be sitting here because, you know, I made concerted efforts to influence Libor,” he told the SFO in a session a couple of days later. “And, you know, although I was operating within a system, or participating within a system in which it was commonplace, you know, ultimately I was someone who was a serial offender within that. . . . At the end of the day my trading book directly benefited from that, and that directly had some impact on me as an individual both within my seniority within the bank, my standing within the bank, my potential remuneration.”
Just like that, Hayes had admitted to being a central part of what looked like a vast criminal conspiracy. He was following his lawyers’ advice, but that advice—given to a panicked, desperate man who, it would become clear, hadn’t come to terms with what it meant to accept responsibility for his crimes—would later look questionable at best. Now there was no turning back.
* * *
After having two of its employees arrested, RP Martin scrambled to circle the wagons—but not around the two suspect brokers. The first step was to fire Farr. His last day was December 31, 2012. He didn’t leave empty-handed. On his way out, he was handed a nearly $100,000 termination payment; the remainder of an $88,000 loan from a couple of years earlier also was written off. “I wish you all the very best in the future,” the firm’s HR manager said in a farewell letter.
Gilmour lasted a bit longer. In mid-June 2013, he was instructed to attend a disciplinary hearing in RP Martin’s increasingly busy boardroom. Beforehand, the firm sent him a memory stick containing recordings of phone calls and transcripts of his instant-message chats, as well as a summary of his May 2011 meeting, which Gilmour had signed attesting to its accuracy. In an attached letter, RP Martin’s chairman said the hearing would consider “whether, in the light of the attached recordings and transcripts, the information you gave at the meeting on 9 May 2011 was true and accurate.” Gilmour’s lawyers tried to get the meeting delayed or canceled, citing the ongoing criminal investigation. It didn’t work. The meeting took place on June 14, which also turned out to be Gilmour’s last day of work. Going forward, he would do occasional work for a friend as a house painter in training.
Then there was Lee Aaron. It had been a miserable year for him. His mother had spent the past twelve months waging a slow, losing battle for her life; she died in February 2013. Between hospice visits, Aaron submitted to interrogations with RP Martin’s lawyers. He insisted he hadn’t done anything wrong—despite records indicating that he tried to call in Libor-related favors on behalf of his pal Danziger. (The two remained friends. Fired by RBS, Danziger had become a recruiter in the finance industry, and they occasionally met up for beers and to discuss the investigation.) Aaron said that he’d just been telling Danziger “whatever he wanted to hear.” And the switch trades? Those were nothing more than a prized customer’s way of saying thank you. What about the vast amounts he was spending to entertain Danziger? From 2007 through 2010, the broker had incurred about £180,000 of expenses.
Aaron didn’t really see anything wrong with it. Sure, it seemed like a lot, but that was spread over forty-eight months—or, he said, about £2,000 a month. (His math was wrong; it was closer to £4,000.) He guaranteed to the investigators that he had earned far more for the company than he spent on entertainment. His boss, Cliff King, seconded the argument.
But Aaron had been warned about his behavior in the past and now, with regulators breathing down the firm’s neck, he was suspended. A month later, he received a letter from RP Martin that accused him of having been “directly or indirectly involved in or connected with or were aware of and failed to raise with management” attempts to manipulate Libor. He resigned, in exchange for RP Martin waiving any contractual restrictions on him joining a rival firm. “In resigning I do not admit the allegations raised against me by the company in its recent disciplinary investigation,” he wrote in a July 15 letter.
Aaron by then had lined up a new job as a broker at BGC Partners, which conducted a routine background check. When asked why he left, RP Martin’s compliance director responded: “He was suspended in relation to activities linked to the alleged yen Libor manipulation and subsequently resigned.” BGC hired him anyway.
* * *
On March 27, the SFO formally accepted Hayes’s application to join the cooperation program. The agency’s investigators had high hopes. Hayes had helped them identify dozens of alleged co-conspirators. The plan was for them to be tried in groups of three or four at a time, with Hayes the star witness at each trial. The SFO also envisioned him serving as an expert witness in Libor cases against individuals who weren’t part of his network. For the prosecutors, he was a human gold mine. Hayes was relieved to no longer have to worry about being sent off to the United States. It felt a little bit like he’d just been given an antidote after being bit by a poisonous snake.
After he was arrested, Hayes had put an end to his online trading. He had made a bundle of money—more than enough to cover the Old Rectory’s renovation—but he knew himself. His life was in too much turmoil at the moment; he wasn’t in the right mindset to continue. Still, the prolific volume of his trading had made him a prized customer and, one day early in 2013, an online brokerage firm tried to lure him with a sweet offer: If he opened an account, the firm would match his first £5,000 of profits. Hayes took the bait; he created a new account, deposited about £1 million, and resumed trading, figuring his gains would help pay his soaring legal bills. But after a brief period of making money, his trades started going wrong. He soon lost £100,000. Before long, the account had dwindled to £500,000. Hayes considered cutting his losses, but that wasn’t in his DNA. Tighe said that if he thought he could turn things around, he should keep trading. So he did.
One evening in March, Hayes returned from a day of being grilled by the SFO. “It’s gone,” he informed Tighe. The combination of his trading losses and the lawyers’ bills had exhausted the entire £1 million. Hayes sank into a deep depression, the losses cutting to the bone of his self-identity as a skilled trader. He was so out of sorts that he stopped going to QPR matches. He gave his lucky pandas to Joshua and threw away all the polo shirts his brokers had given him over the years—the memories were just too painful.
It seemed like only weeks ago that the couple had been rich. Now they were scrounging for money. They asked Tighe’s parents to pay back £5,000 that they’d borrowed. They sold Hayes’s Mercedes convertible. Robin returned his Mercedes to Hayes, who sold it, too. (Robin actually was relieved to no longer have the fanciest vehicle in his school’s parking lot.) Tighe took out a mortgage on the Old Rectory, a process that required the couple to transfer ownership of the house under her name. Before long, they realized that wasn’t enough and started trying to sell their beloved home—only a few months after they’d moved in. Tighe reluctantly decided to go back to work, putting on ice her ambition to have a second child. Shearman & Sterling, the law firm where she’d worked before moving to Tokyo, agreed to take her back. “Re-joining the working population shortly!” she announced on Facebook.
Not much seemed to be going right for the family. A year earlier, Hayes had spotted a small red lump on Tighe’s back, under her bra strap. A succession of doctors said it was nothing to worry about. But the lump seemed to be growing. Finally a doctor diagnosed it as cancer—a benign, treatable type of cancer, but cancer nonetheless. One day, Hayes drove Tighe to the hospital to have the lump cauterized. On the way home, on the highway, their car sputtered to a stop. It was out of gas. Hayes was so distracted that he didn’t even pull over onto the shoulder. The car just slowed to a halt in the middle of the highway; other vehicles whizzed past, blaring their horns. Tighe was scared. This was their life now: stalled and treacherous.
* * *
Hayes regularly spent entire days in the SFO’s offices giving recorded testimony. By the end, he would log about eighty-two hours of interviews. (The transcripts would run nearly four thousand pages.) To maintain secrecy, and avoid tipping off any of the men whom he was expected to testify against, he signed into the visitors’ log in the SFO’s lobby each morning using the pseudonym “Stan Bowles,” borrowed from a 1970s QPR star.
At first, the interviews were cathartic. Hayes enjoyed talking to a captive audience about markets and trading. He spent much of that spring walking the investigators through his career history and how he made money. He painted detailed portraits of bank trading technology, the mechanics of the derivatives market, how his Excel models worked, how traders and brokers communicated with each other, how traders like him thought and felt. “The first thing you think is, where’s the edge, where ca
n I make a bit more money, how can I push the boundaries, maybe, you know, a bit of a grey area, push the edge of the envelope?” he explained. He added: “The point is, you’re greedy. You want every little bit of money that you can possibly get because, like I say, that is how you’re judged. That’s your performance metric.”
And then, one by one, Hayes went through all the people he’d worked with over the years, the colleagues and brokers and competitors whom he’d chewed out or begged for favors or bossed around. Any time he was tempted to hold back or spin a conversation in a slightly more favorable light, he remembered what was riding on this process: If the SFO perceived him as being dishonest or uncooperative, the agency could pull the plug on the interviews and throw him to the American wolves. Everything hinged on him convincing the SFO to charge him. And so Hayes sat back and unburdened himself. He repeatedly admitted that he had acted dishonestly to skew Libor. Everyone had.*
When the SFO drew up an early draft of the charges it planned to file against Hayes, each count listed his co-conspirators. Two of the names were especially noteworthy: Carsten Kengeter and Brian Mccappin. When Hayes saw the two men on there, he felt a little better. They were both high-ranking executives, for starters, who unlike Hayes remained employed in the industry. And the fact that the SFO was convinced that senior executives conspired with him seemed to validate his argument that everything he was doing, regardless of its criminality, was condoned by his superiors.