The Spider Network

by David Enrich

  Like Hayes, the former ICAP brokers now had a powerful incentive to find a way to get the British government to charge them, to reduce the risk of U.S. extradition. And so lawyers for the three men paraded into the SFO’s offices to plead with the antifraud agency to prosecute their clients.

  The SFO remained in the dark about Hayes’s intention to fight the charges. Hayes, out of money, had decided to take advantage of Britain’s public defender system, and Fulcrum wasn’t eligible to participate in the program.* In any case, his impression was that the small firm wasn’t equipped for a major, long-running criminal trial. He set out to find someone to represent him in his still-secret fight against the SFO.

  Fat, bearded, and with a mane of long, black hair, George Carter-Stephenson was famous for defending suspects in gruesome, headline-grabbing murder cases. Hayes was drawn to him for several reasons, among them the fact that Carter-Stephenson was willing to accept somewhat less than his usual fee to take his case—a sign, Hayes concluded, that the lawyer was confident of victory and the justness of his cause. Tighe, at least, recognized that it was also conceivable that Carter-Stephenson was eager for the publicity associated with another marquee trial.

  Hayes’s new legal team told the SFO on October 9 that he would plead not guilty and wouldn’t testify as a prosecution witness. Suddenly the backbone of the agency’s biggest investigation had turned to mush.

  The SFO got to work fulfilling Jonson’s prediction from months earlier that the agency would crush Hayes if he fought the charges. For starters, it got a court to slap a restraining order on him, limiting his weekly spending to £250 (less than $400), on the grounds that anything he was spending more than that—especially now that he wasn’t paying his own legal fees—could represent an effort to hide or dispose of ill-gotten assets. Then, one October afternoon, SFO officials arrived in the lobby of Shearman & Sterling’s offices. A receptionist called Tighe to let her know there were government agents downstairs looking for her. She came down to the lobby and was handed a court order that froze her and Joshua’s assets and accused her of trying to hide her husband’s criminal proceeds by transferring the Old Rectory ownership to her name. Tighe was mortified. The agents’ presence at her work meant she had to explain the embarrassing situation to her boss. As soon as he heard what had happened, Hayes flew into a rage. He regarded the pursuit of his wife and two-year-old son as underhanded and felt that he was being treated like a drug dealer or a terrorist.

  In fact, the effort to go after the family’s assets was a routine law enforcement tactic. It shouldn’t have surprised him that the SFO, spurned by its star witness, was now fighting back. But the restraining order was based on a false premise—that Tighe was hiding assets under her maiden name. In fact, she had always used the name Tighe in professional contexts, and her passport, driver’s license, and other official documents were under that name, too. Yes, ownership of the house had been transferred to her. But it wasn’t a secret. All the records were public. The judge who signed the asset-freezing order held a new hearing and scolded the SFO for misleading the court. But still, damage had been done.

  The agency’s next move was to tweak the wording of its charges against Hayes. No longer would he be tried for manipulating Libor “and other interbank offered rates”; now it would just be Libor. The change meant that the British charges didn’t fully overlap with the American ones. As a result, Hayes theoretically could be extradited to the United States to face charges of rigging other, non-Libor benchmarks.

  The next month, the SFO sent Hayes and his lawyers into a panic when it mentioned in court papers that on top of the collusion and fraud charges that had been public for the past year, the United States also was accusing him of obstruction of justice. That seemed plausible, given what Hayes and his lawyers now knew about his recorded 2011 call with Alykulov. But the SFO eventually acknowledged that it had made a mistake. Hayes saw dirty tricks where in fact there probably was just incompetence—but again, the punch had landed.

  * * *

  For the past couple of years, Tullett Prebon had had its head buried deep in the sand. The firm’s longtime CEO, Terry Smith, the son of a truck driver, was convinced that his brokerage had sidestepped the Libor scandal, and he and his deputies basked in schadenfreude as they watched their hated rivals ICAP and RP Martin wriggle in the regulatory crosshairs. But in March 2013, after spending dozens of hours interviewing Hayes, the SFO had decided that Tullett and its brokers might be implicated as well. The agency sent a request to the brokerage for information. Trying to assess the possible damage, the firm set out to interview every employee who had interacted with the now-radioactive Hayes. One of those was the Hong Kong broker Danny Brand, who had bought Hayes the yellow bumblebee socks and had told him he’d been kidnapped when he wasn’t at work on time. Brand had been a guest at Hayes’s wedding. Now, sitting across the table from a lawyer and compliance official in Tullett’s offices, the broker described Hayes as “psychotic” and “an irrational guy at the best of times.” Brand said he had never fielded a request to move Libor or participated in a switch trade, but he defended any of his colleagues who had done so by noting that if brokers didn’t comply with Hayes’s wishes, however unreasonable they might have been, they would have faced serious professional consequences.

  Hayes hadn’t sought Brand’s help with Libor because the broker was based in Hong Kong and therefore lacked the connections with London-based Libor setters enjoyed by other plugged-in brokers—brokers like Noel Cryan. As Tullett plowed through its archive of e-mails and instant messages, Cryan now found himself in an undesirable spotlight. The firm suspended him and then hauled him in for a disciplinary hearing on September 11. Five company officials and outside lawyers crowded into a meeting room. It was the first time Cryan had ever met the head of the brokerage’s compliance department.

  Cryan argued that he hadn’t actually assisted Hayes. He was only creating the illusion of being helpful in order to preserve the lucrative account and to trick Hayes into participating in the switch trades with Danziger. What’s more, he said Tullett’s upper management—including Angus Wink—knew exactly what was going on with the controversial switches.

  A couple of weeks later, Cryan was summoned for another meeting and was handed a three-page letter. Tullett accepted his argument that he hadn’t tried to manipulate Libor, but not his claim that senior management knew about the switch trades. It was a convenient interpretation: Tullett bought the portions of Cryan’s defense that made it look like Tullett hadn’t done anything wrong, but not those that cast aspersions on top executives. (Wink had denied that he knew anything about the switch trades.) “The decision is to terminate your employment with the company with immediate effect for Gross Misconduct,” the letter concluded.

  In October, Tullett belatedly informed the SFO that it had found recordings that captured Cryan and his colleagues talking with their bosses about the switch trades—just as Cryan had claimed. The firm didn’t mention the recordings to Cryan. Tullett had lanced the boil.

  * * *

  The authorities behind the Libor investigation started to cash in on the case’s growing cachet.

  Gary Gensler rewrote history and credited himself with initiating the CFTC’s Libor investigation, telling a New York Times columnist in November 2013 that the whole thing started after he read a news story about Libor. “I asked our head of enforcement, ‘Should we look into this?’” Gensler claimed, ignoring the fact that the Libor investigation was roughly a year old by the time he joined the CFTC.

  Margaret Cole, the FSA enforcer who had seemed lukewarm about the Libor investigation, jumped to the financial services firm PricewaterhouseCoopers. (Her boss, the FSA’s chief executive, leapt to a top job at Barclays, helping the British bank improve its interactions with regulators, and was later knighted.)

  In the United States, Stephen Obie secured himself a fat payday at the law firm Jones Day, where his practice involved helping financial instituti
ons navigate the CFTC’s rocky regulatory terrain. David Meister—having apparently sated his desire to leave a mark somewhere—returned to Skadden Arps, where his Libor-enhanced credentials added to his résumé (and presumably his paycheck). The same trend took hold among the Justice Department’s Libor-busting crew. Robertson Park jumped to the private law firm Murphy & McGonigle, which touted his experiencing bridging the Justice Department–CFTC divide. William Stellmach joined the firm of Willkie Farr & Gallagher, where he helped financial institutions get off the hook in government investigations. And Scott Hammond, who as a top antitrust enforcer had put UBS’s law firm, Gibson Dunn, in the driver’s seat of the Libor investigation, landed a job in Washington as a partner at . . . Gibson Dunn. There he was reunited with his former boss, Gary Spratling. The law firm issued a press release quoting Spratling: The addition of Hammond “will ensure that Gibson Dunn will continue to be the ‘go-to’ firm for cartel defense work.” Hammond himself was open about the fact that he’d be helping clients deal with antitrust investigations—in other words, outmaneuvering his former government colleagues.

  The phenomenon of government officials scoring lucrative jobs at the companies they previously policed was so well established that it had a name: the revolving door. And if everyone was doing it, why shouldn’t these guys? Didn’t they deserve to enjoy some of the same largesse from putting their unique skills to work? There were no rules prohibiting switching sides, and no matter which direction they looked, they were surrounded by men and women who had enriched themselves by exploiting inefficiencies and loopholes that would be imperceptible to all but the professionally trained eye. So what if their skills were now being used to help powerful institutions avoid the same laws and regulations that they previously had been entrusted to enforce?

  * * *

  On a cool, gray December day almost exactly a year after Hayes had been arrested, he walked into the Southwark Crown Court. The bleak brick building on the banks of the Thames had been the venue, years earlier, of the trial of his former Nottingham classmate Kweku Adoboli. Hayes wore a dark blue shirt and a pair of old black Armani slacks along with his bumblebee socks, which he now believed brought him good luck. Standing in the dock with Farr and Gilmour, he was asked how he wished to plead. “Not guilty,” he replied. (Farr and Gilmour also pleaded not guilty.)

  Announcing the plea in court—the culmination of months of personal struggle—felt good. Hayes’s spirits immediately improved; suddenly the world didn’t look like such a hostile place. One afternoon a few days later, he and Tighe were at home watching the World Darts Championship on television. During a break in the action, the camera panned to the audience. It was filled with rowdy, drunk fans, many of them costumed as clowns or rabbits or Star Wars storm troopers. Ladbrokes, a British gambling company that was sponsoring the tournament, had handed out blank signs for people to write on and hold up for the cameras. In black marker, someone had scrawled “Save the ICAP 3”—a reference to Read, Goodman, and Wilkinson. Hayes hit the rewind button on his remote to make sure he hadn’t imagined it; sure enough, there it was. He drew solace.

  * * *

  To allow Hayes to prepare his defense, the SFO handed over to his team tens of thousands of electronic files—e-mails, chat transcripts, phone calls, interview recordings, trading records, computer screenshots, photos, scanned printouts—that the agency had collected in its investigation. There were scores of gigabytes of data that needed to be read and cataloged. Hayes attacked the new project with the same gusto that he had brought to his job as a trader. He set up shop at his kitchen table and stacked towers of evidence on chairs and alongside salt and pepper shakers and Joshua’s placemat. It was solitary work; he sometimes went all day without any human contact. He worked at all hours—not always because he wanted to, but because it beat lying in bed awake, unable to sleep.

  Hayes used computer programming skills that he’d learned as a trader to build a vast interactive database in which he kept track of all the exhibits. The database allowed his lawyers to sort the materials by dozens of variables, including the seniority of executives involved in each communication. When that task was complete, he moved on to other information sources. He read through Canadian affidavits. He had German court documents about the firing—and subsequent reinstatement—of several Deutsche Bank employees responsible for submitting Libor data translated into English. He repeatedly instructed his lawyers to submit freedom-of-information requests. A condition of his bail was that he had to stay in England or Wales, so the family took a quick vacation to the Isle of Wight, off England’s southern coast. (Hayes’s father footed the bill.) Hayes spent the holiday trying to track down Thomas Youle and Connan Snider’s paper—which, in the absence of any journals willing to print it, the grad students had self-published online—indicating that Citigroup appeared to be skewing its Libor submissions.

  Once Hayes had sifted through all the available evidence, he started the exhaustive task of figuring out how often Goodman’s run-throughs actually were beneficial to his trading positions. The answer—unsurprisingly, considering that Read had routinely lied to Hayes—was, not all that often.

  Next, Hayes set out to identify who might have been harmed by his manipulative activity. One way to assess this, he figured, was to identify who was on the other side of his trades. By definition, every trade had a winner and a loser, and if Hayes was the beneficiary, who were the victims? This was a herculean task, in part because he had been such a prolific trader. The SFO had provided him with his trading records; there were 45,407 transactions from 2006 through 2010. He went through each one. Of those, about two-thirds, 31,002, involved instruments that were linked to Libor and were relevant to the case. Almost all of those—99.9 percent—were with other banks. The other 43 were with hedge funds and other asset managers. There were no other trading partners—no pension funds or university endowments or municipalities or mom-and-pop investors. In other words, all his trades were with sophisticated institutions; he wasn’t deliberately ripping off innocents. Here was a vivid illustration of the closed-loop system that had come to characterize the twenty-first-century financial industry: Banks and other financial institutions trading with each other and nobody else in a self-perpetuating, self-serving cycle.

  Of course, that didn’t justify Hayes’s actions, legally or otherwise. And it conveniently didn’t account for those relying on slightly skewed Libor data—basically anyone with a mortgage or loan or hedging instrument whose value was based on the benchmark. It wasn’t Hayes’s fault alone that states, counties, towns all over the United States—many of them, like Baltimore, slashing school and police budgets to keep afloat amid the recession—had potentially lost millions due to aberrations in Libor. It wasn’t Hayes’s fault alone that pension funds safeguarding the retirement savings of thousands of cops, firefighters, and teachers might have been stiffed. And it wasn’t Hayes’s fault alone that other financial institutions—as unsympathetic as they might be, they still managed the investments of millions of individuals and institutions—had ended up on the wrong side of Libor-linked transactions. But Hayes did bear some responsibility. And yet those victims didn’t factor into his calculus.

  * * *

  The list of individuals charged by the U.S. and British governments with crimes related to Libor manipulation continued to grow. In January 2014, the Justice Department filed charges against Paul Robson—aka Pooks—along with two of his former Rabobank colleagues. (Most of the allegations were unrelated to Hayes.) Robson eventually pleaded guilty, becoming the first person to admit to criminality.

  Two months later, the SFO charged Read, Wilkinson, and Goodman. It was, perversely, a happy day for the former brokers because it reduced the chances of extradition to the United States. (All three pleaded not guilty.) In October, the SFO charged Noel Cryan, the seventh man in Hayes’s alleged ring.*

  Each time charges were filed, a press conference was convened or a press release issued touting the latest a
ctions as a clear sign of the government’s commitment to punishing financial criminals. For the most part, the media played along, and to a certain extent, these creatures of the modern financial system were fair game. They had pushed the envelope too far. They had gotten rich doing so. They had abandoned their moral and ethical compasses. Perhaps they had even broken the law doing so.

  And yet even the most vigorous prosecutor would have to admit that these guys had nothing at all to do with the larger financial crisis. They weren’t issuing reckless mortgages. They weren’t packing those mortgages into toxic securities. They weren’t piling on the billions of dollars in borrowed money that would topple some of the world’s biggest banks. Meanwhile, the bank executives who had done all those things were sitting pretty. Sure, some of them had lost their jobs, but many had walked away with fortunes worth well into the tens of millions of dollars.

  * * *

  In May 2014, Andrew Thursfield and his Citigroup-appointed lawyer showed up at the SFO’s offices for two days of interviews. With Hayes no longer a prosecution witness, Thursfield was going to help fill the void, and the SFO wanted to get a feel for its star witness before he appeared in court. “The culture at Citi at the time was far from being dishonest,” he assured Matt Ball. Aside from Hayes, “everyone else that I dealt with, and definitely everyone in the Libor process, was totally honest and doing everything to the best of their ability in what were often difficult conditions.” Hayes, he said, was “definitely a bad apple.”