by David Enrich
Victory
Chapter 19
Within the Ark
For the first time in the trial, Hayes had to go in the dock, accompanied by a guard. With a loud clang, the door was locked behind him. He stood as the jury entered, his heart thumping. The next few moments would determine his fate. He held his breath. “Guilty,” the foreman said. Then he said it seven more times. The jury unanimously convicted him on all eight counts. Hayes’s face reddened. He shook his head, then sat down and buried his face in his hands. He looked at the jurors, willing them to meet his gaze. None did. Tighe, sitting nearby, looked shell-shocked. Sentencing, Cooke announced, would take place in a half hour.
In the hallway outside, Hayes’s family gathered around him. Beth, his half sister, sobbed. Hayes wrapped his arm around her. He removed his watch, wallet, and wedding ring and handed them to Tighe. “Will you wait for me?” he pleaded. She promised she would. She warned him not to do anything stupid. Then he returned to court, dragging a blue-green duffel bag packed with clothes and other belongings. He kissed Tighe.
Cooke, vindicated by the verdict, announced the sentence: fourteen years. It was one of the longest-ever sentences for a British white-collar criminal, longer even than received by some murderers. Hayes looked terrified. He sat down and ran his hands through his hair. “Fourteen years,” he murmured, over and over. The judge read a long statement denouncing him for knowingly committing a crime, for exploiting his subordinates, for pulling out all the stops to manipulate the legal process. Plus, the judge declared, “the conduct involved here must be marked out as dishonest and wrong and a message sent to the world of banking accordingly. The reputation of Libor is important to the City as a financial center and to the banking industry in this country. Probity and honesty are essential, as is trust which is based upon it. The Libor activities, in which you played a leading part, put all that in jeopardy.”
Tighe, wide-eyed, gaped at her husband. She didn’t cry; plentiful tears would come the next day. “We’ll appeal,” she mouthed to him. When Cooke finished speaking, Hayes waved goodbye to his wife and mother. He was escorted to the ground floor of the courthouse, where he was locked in a cell with green-painted bars. He felt numb and, for the first time, thoroughly defeated. An hour later, a white van drove him to Wandsworth Prison, a stone fortress built in 1851 and only recently retrofitted to include amenities like in-cell electricity and plumbing. Hayes stared out the van’s window, watching people starting their commutes home, wishing that this were only a dream.
* * *
The contrast between Hayes’s fate and those of his peers was stark. Six of his former brokers were preparing to stand trial, but most of his other colleagues were free—and gainfully employed. Mirhat Alykulov was still in the finance industry in Tokyo, working as a broker. (He partied with his former colleagues, including Paul Ellis, the Credit Suisse trader with whom Pieri had ganged up on Hayes. And he learned to box, participating in a charity tournament alongside the hairy Anthony Hayes, who took the opportunity to temporarily shed the Abbo moniker and be rechristened as the Apeman.) Naomichi Tamura, who over Christmas eight years earlier had instructed Hayes to do all he could to move Libor in a helpful direction, until recently continued to work at UBS. Mike Pieri disappeared to Australia, but remained a free man. Chris Cecere was at a hedge fund. Hayato Hoshino and Andrew Thursfield and Burak Celtik and Laurence Porter all kept working at Citigroup. Holger Seger, who had encouraged Roger Darin and others to collaborate with traders like Hayes, left UBS and eventually landed a job at a small bank in the picturesque Swiss city of Lenzburg. Darin, wanted by the United States, couldn’t leave Switzerland without risk of being arrested, but he was ensconced in his native country’s financial technology industry.
David Casterton remained a top ICAP executive. In one of his final acts as prime minister in 2016, David Cameron nominated his old pal Michael Spencer to become a member of the House of Lords. (The appointment ended up being blocked.)
And the two executives whose names had appeared on a draft version of Hayes’s charges? Well, they were doing better than ever. Carsten Kengeter—who as co-head of UBS’s investment bank had pleaded over and over with Hayes to stay, partly because of his priceless connections to Libor setters—was no longer with UBS.* Now he was the chief executive of Deutsche Börse, the big German stock exchange. As Hayes’s trial got under way, Kengeter unveiled an ambitious expansion plan for the company, including buying a large foreign-exchange trading platform, the company’s biggest purchase in a decade. Then in March 2016, he announced an even more audacious deal to merge with the London Stock Exchange, one of the world’s most prominent markets. Kengeter would be crowned CEO of the sprawling new institution.
Brian Mccappin—who in the most charitable version of events had done nothing to stop Hayes and Cecere from manipulating Libor—never left Citigroup. After Japanese regulators slapped the bank’s wrist in late 2011, Citigroup reassigned him to Singapore and then New York. He cycled through some low-profile jobs there. Then, as if by clockwork, when Hayes was locked up, Mccappin was promoted. His new job—head of institutional sales in the foreign-exchange business—sounded obscure, but it represented a ringing public endorsement of a man whose reputation had been badly tarnished. Announcing his promotion, Citigroup described Mccappin as “a valued employee.”
Even Angela Knight, who presided over the British Bankers’ Association during its inept management of the Libor scandal, landed on her feet. She left the BBA for a job at an association advocating on behalf of the United Kingdom’s energy industry. Then, in late 2015, her longtime contacts in the British government decided she was just the person for a plum post advising the chancellor of the Exchequer on how to simplify the country’s tax code. A parliamentary committee grudgingly approved her appointment, although it noted it was unimpressed with her tenure at the BBA.
The Bank of England’s governor, Mervyn King, retired and in spring 2016 landed a job as a senior adviser at Hayes’s former employer, Citigroup. Meanwhile, the central bank plodded along with a years-long effort to come up with ways to delink derivatives from Libor. The idea was that if those ubiquitous financial contracts, representing trillions and trillions of dollars, were no longer tied to an error-prone, theoretical interest rate, well, they would be more reliable. The central bank appointed a veteran of more than twenty years to lead the effort as well as to come up with ways to clean up other markets prone to manipulation. The wiry, floppy-haired man, with a fondness for jogging and golf, had previously done stints at the International Monetary Fund in Washington, during which he’d listened to his nerdy, socially awkward nephew talk excitedly about his interest in becoming a star trader, and as King’s private secretary, where he’d helped communicate his boss’s laissez-faire attitude about Libor. Since then, the man had climbed the Bank of England’s ranks and become its executive director in charge of supervising markets. His name was Chris Salmon. The man responsible for dealing with the Libor scandal’s fallout, and for reducing the odds that another scandal took place, was the uncle of the scandal’s convicted ringleader.
* * *
Banished from the banking industry, Alexis Stenfors had reassessed his life. Within a few months of Merrill Lynch firing him in 2009, he decided to pursue one of his earlier interests: academic research. He enrolled in a University of London Ph.D. program. His research topic was—what else?—Libor manipulation. Eight years earlier, Stenfors had started noticing some fishy stuff going on with the benchmark. Now he had a chance to blow the whistle.
His studies at times were surreal. Once, in a library researching his dissertation, he leafed through a study about rogue traders. In the middle of the paper was a table listing rogue traders dating back to the early 1990s. Near the top of the list, a name leapt out: Alexis Stenfors. Stenfors didn’t view himself as a rogue trader; he had just made some mistakes, within a system that more or less encouraged such mistakes. Stenfors typed out a fruitless letter to the journal’
s publisher protesting his inclusion in the list.
He completed his dissertation, earned his doctorate, and landed a teaching position at the University of Southampton. Eventually he emerged as a sought-after speaker for university students and fellow researchers, a unique pairing of academic expert and industry veteran, of theoretical and real-world experience. Stenfors, more introspective than most, had spent two years regularly visiting a psychotherapist, trying to understand what had motivated him to lie and cheat. Seven years later, he still hadn’t figured it out.
Stenfors was glued to the coverage of Hayes’s trial. He and his former brokers—these were guys Stenfors knew, guys like him, and now they were staring at years behind bars. At one point, the prosecution questioned Hayes about when he and Farr arranged their first switch trade and were hunting for someone to take the other side. They had turned to Stenfors, who had demurred. Farr had asked Stenfors if the trades seemed dodgy, and he had said yes. Now, in court, the ethical judgment of Stenfors was being presented to the jury as a sign that Hayes and Farr knew that what they were doing was improper. It wasn’t funny, but Stenfors couldn’t help but laugh.
On a drizzly morning in January 2016, Stenfors arrived at a Victorian townhouse in central London to deliver a lecture. His audience was a group of about thirty undergraduate finance students visiting from an Iowa university. Their goateed professor, who in his spare time was trying to launch his own hedge fund, had lined up several guest speakers to give his students a taste of the real world of finance. Most of the students, dressed in tracksuits and college sweatshirts, didn’t seem very interested. They sat, sleepy-eyed, at desks under an ornately molded white plaster ceiling. Looking a bit gaunt, Stenfors had dressed up in a suit and tie. He used a laptop to project a slide show titled “Risk Takers, Rogue Traders and Rotten Apples.” Stenfors presented himself as a banking industry refugee (although he proudly noted that the prior year, the British regulator had lifted a ban on him working in the industry). He tried to explain what it meant to be a trader. It wasn’t all about making money. It was about risk-taking. The adrenaline rush was as much a goal as the fat paycheck. “It’s addictive,” he noted.
Then he got to his main theme: Rogue traders and other banking miscreants are products of the system. Toss aside everything you’ve learned about economics, Stenfors advised, the simple, clean world of rational individuals and profit-maximizing institutions. That’s not a realistic reflection of the financial industry—The Hunger Games is more like it. Everyone is acting to enhance his own interest. When other people are no longer useful, you stab them in the back. “It’s not necessarily about money—it’s about winning,” he explained. Normal systems of morals and ethics don’t apply. He recounted how he and his colleagues kept trading as if nothing had happened when the planes hit the twin towers and how traders openly looked down on their lesser colleagues. “You respect fighters. You respect race car drivers. You do not respect salespeople. You do not respect those who don’t take risks.” The phenomenon of rogue trading can be understood in part through sociology. “It’s a rebellion against institutional controls that deny individuals opportunities for self-actualization,” he asserted. In other words, the cutthroat system encouraged amoral, nasty behavior.
It was a stinging critique of the world Stenfors had inhabited and that some of these students presumably planned to enter. His lecture concluded after an hour, and he invited the students to ask questions.
A hand shot up in the front row. It belonged to a spiky-haired, bespectacled Asian-American. While his classmates hadn’t bothered to stifle their yawns as Stenfors spoke, this twenty-one-year-old had remained attentive, his eyes stuck on the lecturer and his slide show. Now, called on by Stenfors, he cut right to the chase: “What can I do to become a trader?”
* * *
Hayes was transferred from the dungeonlike Wandsworth to a prison called Lowdham Grange. It was a destination for murderers, drug and weapons traffickers, and violent criminals with decades-long sentences, but it had a reputation for being relatively clean and safe. It was situated in the middle of farmland; tractors were parked around the prison’s outskirts, and inside its fifteen-foot cement walls birds could be heard chirping. Prisoners were permitted to wear their own clothes and to spend hours roaming the complex. Hayes’s cell was small but cozy, with a metal bed, a small TV, an electric teakettle, and a metal desk against the wall below a barred window. Best of all, there was a phone that he could pay a few pence per minute to use. Each week, he exhausted his allowance on several-times-a-day phone calls to Tighe.
Hayes drew comfort from the routine of the prison day, with each activity slotted into a regular time period and little margin for surprise or disruption. He taught math classes and read books. In the prison’s grand hierarchy of crimes, being a financial crook was considered much less objectionable than offenses like pedophilia or violence against women or even selling drugs, and so he didn’t have problems with the other inmates. Some became his friends; his closest pal was an inmate convicted of murder for bludgeoning to death his financial adviser. Nicknames were popular in prison, as they had been in Hayes’s previous world. He no longer went by Rain Man or Tommy Chocolate or Kid Asperger. Now he was the Banker and the Lion of Libor. Inmates crowded into his cell to watch TV segments about him, cheering when pundits questioned the severity of his punishment.
At first, to make the long sentence seem more manageable, Hayes divided each day into 8,640 ten-second increments. Later, tired of that repetition, he split the entirety of his sentence into six-month blocks and then started counting down the hours and days of each slice. Meanwhile, he memorized the prison rulebook. He learned that he was permitted to have a small rug in his cell—a privilege that apparently hadn’t been noticed by many other prisoners. When winter came and the temperatures dropped, prisoners padded into his cell, removed their shoes and socks, and luxuriated in his small carpet’s softness. Hayes didn’t want their company so much as their physical warmth. He figured the exchange of the rug’s coziness for their body heat was a fair trade.
On the frequent occasions that he felt his anger boiling up, a fury so intense that it rendered him unable to focus on anything else, he would go to the gym. Before long, he had bulging biceps. When the gym wasn’t an option, he would sit down in his cell and whip through a math workbook. The numerical exercises were a source of calming familiarity in his scary new world.
* * *
Tighe tried to keep her family intact. She told Joshua that Daddy had done something that certain people thought was wrong, even though Mommy and Daddy didn’t think it was wrong, and that Daddy now had to go away for a while to sort the mess out. Joshua, the spitting image of his father, took to asking whether Mommy would leave, too. At dinner each night, Tighe called Hayes in his cell and put him on speakerphone so that the family could at least retain a semblance of normalcy. Before bed, Joshua got in the habit of casting a get-Daddy-home magic spell.
The SFO continued to try to confiscate the family’s assets. A court eventually ordered Hayes to pay £878,806 (roughly $1.3 million). The Old Rectory went back on the market; a Goldman Sachs banker snapped it up on the cheap.
For months, Hayes, Tighe, and their families clung to the hope of a successful appeal of his conviction and sentence. His lawyers argued that Judge Cooke, who had retired after Hayes’s case, had improperly excluded certain evidence, such as Pete the Greek’s exoneration by the regulatory committee. And they claimed that the fourteen-year sentence was excessive, especially considering Hayes’s diagnosis with Asperger’s. An appeals court agreed to hear Hayes’s claim and assigned a prestigious three-judge panel—including the highest-ranking member of the English judiciary—to preside. But the judges rejected the effort to get the conviction overturned. They did shave three years off his sentence, which the court said “was longer than was necessary.” Hayes and Tighe, however, were crestfallen. They had convinced themselves that perhaps the punishment would be chopped in ha
lf.
His landmark victory validated, Chawla headed back to the Southwark courthouse. Hayes’s six former brokers—Darrell Read, Colin Goodman, Danny Wilkinson, Terry Farr, Jim Gilmour, and Noel Cryan—were on trial for their alleged roles as Hayes’s co-conspirators. The trial took place in the same courtroom where Hayes was tried. The defendants were crammed into the glass-enclosed dock, where a jovial atmosphere prevailed most days. They joked to each other during breaks. Wilkinson’s family brought bags of hard candies that Farr, his shirttails dangling, distributed to his fellow defendants. He and Gilmour scooted outside for cigarettes at every opportunity. Cryan spent his spare time eating potato chips and completing newspaper crossword puzzles. Read burned through crime novels.
Chawla projected an air of confidence. Who could fault him, given the comprehensive nature of his victory against Hayes? Much of the evidence that he presented against the brokers was the same that he had deployed against Hayes—the same e-mails, chat transcripts, phone recordings, spreadsheets, and charts. But there were some crucial differences this time. For starters, none of the brokers had ever admitted doing anything wrong, unlike Hayes, who had spent dozens of hours in the SFO’s confessional-cum-recording-studio. And the brokers’ lawyers were determined to strike a more aggressive, indignant stance than the soft-spoken Hawes had used in the previous trial.
The crux of their defense was that the world the prosecution was describing to the jury—a world in which everyone was expected to play by the rules, where transparency mattered, where honesty and fair dealing were sacrosanct—was a fantasy. The financial industry was not a polite, rules-bound, ethical place; it was a no-holds-barred culture where brokers were actively encouraged to manipulate and lie to their clients. And, the brokers argued, that’s exactly what they’d been doing—to Hayes. One after another, they climbed onto the stand and insisted that it was all a ruse—not only their assurances to Hayes that they were doing everything they could to help him, but also the e-mails and instant messages they zinged among each other that appeared to confirm that they were, in fact, trying to help Hayes. It was, they said, nothing more than an elaborate scheme to con the gullible Hayes into handing them his lucrative business.